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community health systems annual reports 2006
1. Making a difference
in yourcommunity.
2006
COM M U N I T Y
HEALTH SYSTEMS, INC.
ANNUAL REPORT
TO STOCKHOLDERS
2. Corporate Profile
Located in the Nashville, Tennessee, suburb of Franklin,
Community Health Systems, Inc. is the leading operator
of general acute care hospitals in non-urban communities
throughout the country. Through its subsidiaries, the
Company owned, leased or operated 77 hospitals in 22
states, as of December 31, 2006. 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.”
3. Hospital Locations / COMMUNIT Y HEALTH SYSTEMS, INC.
ALABAMA ILLINOIS OKLAHOMA TEXAS
Cherokee Medical Center, Centre Crossroads Community Hospital, Mt. Vernon Ponca City Medical Center, Ponca City Big Bend Regional Medical Center, Alpine
DeKalb Regional Medical Center, Ft. Payne Gateway Regional Medical Center, Granite City Cleveland Regional Medical Center, Cleveland
PENNSYLVANIA
Hartselle Medical Center, Hartselle Heartland Regional Medical Center, Marion Hill Regional Hospital, Hillsboro
L.V. Stabler Memorial Hospital, Greenville Red Bud Regional Hospital, Red Bud Berwick Hospital, Berwick Lake Granbury Medical Center, Granbury
Parkway Medical Center, Decatur Union County Hospital, Anna Brandywine Hospital, Coatesville Laredo Medical Center, Laredo
South Baldwin Regional Medical Center, Foley Vista Medical Center East and West, Waukegan Chestnut Hill Hospital, Philadelphia Scenic Mountain Medical Center, Big Spring
Woodland Medical Center, Cullman Easton Hospital, Easton South Texas Regional Medical Center,
KENTUCKY Jennersville Regional Hospital, West Grove Jourdanton
ARIZONA Kentucky River Medical Center, Jackson Lock Haven Hospital, Lock Haven Weatherford Regional Medical Center,
Payson Regional Medical Center, Payson Parkway Regional Hospital, Fulton Phoenixville Hospital, Phoenixville Weatherford
Western Arizona Regional Medical Center, Three Rivers Medical Center, Louisa Pottstown Memorial Medical Center, Pottstown
UTAH
Bullhead City Sunbury Community Hospital, Sunbury
LOUISIANA Mountain West Medical Center, Tooele
ARKANSAS SOUTH CAROLINA
Byrd Regional Hospital, Leesville
VIRGINIA
Forrest City Medical Center, Forrest City River West Medical Center, Plaquemine Chesterfield General Hospital, Cheraw
Harris Hospital, Newport Marlboro Park Hospital, Bennettsville Russell County Medical Center, Lebanon
MISSOURI
Helena Regional Medical Center, Helena Springs Memorial Hospital, Lancaster Southern Virginia Regional Medical Center,
Mineral Area Regional Medical Center, Farmington Emporia
CALIFORNIA TENNESSEE
Moberly Regional Medical Center, Moberly Southampton Memorial Hospital, Franklin
Barstow Community Hospital, Barstow Northeast Regional Medical Center, Kirksville Bedford County Medical Center, Shelbyville Southside Regional Medical Center, Petersburg
Fallbrook Hospital, Fallbrook Dyersburg Regional Medical Center, Dyersburg
NEW JERSEY WEST VIRGINIA
Watsonville Community Hospital, Watsonville Haywood Park Community Hospital, Brownsville
Memorial Hospital of Salem County, Salem Henderson County Community Hospital, Plateau Medical Center, Oak Hill
FLORIDA Lexington
NEW MEXICO WYOMING
Lake Wales Medical Center, Lake Wales Lakeway Regional Hospital, Morristown
North Okaloosa Medical Center, Crestview Alta Vista Regional Hospital, Las Vegas McKenzie Regional Hospital, McKenzie Evanston Regional Hospital, Evanston
Eastern New Mexico Medical Center, Roswell McNairy Regional Hospital, Selmer
GEORGIA Mimbres Memorial Hospital, Deming Regional Hospital of Jackson, Jackson As of December 31, 2006.
