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Slide 1: Building on Success Community Health Systems, Inc. Annual Report 2007
Slide 2: Corporate Profile Located in the Nashville, Tennessee, suburb of Franklin, Community Health Systems, Inc. is 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 approximately 116 hospitals in 28 states and, with an aggregate of over 17,000 licensed beds. Its hospitals offer a broad range of inpatient medical and surgical services, outpatient treatment and skilled nursing care. In addition, through its QHR subsidiary, the Company provides management and consulting services to over 160 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.”
Slide 3: Hospital Locations / Community Health Systems, Inc. Alaska Palmer, Mat-Su Regional Medical Center Operating Revenues Texas Abilene, Abilene Regional Medical Center Alpine, Big Bend Regional Medical Center Big Spring, Scenic Mountain Medical Center Brownwood, Brownwood Regional Medical Center Cedar Park, Cedar Park Regional Medical Center Cleveland, Cleveland Regional Medical Center College Station, College Station Medical Center Corsicana, Navarro Regional Hospital Denton, Presbyterian Hospital of Denton Granbury, Lake Granbury Medical Center Hillsboro, Hill Regional Hospital Jourdanton, South Texas Regional Medical Center Laredo, Laredo Medical Center Longview, Longview Regional Medical Center Lufkin, Woodland Heights Medical Center San Angelo, San Angelo Community Medical Center Victoria, DeTar Hospital North and Navarro Weatherford, Weatherford Regional Medical Center $7.6 $6.6 $5.6 $4.6 $3.6 $2.6 (in billions) Indiana Bluffton, Bluffton Regional Medical Center Fort Wayne, Dupont Hospital Fort Wayne, Lutheran Hospital of Indiana Fort Wayne, St. Joseph Hospital Peru, Dukes Memorial Hospital Valparaiso, Porter Health Warsaw, Kosciusko Community Hospital Ohio Massillon, Affinity Medical Center, Doctors and Massillon Campuses 05 06 07 Alabama Birmingham, Trinity Medical Center Centre, Cherokee Medical Center Dothan, Flowers Hospital Enterprise, Medical Center Enterprise Foley, South Baldwin Regional Medical Center Fort Payne, DeKalb Regional Medical Center Gadsden, Gadsden Regional Medical Center Greenville, L.V. Stabler Memorial Hospital Huntsville, Crestwood Medical Center Oklahoma Claremore, Claremore Regional Hospital Oklahoma City, Deaconess Hospital Ponca City, Ponca City Medical Center Tulsa, SouthCrest Hospital Woodward, Woodward Regional Hospital Kentucky Fulton, Parkway Regional Hospital Jackson, Kentucky River Medical Center Louisa, Three Rivers Medical Center Oregon Springfield, McKenzie-Willamette Medical Center Arkansas Bentonville, Northwest Medical Center Bentonville Forrest City, Forrest City Medical Center Helena, Helena Regional Medical Center Johnson, Willow Creek Women's Hospital Newport, Harris Hospital Springdale, Northwest Medical Center Springdale Louisiana Lake Charles, Women and Children's Hospital Leesville, Byrd Regional Hospital Ruston, Northern Louisiana Medical Center Pennsylvania Berwick, Berwick Hospital Center Coatesville, Brandywine Hospital Easton, Easton Hospital Lock Haven, Lock Haven Hospital Philadelphia, Chestnut Hill Hospital Phoenixville, Phoenixville Hospital Pottstown, Pottstown Memorial Medical Center Sunbury, Sunbury Community Hospital West Grove, Jennersville Regional Hospital Hospitals 05 06 07 120 105 90 75 60 45 Missouri Kirksville, Northeast Regional Medical Center Moberly, Moberly Regional Medical Center Utah Tooele, Mountain West Medical Center Arizona Bullhead City, Western Arizona Regional Medical Center Payson, Payson Regional Medical Center Tucson, Northwest Medical Center and Oro Valley Mississippi Hattiesburg, Wesley Medical Center Vicksburg, River Region Health System Virginia South Carolina Bennettsville, Marlboro Park Hospital Cheraw, Chesterfield General Hospital Florence, Carolinas Hospital System Lancaster, Springs Memorial Hospital Spartanburg, Mary Black Healthcare Emporia, Southern Virginia Regional Medical Center Franklin, Southampton Memorial Hospital Petersburg, Southside Regional Medical Center North Carolina California Barstow, Barstow Community Hospital Fallbrook, Fallbrook Hospital Watsonville, Watsonville Community Hospital Williamston, Martin General Hospital Nevada