Community Health Systems, Inc. Announces Third Quarter 2009 Results with Net Operating Revenues of $3.1 Billion

• Press Release
• Source: Community Health Systems, Inc.
• On 4:30 pm EDT, Wednesday October 28, 2009

FRANKLIN, Tenn.--(BUSINESS WIRE)--Community Health Systems, Inc. (NYSE: CYH - News) today announced financial and operating results for the third quarter and nine months ended September 30, 2009.

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Net operating revenues for the three months ended September 30, 2009, totaled $3.087 billion, a 12.1 percent increase compared with $2.755 billion for the same period in 2008. Income from continuing operations increased to $75.4 million, or $0.65 per share (diluted), on 92.0 million weighted average shares outstanding for the three months ended September 30, 2009, compared with $59.1 million, or $0.52 per share (diluted), on 95.2 million weighted average shares outstanding for the same period in 2008. Net income increased 18.5 percent to $59.7 million, or $0.65 per share (diluted), for the three months ended September 30, 2009, compared with $50.4 million, or $0.53 per share (diluted), for the same period in 2008.

Adjusted EBITDA for the three months ended September 30, 2009, was $417.8 million, compared with $385.8 million for the same period in 2008, representing an 8.3 percent increase. Adjusted EBITDA is EBITDA adjusted to exclude discontinued operations, gain/loss from early extinguishment of debt and net income attributable to noncontrolling interests. The Company uses adjusted EBITDA as a measure of liquidity. Net cash provided by operating activities for the three months ended September 30, 2009, was $356.4 million, compared with $268.3 million for the same period in 2008.

The consolidated financial results for the three months ended September 30, 2009, reflect a 7.2 percent increase in total admissions compared with the three months ended September 30, 2008. This increase was due primarily to acquisitions during the past twelve months. On a same-store basis, admissions decreased 0.2 percent and adjusted admissions increased 1.9 percent, compared with the same period in 2008. On a same-store basis, net operating revenues increased 5.2 percent, compared with the same period in 2008.

Net operating revenues for the nine months ended September 30, 2009, totaled $9.016 billion, a 10.8 percent increase compared with $8.138 billion for the same period in 2008. Income from continuing operations increased to $220.7 million, or $1.94 per share (diluted), on 91.1 million weighted average shares outstanding for the nine months ended September 30, 2009, compared with $171.8 million, or $1.54 per share (diluted), on 95.1 million weighted average shares outstanding for the same period in 2008. Net income was $178.1 million, or $1.95 per share (diluted), for the nine months ended September 30, 2009, compared with $158.4 million, or $1.67 per share (diluted), for the same period in 2008.

Adjusted EBITDA for the nine months ended September 30, 2009, was $1.237 billion, compared with $1.124 billion for the same period in 2008, representing a 10.1 percent increase. Net cash provided by operating activities for the nine months ended September 30, 2009, was $900.8 million, compared with $685.1 million for the same period in 2008.

The consolidated financial results for the nine months ended September 30, 2009, reflect a 3.5 percent increase in total admissions compared with the nine months ended September 30, 2008. This increase was due primarily to acquisitions during the past twelve months. On a same-store basis, admissions decreased 1.9 percent and adjusted admissions increased 0.4 percent, compared with the same period in 2008. On a same-store basis, net operating revenues increased 5.4 percent, compared with the same period in 2008.

Commenting on the results, Wayne T. Smith, chairman, president and chief executive officer of Community Health Systems, Inc., stated, “We are pleased with our solid financial and operating performance in the third quarter of 2009, as we again exceeded expectations. We continued to benefit from a consistent performance at the hospital level, as evidenced by favorable revenue trends and same-store margin expansion. These results confirm that the fundamentals of our business are strong and our centralized operating strategy is working across all of our markets.