Fannin Regional Hospital, Blue Ridge Sky Ridge Medical Center, Cleveland
NORTH CAROLINA Volunteer Community Hospital, Martin *Hospitals are owned or leased and operated by
Martin General Hospital, Williamston White County Community Hospital, Sparta subsidiaries of Community Health Systems, Inc.
5. FINANCIAL HIGHLIGHTS
Year Ended December 31,
(In thousands, except per share amounts) 2006 2005
Net operating revenues $ 4,365,576 $ 3,738,320
Operating Results
Income from continuing operations $ 171,479 (a) $ 190,138
Income per share from continuing operations
Basic $ 1.81(a)(b) $ 2.15
Diluted $ 1.78(a)(b) $ 2.02 (c)
Weighted average number of shares outstanding:
Basic 94,984 88,601
Diluted 96,233 98,580(d)
(a) Includes a $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. A significant increase in self-pay
volume and related revenue, combined with lower cash collections experienced during the third quarter ended September 30, 2006, necessitated a
review and analysis of the adequacy of the Company’s allowance for doubtful accounts. Based on this review, the Company recorded a $65.0 million
increase to its allowance for doubtful accounts and changed its methodology for estimating its provision for bad debts and the related allowance for
doubtful accounts effective September 30, 2006.
(b) Includes additional compensation expense of $0.10 per share (diluted) for the year ended December 31, 2006, respectively, resulting from stock-
based compensation calculated under SFAS No. 123(R) “Share-Based Payment.” The Company adopted SFAS No. 123(R) beginning January 1,
2006, using the modified prospective application transition method.
(c) For purposes of calculating earnings per share for the year ended December 31, 2005, the convertible notes then outstanding were dilutive and
accordingly after tax interest expense of $2.2 million per quarter on the convertible notes was excluded from the calculation of earnings and 8.6
million shares were added to the number of shares outstanding to calculate fully diluted earnings per share.
(d) Adjusted to include assumed exercise of employee stock options and assumed conversion of convertible notes. As of January 31, 2006, all of the
convertible notes were redeemed. In connection with this redemption, 8,569,593 shares of common stock of the Company were issued upon
conversion of the outstanding notes and $0.4 million of the notes were redeemed in exchange for cash. There was no impact on earnings per share
(diluted) as a result of this conversion since weighted average number of shares outstanding-diluted for the year ended December 31, 2006,
included the shares issuable upon conversion of the convertible notes.
As of December 31,
2006 2005
Working capital $ 446,101 $ 476,806
Balance Sheet Data
Total assets 4,506,579 3,934,218
Long-term debt 1,905,781 1,648,500
Stockholders’ equity 1,723,673 1,564,577
Year Ended December 31,
Consolidated Same Store
2006 2005 % Change 2006 2005 % Change
Number of hospitals (at end of period) 77 69 69 69
Selected Operating Data
Licensed beds (at end of period) 9,117 7,974 7,999 7,974
Beds in service (at end of period) 7,341 6,476 6,524 6,476
Admissions 326,235 291,633 11.9% 294,820 291,633 1.1%
Adjusted admissions 605,511 538,445 12.5% 543,074 538,445 0.9%
Patient days 1,334,728 1,204,001 10.9% 1,213,429 1,204,001 0.8%
Average length of stay (days) 4.1 4.1 4.1 4.1
Occupancy rate (average beds in service) 53.0% 52.9% 53.3% 52.9%
Net operating revenues $ 4,365,576 $ 3,738,320 16.8% $ 4,000,828 $ 3,737,607 7.0%
Net inpatient revenue as a % of
total net operating revenues 50.0% 50.9% 50.2% 50.9%
Net outpatient revenue as a % of
total net operating revenues 48.7% 47.8% 48.6% 47.8%
Net cash provided by operating activities $ 350,255 $ 411,049
quot;Net cash provided by operating activities as
a % of net operating revenuequot; 8.0% 11.0%
6. LETTER SHAREHOLDERS
TO
included a change in estimate of the centralized business practices across
Company’s bad debt accounting every aspect of our business. As we
policy, reflecting unfavorable have continued to acquire new
collection trends and recent increases facilities and assimilate them into our
in self-pay admissions, as hospitals system, we have established an
nationwide continue to shoulder the impressive track record for improving
burden of caring for the uninsured margins at these acquired facilities and
and underinsured. This change managing controllable costs.