Mesquite, Mesa View Regional Hospital West Virginia Oak Hill, Plateau Medical Center Ronceverte, Greenbrier Valley Medical Center Tennessee Florida Crestview, North Okaloosa Medical Center Lake Wales, Lake Wales Medical Center New Jersey Salem, The Memorial Hospital of Salem County New Mexico Georgia Augusta, Trinity Hospital of Augusta Blue Ridge, Fannin Regional Hospital Carlsbad, Carlsbad Medical Center Deming, Mimbres Memorial Hospital Hobbs, Lea Regional Medical Center Las Cruces, MountainView Regional Medical Center Las Vegas, Alta Vista Regional Hospital Roswell, Eastern New Mexico Medical Center Illinois Anna, Union County Hospital Galesburg, Galesburg Cottage Hospital Granite City, Gateway Regional Medical Center Marion, Heartland Regional Medical Center Mt. Vernon, Crossroads Community Hospital Red Bud, Red Bud Regional Hospital Waukegan, Vista Medical Center Brownsville, Haywood Park Community Hospital Clarksville, Gateway Medical Center Cleveland, SkyRidge Medical Center Dyersburg, Dyersburg Regional Medical Center Jackson, Regional Hospital of Jackson Lexington, Henderson County Community Hospital Martin, Volunteer Community Hospital McKenzie, McKenzie Regional Hospital Morristown, Lakeway Regional Hospital Selmer, McNairy Regional Hospital Shelbyville, Bedford County Medical Center Earnings Per Share (diluted) 05 06 07 $2.00 Wyoming Evanston, Evanston Regional Hospital Hospitals are owned or leased and operated by subsidiaries of Community Health Systems, Inc. $1.65 $1.30 $0.95 $0.60 $0.25
Slide 4: Financial Highlights (In thousands, except per share amounts) (a) (b) Year Ended December 31, 2007 (c) 2006 $ 7,127,494 $ 59,897 0.64 0.63 93,517 94,642 $ 4,180,136 $ 177,695 $ $ 1.87 1.85 94,984 96,233 Operating Results Net operating revenues Income from continuing operations Income per share from continuing operations Basic Diluted Weighted average number of shares outstanding: Basic Diluted (a) Continuing operating results exclude discontinued operations for all periods presented. (b) The Company updated its analysis of the fair value of the assets and liabilities acquired in the Triad acquisition and revised our purchase price allocation of the Triad acquisition based upon the most current estimates. This purchase price allocation remains preliminary and material adjustments to the fair value of assets, liabilities and goodwill may result upon completion of the Company’s analyses. (c) The effective date of the Triad acquisition was July 25, 2007. $ As of December 31, 2007 2006 $ 446,101 4,506,579 1,905,781 1,723,673 Balance Sheet Data Working capital Total assets Long-term debt Stockholders’ equity $ 1,104,963 13,493,643 9,077,367 1,710,804 Year Ended December 31, 2007 Consolidated 2006 70 8,406 6,753 307,964 570,969 1,264,256 4.1 54.3% $ 4,180,136 50.0% 48.8% $ 385,057 9.2% $ 179,282 $ – % Change 2007 112 16,434 14,159 434,317 792,190 1,824,399 4.2 52.6% $ 6,571,528 49.5% 48.4% 460,110 7.0% 293,977 23,627 Same Store 2006 112 16,544 14,066 439,056 789,184 1,872,581 4.3 54.4% $ 6,308,656 50.9% 46.7% $ 550,519 8.7% $ 279,485 $ 20,105 % Change Selected Operating Data Number of hospitals (at end of period) Licensed beds (at end of period) Beds in service (at end of period) Admissions Adjusted admissions Patient days Average length of stay (days) Occupancy rate (average beds in service) Net operating revenues Net inpatient revenue as a % of total net operating revenues Net outpatient revenue as a % of total net operating revenues Income from operations Income from operations as a % of net operating revenues Depreciation and amortization Equity in earnings of unconsolidated affiliates Liquidity Data: Adjusted EBITDA Adjusted EBITDA as a % of net operating revenues Net cash provided by operating activities Net cash provided by operating activities as a % of net operating revenues • • 115 16,971 14,604 463,212 848,707 1,941,887 4.2 52.4% $ 7,127,494 49.3% 48.6% 485,685 6.8% 316,215 25,132 50.4% 48.6% 53.6% -1.1% 0.4% -2.6% 70.5% 4.2% $ 26.1% $ -16.4% $ $ $ $ $ 827,032 11.6% 687,738 9.6% $ 564,339 13.5% $ 350,255 8.4% 46.5% $ Continuing operating results and statistical data exclude discontinued operations for all periods presented. Same-store operating results and statistical data include comparable information for hospitals acquired in the Triad acquisition for the months of August through December 2007 and 2006.