“We believe our proven ability to enhance essential healthcare services and recruit and retain qualified physicians in our markets will help support our continued growth. Our conservative operating strategy has served us well, and we are mindful of the critical need to manage our costs and drive margins. We see considerable opportunities to leverage our assets and realize additional operating improvements at our more recently acquired hospitals. We are pleased with the trends in our business and we look forward to continued progress for the remainder of 2009 and into 2010,” added Smith.

Included on pages 12, 13 and 14 of this press release are tables setting forth the Company’s updated 2009 guidance. This guidance reaffirms the Company’s previous annual earnings guidance provided on July 30, 2009, as modified to reflect certain changes as detailed in the guidance assumptions on pages 12, 13 and 14. Also reflected is the Company’s initial 2010 guidance.

Located in the Nashville, Tennessee, suburb of Franklin, Community Health Systems, Inc. is the largest publicly-traded hospital company in the United States and a leading operator of general acute care hospitals in non-urban and mid-size markets throughout the country. Through its subsidiaries, the Company currently owns, leases or operates 122 hospitals in 29 states with an aggregate of approximately 18,000 licensed beds. Its hospitals offer a broad range of inpatient and surgical services, outpatient treatment and skilled nursing care. In addition, through its QHR subsidiary, the Company provides management and consulting services to over 150 independent non-affiliated general acute care hospitals located throughout the United States. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol “CYH.”

Community Health Systems, Inc. will hold a conference call to discuss this press release on Thursday, October 29, 2009, at 10:30 a.m. Central, 11:30 a.m. Eastern. Investors will have the opportunity to listen to a live internet broadcast of the conference call by clicking on the Investor Relations link of the Company’s website at www.chs.net, or at www.earnings.com. To listen to the live call, please go to the website at least fifteen minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and will continue through November 29, 2009. Copies of the Company’s Form 8-K (including this press release) and conference call slide show are available on the Company’s website at www.chs.net.

Statements contained in this news release regarding expected operating results, acquisition transactions or divestitures 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 Company’s annual report on Form 10-K, current reports on Form 8-K and quarterly reports on Form 10-Q. 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.

The following assumptions were used in developing the 2009 guidance provided above:

• The three acquisitions completed during 2009 have been included.

• Projected 2009 same hospital annual admissions/adjusted admissions growth does not consider unanticipated service closures and other unusual events.

• The Company’s guidance does not take into account any resolution of the New Mexico qui tam case (U.S. ex rel. Baker vs. Community Health Systems, Inc.) in which it is alleged that the Company and three of the Company’s New Mexico hospitals have caused the State of New Mexico to submit improper claims for federal funds in violation of the Federal False Claims Act. The Company is vigorously defending this litigation.

• Expressed as a percentage of net operating revenues, the provision for bad debts is projected to be approximately 12.0% to 12.4% for 2009. These percentages may vary depending on changes in payor mix.

• Expressed as a percent of net operating revenues, depreciation and amortization is projected to be approximately 4.6% to 4.8% for 2009; however, this is a fixed cost and the percentages may vary as revenue varies. Excludes possible impact of any future fair-value adjustments to investments and hospital fixed assets.

• 2009 projection assumes an estimate of $0.03 to $0.04 per share (diluted) of acquisition costs will be expensed pursuant to revised business combination accounting rules that became effective January 1, 2009.

• For the purpose of providing interest expense guidance, the Company assumes that the borrowing rate under the Company’s $7.215 billion Senior Secured Credit Facility for 2009 will remain relatively stable with the rates existing currently, particularly since the Company is a party to interest rate swap agreements (with original maturities equal to or greater than 2 years) in an amount equal to approximately 91% of our outstanding debt which limits the effect of changes in interest rates. Based on these assumptions, expressed as a percentage of net operating revenues, interest expense is projected to be approximately 5.3% to 5.5% for 2009; however, these percentages will vary as revenue and interest rates vary.

• Expressed as a percentage of net operating revenues, net income attributable to noncontrolling interests is projected to be approximately 0.4% to 0.6% for 2009.