resulted in a $65.0 million one-time Additionally, our experienced local
With each succeeding year, charge recorded in the third quarter of management teams have access to
Community Health Systems, Inc. has 2006. Before giving effect to the considerable corporate resources to
continued to make significant progress increase in the provision for bad debts, improve the performance of their
and extend its consistent record of income from continuing operations respective facilities, creating an
sustained growth. Our performance increased 11.2 percent to $211.5 opportunity to capture services that
in 2006 was no exception as we million compared with $190.1 million were previously sent out of market.
delivered another solid financial and last year, and net income was $2.17 per
operating performance and expanded diluted share, a 21 percent increase Regardless of the location, every
our portfolio of hospitals. Today, we from $1.79 per diluted share in 2005. individual in our organization is
are proud to be acknowledged as the After giving effect to the increase in the focused on the same mission. Our
leading operator of non-urban acute provision for bad debts, income from same store growth metrics are a key
care hospitals in the United States, continuing operations was $171.5 indicator that our operating strategy is
with the expertise and scale inherent in million, or $1.78 per diluted share, working as we continued to increase
this position. More importantly, we and net income for the year was $168.3 revenues and drive admissions upward.
are proud of our reputation for million, or $1.75 per diluted share. On a same store basis, 2006 net
making a difference in the communities operating revenues increased 7.0%,
we serve. Our results for 2006 demonstrated admissions increased 1.1% and
strong volume trends. Total adjusted admissions increased 0.9%,
We achieved a admissions increased 11.9 percent and compared with the last year.
number of adjusted admissions increased 12.5
important percent compared to 2005. In Our hospitals are also supported by
accomplishments addition to strong organic growth, our disciplined capital spending programs
in 2006 as we results for the year reflect a robust pace focused on achieving both a favorable
continued to focus of prior years’ acquisitions and margin level of financial and operating
on operating improvement at these acquired performance and higher patient
excellence in our facilities. Our consistent focus on the satisfaction. In 2006, we invested
hospitals while key areas for success in our business – $269 million in capital projects
building the an effective centralized and standardized designed to add and improve hospital
foundation for operating platform, a disciplined services and facilities. Over the years,
future success acquisition strategy, effective cost these investments have rewarded both
through management, a successful physician Community Health Systems and our
acquisitions, both strategies that we recruitment program, and a favorable communities. Our investments may
believe are important for creating reputation in the marketplace – take different forms, but our ultimate
long-term value for our shareholders. allowed us to move Community Health goal is always the same -
Our financial performance for the Systems forward in 2006. At the
year reflects solid execution in an ever- same time, we have enhanced the level
changing and often challenging of healthcare in more communities
healthcare environment. For 2006, throughout the country and we
we produced a 17 percent increase in believe this is perhaps the best
revenues to $4.4 billion from $3.7 measure of our success.
billion in 2005, reflecting strong
volume growth across our network of Each Community Health Systems
hospitals throughout the country. affiliated hospital benefits from our
Our financial results for the year wide range of standardized and
7. to provide a hospital that more recruitment initiatives, complemented traded hospital company in the United
effectively and conveniently meets the by investments in the type of hospital States with approximately 130 hospitals
unique needs of each community. facilities and clinical services that attract in 28 states. We believe this represents
and retain physicians, we work hard to a significant growth opportunity that
We further extended our market reach ensure that our hospitals can offer the will substantially increase Community
in 2006 with the acquisition of eight same level of care as some larger urban Health Systems’ overall scale and
hospitals. Community Health Systems facilities. Our hospitals continue to enhance our geographic diversity.