Slide 5: Letter to Shareholders commitment to improve the quality of healthcare for the people who live and work in these communities. At the same time, we have continued to focus on our ultimate objective of bringing healthcare close to home – where it should be. This has also made us a highly successful company by financial measures. In 2007, our total net operating revenues reached over $7.1 billion, and we reported net income of $30.3 million, or $0.32 per share (diluted). Our consolidated financial results for the year reflect a 50.4 percent increase in total admissions compared with the prior year, primarily due to the hospitals we acquired during 2007, including the Triad acquisition. On a same-store basis, net operating revenues increased 4.2 percent, compared with the prior year. On a same-store basis, admissions decreased 1.1 percent, compared with 2006, reflecting a more challenging industry environment. The Triad acquisition marks a significant milestone for our organization and establishes us as the largest publicly traded hospital management company in the United States. This acquisition complements our focus on non-urban hospital facilities by adding mid-size markets to our national footprint. Our hospitals have strong positions in each of their respective markets and are geographically diversified, which minimizes our operating risk as no one state represents a disproportionate percentage of our revenues or earnings. We strongly believe that the non-urban and the mid-size markets represent the most attractive growth opportunity for the future. We are the sole provider of general acute care hospital services in approximately 65 percent of our markets, giving us a distinct advantage over those large urban providers who must address intense competition. Our operating strategy has always been built around developing standardized and centralized business practices across most aspects of our business. As a result, we have a business model in place that has proven, over time, to be an important driver in improving revenue and operating performance at both our existing and acquired facilities. As we continue to integrate the Triad hospitals, we will focus our expertise on the further expansion of this model to drive improved returns on these additional assets. Since the completion of the acquisition, we have been able to identify operating synergies including improved supply costs, more centralized and targeted physician recruiting and a more efficient allocation of capital. As we continue to identify areas of improvement, we are also mindful of the need to effect these changes while maintaining strong physician and community relationships. Physician recruitment has always been an important area of focus for our company ensuring the long-term success of our hospitals. Perhaps more than any other single factor, the strength of the medical staff and its member’s ability to make the critical daily decisions for patient care are vital to the performance of the local W A Y N E T. S M I T H Chairman of the Board, President and Chief Executive Officer Since becoming a public company in 2000, Community Health Systems, Inc. has continued to build momentum with an impressive record of profitable growth. In 2007, this momentum increased at an unprecedented pace, driven by our acquisition of Triad Hospitals, Inc., as we substantially increased our overall scale and market reach. Today, we are proud of our distinction as the largest operator of general acute care hospitals in non-urban and mid-size markets in the United States. We believe we have created an opportunity to build on our past success and leverage these acquired assets to deliver greater value to our shareholders. We believe the true measure of our success is reflected in the manner in which we have built our business, and the favorable reputation we have developed in the marketplace. Community Health Systems, Inc. is a company built on trust – a trust we have created as the result of our relationships with the communities we serve and our unwavering
