Making a difference
                         in yourcommunity.

Corporate Profile

Located in the Nashville, Tennessee, suburb of Franklin,
Community Health Systems, Inc. is the leading ...

ALABAMA                                        ILLINOIS            ...
    (in billions)
          04 05 06







LETTER                   SHAREHOLDERS
to provide a hospital that more             recruitment initiatives, complemented           traded hospital company in the...
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...
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 .

C              H             S            ,   I        .
    OMMUNITY       EALTH         YSTEMS           NC

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community health systems annual reports 2006


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community health systems annual reports 2006

  1. 1. Making a difference in yourcommunity. 2006 COM M U N I T Y HEALTH SYSTEMS, INC. ANNUAL REPORT TO STOCKHOLDERS
  2. 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. 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.
  4. 4. Operating Revenues (in billions) 04 05 06 $4.5 $4.2 $3.8 $3.4 $3.0 $2.6 Hospitals 04 05 06 80 75 70 65 60 55 Earnings Per Share (diluted) 04 05 06 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75
  5. 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. 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. 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. 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. 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, (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
  10. 10. C H S , I . OMMUNITY EALTH YSTEMS NC 4000 Meridian Boulevard Franklin, Tennessee 37067 (615) 465 -7000