has continued to pursue an aggressive seek out qualified practitioners in their We are very excited about this
acquisition strategy with a proven track respective fields who not only raise the opportunity to further expand our
record for finding suitable hospitals level of care in our hospitals, but reach and scope with additional
and successfully assimilating these also become active members of the hospitals in mid-size markets around
facilities into our system. As we enter community at large. In 2006, we the country. We look forward to the
a new market, we become a partner in surpassed our goal and added a total of integration and improvement of the
the community and work together with 594 new practitioners, representing a Triad assets as we continue to build
local leaders to ensure our hospitals variety of clinical specialties, to our shareholder value.
meet their needs. With our strategic hospitals. We are confident that these
investments in attracting new new physicians, in turn, will keep more Thank you for the support your
physicians, adding services and patients within the local community investment provides.
upgrading facilities, we expect to serve and drive corresponding increases in
more of the community’s patients and patient and procedure volume. Sincerely,
continue to improve operating
efficiencies. Our proven ability to Our success in 2006 reflects our ability
deliver on our promise and foster to execute and a commitment by
Wayne T. Smith
positive community relations has everyone associated with Community
continued to be a distinct competitive Health Systems to continually raise our Chairman of the Board,
advantage for Community Health standards of performance. We are President and Chief Executive Officer
Systems. We believe our solid grateful to our employees and local
financial position, complemented by boards of trustees for their dedication,
our strong track record of improving and to the many physicians, nurses and
operations at acquired facilities, hospital administrators who work
W. Larry Cash
provides us with additional tirelessly each and every day to make a
Executive Vice President
opportunities to continue making positive difference in the communities
disciplined acquisition decisions we serve. We also acknowledge the and Chief Financial Officer
going forward. people who live and work in these
communities and we are grateful
Perhaps more than any other single for the trust they have placed in
factor, the strength of the medical Community Health Systems. We
staff is vital to the performance of understand that we must continue to
the local community hospital. The earn that trust and stay focused on our
availability of qualified physicians mission to enhance the level of
drives admissions in our hospitals healthcare in more communities
and, in particular, the availability of across the country. 2006 was
physicians in various specialties plays a another great year for Community
critical role in being able to provide Health Systems, but, as always, there is
needed services to patients in the much more for us to accomplish.
community instead of traveling to a
larger urban facility. Accordingly, On March 19, 2007, we announced
physician recruitment and practice that Community Health Systems, Inc.