Slide 6: community hospital. The addition of qualified physicians creates the opportunity for increased admissions in our hospitals and, in particular, the availability of physicians in various specialties allows more patients to obtain healthcare services at the local level instead of traveling to an urban facility. Additionally, access to more specialty services further drives the necessary revenues that sustain the hospitals’ operations. With respect to physician recruitment, we employ the same centralized process that has proven successful in other aspects of our operations. In 2007, we had another outstanding recruiting effort as we added a total of 769 new practitioners, representing a variety of clinical specialties, to our hospitals. Additionally, we are pleased with the enthusiastic reception we have received by the medical staffs at the former Triad facilities and we look forward to working together in our common mission to enhance the level of healthcare in their respective markets. Approximately 20 percent of the physicians recruited in 2007 were placed in former Triad facilities. We believe our physician recruitment initiatives and appropriate strategic investments in the type of physical plant and equipment and clinical services that attract and retain physicians, will continue to serve us well as we integrate the Triad facilities. As always, our goal is to seek out the best practitioners in their respective fields who not only raise the level of care in our hospitals, but also become an integral part of the community. Since inception, Community Health Systems, Inc. has been highly successful in executing an aggressive acquisition strategy with a proven track record of improving operations at acquired facilities. Now, with that same execution, we are working diligently to ensure that the Triad hospitals we acquired continue to advance toward reaching their full potential. While this represents a challenge, it is an even more significant opportunity. Our track record demonstrates that we are well positioned to make the most of that opportunity with favorable results. Our proven ability to deliver on our promise and foster positive community relations has been, and will continue to be, a distinct competitive advantage for Community Health Systems. In addition to the acquisition of the Triad hospitals, we acquired two other hospitals in 2007. While we expect to be disciplined acquirers again in the future, our strategic focus for 2008 will be on pursuing growth opportunities within our existing markets through disciplined capital spending programs focused on achieving both a favorable level of financial and operating performance and higher patient satisfaction. Toward that end, along with bringing new physicians to our communities, we will continue to make appropriate investments in new equipment, technologies and clinical services for our hospitals. Our definitive goal for all of these initiatives is the same - to provide a hospital that more effectively and conveniently meets the unique needs of its market. Ultimately, Community Health System Inc.’s prospects for long-term growth and increased shareholder value rest on the collective strength of our individual hospitals and the many dedicated physicians, nurses and hospital administrators who work and live in the communities we serve. We are very proud of the team that represents our facilities in the market every day with our shared vision to enhance the level of healthcare in more communities. The clearest reflection of the caliber of this team is our long-term record of success and the commitment demonstrated by everyone associated with Community Health Systems in 2007 by delivering an outstanding performance in what proved to be a pivotal year for the Company. We intend to build on this success in 2008 and look forward to the opportunities ahead as we continue to build shareholder value. We close by thanking you, our fellow shareholders, for the support your investment provides. Sincerely, Wayne T. Smith Chairman of the Board, President and Chief Executive Officer