• On December 13, 2006, the Company announced a new open market repurchase program for up to five million shares of the Company’s common stock not to exceed $200 million in purchases. This repurchase program will conclude at the earlier of three years or when the maximum number of shares has been repurchased or the maximum dollar amount has been reached. Through October 28, 2009, 4.8 million shares have been purchased under this repurchase plan. No additional share purchases have been assumed for 2009. From January 1, 2009 through October 28, 2009, the Company repurchased on the open market and cancelled $126.5 million of principal amount of its Senior Notes and paid off and retired $110.4 million of principal amount of its Term Loans under the Company’s Credit Facility.

• Expressed as a percentage of income from continuing operations before income taxes, provision for income tax is projected to be approximately 31.5% to 33.5% for 2009. The adoption of U.S. GAAP related to consolidation and the related presentation of noncontrolling interests outside of income from continuing operations caused the effective tax rate to be lower than previously projected. The income tax projection includes possible additional unrecognized tax benefits and tax revaluations that may be recognized prior to the end of 2009.

• Capital expenditures are projected as follows (in millions):

• Net cash provided by operating activities are projected as follows (in millions):

• The above guidance reflects a 0% to 1% increase in Medicare inpatient reimbursement at October 1, 2009. This guidance reflects no new significant changes in Medicaid reimbursements for 2009 and does not reflect any state Medicaid legislation that has not been enacted or is not known to date. This guidance does not reflect any state discount programs not implemented to date. The 2009 guidance includes a reduction of 0.10% of calendar year 2009 net operating revenues for the estimated impact of the implementation of an outpatient prospective payment system under the TRICARE/CHAMPUS program, which became effective on May 1, 2009.

The projections set forth in this report constitute forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. Although the Company believes that these forward-looking statements are based on reasonable assumptions, these assumptions are inherently subject to significant economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and are beyond the control of the Company. Accordingly, the Company cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry generally and could cause the Company’s expected results to differ materially from those expressed in this filing.

These factors include, among other things:

• general economic and business conditions, both nationally and in the regions in which we operate;
• legislative proposals for healthcare reform and universal access to healthcare coverage;
• risks associated with our substantial indebtedness, leverage, and debt service obligations;
• demographic changes;
• changes in, or the failure to comply with, governmental regulations;
• potential adverse impact of known and unknown government investigations, audits, and Federal and State False Claims Act litigation;
• our ability, where appropriate, to enter into and maintain managed care provider arrangements and the terms of these arrangements;
• changes in, or the failure to comply with, managed care contracts could result in disputes and changes in reimbursement that could be applied retroactively;
• changes in inpatient or outpatient Medicare and Medicaid payment levels;
• increases in the amount and risk of collectability of patient accounts receivable;
• increases in wages as a result of inflation or competition for highly technical positions and rising supply costs due to market pressure from pharmaceutical companies and new product releases;
• liabilities and other claims asserted against us, including self-insured malpractice claims;
• competition;
• our ability to attract and retain, without significant employment costs, qualified personnel, key management, physicians, nurses and other health care workers;
• trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals;
• changes in medical or other technology;
• changes in U.S. generally accepted accounting principles;
• the availability and terms of capital to fund additional acquisitions or replacement facilities;
• our ability to successfully acquire additional hospitals and complete the sale of hospitals held for sale;
• our ability to successfully integrate any acquired hospitals or to recognize expected synergies from such acquisitions;
• our ability to obtain adequate levels of general and professional liability insurance;
• timeliness of reimbursement payments received under government programs; and
• the other risk factors set forth in our public filings with the Securities and Exchange Commission.

The consolidated operating results for the quarter and nine months ended September 30, 2009, are not necessarily indicative of the results that may be experienced for any such future period or for any future year, including 2009 and 2010.

The Company cautions that the projections for calendar years 2009 and 2010 set forth in this press release are given as of the date hereof based on currently available information. The Company is not undertaking any obligation to update these projections as conditions change or other information becomes available.

Community Health Systems, Inc.
Investor Contact:
W. Larry Cash
Executive Vice President and Chief Financial Officer
615-465-7000