development have always been will acquire the stock of Triad
important areas of focus for Hospitals, Inc. for approximately
Community Health Systems to ensure $6.8 billion, including $1.7 billion of
the long-term success of our hospitals. existing indebtedness. With this
Through our effective physician merger, we will be the largest publicly
8. B o a rd o f D i re c t o r s a n d O f f i c e r s / C o m m u n i t y H e a lt h S y s t e m s , I n c .
B o a rd o f D i re c t o r s Kenneth D. Hawkins Robert A. Horrar
H. Mitchell Watson, Jr. (1) (2)
Senior Vice President – Vice President –
Former President
Wayne T. Smith Acquisitions and Administration
Sigma Group of America
Chairman of the Board, Development
President and Robert O. Horrar
Of f i c e r s
Chief Executive Officer Carolyn S. Lipp Vice President – Business
Senior Vice President – Development
Wayne T. Smith
W. Larry Cash Quality and Resource
Chairman of the Board,
Executive Vice President Management Tim G. Marlette
President and
and Chief Financial Officer Vice President and Chief
Chief Executive Officer
Martin G. Schweinhart Purchasing Officer
John A. Clerico (1) Senior Vice President –
W. Larry Cash
Co-founder and Chairman Operations Linda K. Parsons
Executive Vice President
ChartMark Investments, Inc. Vice President – Human
and Chief Financial Officer
J. Gary Seay Resources
Dale F. Frey (2) (3) Senior Vice President and
William S. Hussey
Former Chairman and Chief Information Officer Kathie G. Thomas
Senior Vice President – Group
President Vice President – Home Health
Operations
General Electric Investment Corp. Rachel A. Seifert Group
Senior Vice President,
David L. Miller
John A. Fry (1) (3) Secretary and General Gerald A. Weissman
Senior Vice President – Group
President Counsel Vice President – Medical Staff
Operations
Franklin & Marshall College Development
T. Mark Buford
Gary D. Newsome
Harvey Klein, M.D. (3) (1)
Vice President and Corporate Member of the Audit and
Senior Vice President – Group
Professor of Clinical Medicine Controller Compliance Committee
Operations
(2)
Cornell University Medical Member of the
College Larry M. Carlton Compensation Committee
Michael T. Portacci
(3)
Vice President – Revenue Member of the Governance
Senior Vice President – Group
Julia B. North (2) (3) Management and Nominating Committee
Operations
Former President –
Consumer Services James W. Doucette
BellSouth Telecommunications Vice President and Treasurer
PERFORMANCE GRAPH
The following graph sets forth the cumulative return of the Company’s common stock during the five year period ended
December 31, 2006, as compared to the cumulative return of the Standard & Poor’s 500 Stock Index (S&P 500) and the cumulative
return of the Dow Jones Healthcare Index. The graph assumes an initial investment of $100 in our common stock and in each of
the foregoing indices and the reinvestment of dividends where applicable.
This Annual Report contains forward looking statements made pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995.
Important factors that could cause our actual results to differ materially from the results contemplated by the forward looking statements are contained in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission(the “SEC”) and included with this Annual Report and in subsequent filings with the SEC.
9. C o r p o r a t e I n f o r m a t i o n / C O M M U N I T Y H E A LT H S Y S T E M S , I N C .
The following table sets forth
Corporate Office Registrar and Transfer Agent Common Stock Information
the high and low sales price
Community Health Systems, Inc. Mellon Investor Services LLC The Company’s common stock
information as reported by the
4000 Meridian Boulevard 480 Washington Boulevard trades on the New York Stock
New York Stock Exchange
Franklin, Tennessee 37067 29th Floor Exchange under the symbol
during the period indicated.
(615) 465-7000 Jersey City, New Jersey 07310 CYH. As of March 30, 2007,
www.chs.net (201) 680-5287 Community Health Systems had
Stock Price
approximately 45,600 beneficial
Form 10-K/Investor Contact Independent Auditors holders of its common stock. Of
2006 High Low
A copy of the Company’s Deloitte & Touche LLP that total, 50 were stockholders
First Quarter $39.96 $35.33
Annual Report on Form 10-K, Nashville, Tennessee of record. To date, the
Second Quarter $38.39 $34.94
filed with the Securities and Company has not paid cash
Third Quarter $39.18 $35.70
Annual Shareholders’
Exchange Commission, may be dividends on its common stock.
Fourth Quarter $37.26 $31.00
Meeting
obtained from the Company at
no charge. Requests for the The annual meeting of
2005 High Low
Annual Report on Form 10-K shareholders will be held on
First Quarter $36.33 $26.96
and other investor information Tuesday, May 22, 2007, at
Second Quarter $38.60 $33.14
should be directed to Investor 8:00 a.m. local time at The St.
Third Quarter $39.52 $32.65
Relations at the Company’s Regis Hotel, 2 East 55th Street,
corporate office or at New York, New York.
Fourth Quarter $40.72 $35.62
www.chs.net.
10. C H S , I .
OMMUNITY EALTH YSTEMS NC
4000 Meridian Boulevard
Franklin, Tennessee 37067
(615) 465 -7000
www.chs.net