Slide 7: Board of Directors and Officers / Community Health Systems, Inc. Board of Directors Wayne T. Smith Chairman of the Board President and Chief Executive Officer W. Larry Cash Executive Vice President and Chief Financial Officer John A. Clerico (1) Co-founder and Chairman ChartMark Investments, Inc. Dale F. Frey (2) (3) Former Chairman and President General Electric Investment Corp. John A. Fry (1) (3) President Franklin & Marshall College Harvey Klein, M.D. (3) Professor of Clinical Medicine Cornell University Medical College Julia B. North (2) (3) Former President – Consumer Services BellSouth Telecommunications H. Mitchell Watson, Jr. (1) (2) Former President Sigma Group of America Officers Wayne T. Smith Chairman of the Board President and Chief Executive Officer W. Larry Cash Executive Vice President and Chief Financial Officer William S. Hussey President – Division IV Operations David L. Miller President – Division I Operations Thomas D. Miller President – Division V Operations Gary D. Newsome President – Division III Operations Michael T. Portacci President – Division II Operations Kenneth D. Hawkins Senior Vice President – Acquisitions and Development Barbara R. Paul, M.D. Senior Vice President and Chief Medical Officer Carolyn S. Lipp Senior Vice President – Quality and Resource Management Martin G. Schweinhart Senior Vice President – Operations J. Gary Seay Senior Vice President and Chief Information Officer Rachel A. Seifert Senior Vice President, Secretary and General Counsel T. Mark Buford Vice President and Corporate Controller Larry M. Carlton Vice President – Revenue Management James W. Doucette Vice President and Treasurer Robert A. Horrar Vice President – Administration Seated from left to right: William S. Hussey David L. Miller Thomas D. Miller Standing from left to right: Michael T. Portacci W. Larry Cash Gary D. Newsome Robert O. Horrar Vice President – Business Development Tim G. Marlette Vice President – Materials Management Linda K. Parsons Vice President – Human Resources Kathie G. Thomas Vice President – Home Health Services Gerald A. Weissman Vice President – Medical Staff Development (1) (2) (3) Member of the Audit and Compliance Committee Member of the Compensation Committee Member of the Governance and Nominating Committee Performance Graph The following graph sets forth the cumulative return of the Company’s common stock during the five year period ended December 31, 2007, 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. $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 $100.00 $129.09 $119.43 $128.68 $142.69 $124.86 $135.41 $186.21 $149.70 $135.26 $177.37 $173.34 $144.57 $182.87 $179.02 $156.65 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 10K filed with the Securities and Exchange Commission(the “SEC”) and included with this Annual Report and in subsequent filings with the SEC.
Slide 8: Corporate Information/Community Health Systems, Inc. Corporate Office Community Health Systems, Inc. 4000 Meridian Boulevard Franklin, Tennessee 37067 (615) 465-7000 www.chs.net Form 10-K/Investor Contact A copy of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission, may be obtained from the Company at no charge. Requests for the Annual Report on Form 10-K and other investor information should be directed to Investor Relations at the Company’s corporate office or at www.chs.net. Registrar and Transfer Agent BNY Mellon Shareowner Services 480 Washington Boulevard 29th Floor Jersey City, New Jersey 07310 (201) 680-5287 Independent Auditors Deloitte & Touche LLP Nashville, Tennessee Annual Shareholders’ Meeting The annual meeting of shareholders will be held on Tuesday, May 20, 2008, at 8:00 a.m. local time at The St. Regis Hotel, La Maisonette I, 2 East 55th Street, New York, New York. Common Stock Information The Company’s common stock trades on the New York Stock Exchange under the symbol CYH. As of March 30, 2008, Community Health Systems had approximately 39,900 beneficial holders of its common stock. Of that total, 49 were stockholders of record. To date, the Company has not paid cash dividends on its common stock. The following table sets forth the high and low sales price information as reported by the New York Stock Exchange during the period indicated. Stock Price 2007 First Quarter Second Quarter Third Quarter Fourth Quarter 2006 First Quarter Second Quarter Third Quarter Fourth Quarter High $39.05 $41.72 $44.50 $37.50 High $39.96 $38.39 $39.18 $37.26 Low $33.28 $34.86 $30.39 $27.70 Low $35.33 $34.94 $35.70 $31.00
Slide 9: COMMUNITY HEALTH SYSTEMS, INC. 4000 Meridian Boulevard Franklin, Tennessee 37067 (615) 465-7000 www.chs.net