Community Health Systems, Inc. Announces Fourth Quarter 2006 Results with Net Operating Revenues up 17.6%.

FRANKLIN, Tenn. -- Community Health Systems, Inc. (NYSE: CYH) today announced financial and operating results for the fourth quarter and year ended December 31, 2006.

Net operating revenues for the fourth quarter ended December 31, 2006, totaled $1.154 billion, a 17.6% increase compared with $982.1 million for the same period last year. Income from continuing operations increased 5.5% to $53.6 million for the quarter ended December 31, 2006, compared with $50.8 million for the same period last year. Income from continuing operations per share (diluted) increased 5.6% to $0.57 on 94.6 million weighted average shares outstanding for the quarter ended December 31, 2006, compared with $0.54 on 98.4 million weighted average shares outstanding for the same period last year. Net income increased 11.4% to $53.6 million for the quarter ended December 31, 2006, compared with $48.1 million for the same period last year. Net income per share (diluted) increased 11.8% to $0.57 for the quarter ended December 31, 2006, compared to $0.51 for the same period last year.

Adjusted EBITDA for the fourth quarter of 2006 was $165.5 million, compared with $151.8 million for the same period last year, representing a 9.0% 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 fourth quarter of 2006 was $82.2 million, compared with $75.3 million for the same period last year.

The consolidated financial results for the fourth quarter ended December 31, 2006, reflect a 15.7% increase in total admissions compared with the same period last year. On a same-store basis, admissions and adjusted admissions each increased 3.2% compared with the same period last year. On a same-store basis, net operating revenues increased 5.9% compared with the same period last year.

The fourth quarter 2006 results include additional compensation expense of $4.0 million, or $0.03 per diluted share, resulting from stock-based compensation calculated under SFAS No. 123R, "Share-Based Payment" which was adopted on a prospective basis beginning January 1, 2006.

The financial results for the year ended December 31, 2006, include the change in estimate of the Company's allowance for doubtful accounts which was recorded in the third quarter ended September 30, 2006, as previously disclosed. The effect of this change resulted in a $65.0 million increase in the Company's allowance for doubtful accounts on its September 30, 2006, balance sheet and a corresponding $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.

Net operating revenues for the year ended December 31, 2006, totaled $4.366 billion, a 16.8% increase compared with $3.738 billion for the same period last year. Before giving effect to the increase in the provision for bad debts discussed above, income from continuing operations increased 11.2% to $211.5 million, or $2.20 per share (diluted), on 96.2 million weighted average shares outstanding for the year ended December 31, 2006, compared with $190.1 million, or $2.02 per share (diluted), on 98.6 million weighted average shares outstanding for the same period last year, and net income increased to $208.3 million, or $2.17 per share (diluted), for the year ended December 31, 2006, compared with $167.5 million, or $1.79 per share (diluted), for the same period last year. After giving effect to the increase in the provision for bad debts discussed above, income from continuing operations decreased 9.8% to $171.5 million or $1.78 per share (diluted), compared with $190.1 million or $2.02 per share (diluted) for the same period last year, and net income decreased to $168.3 million, or $1.75 per share (diluted), for the year ended December 31, 2006, compared with $167.5 million or $1.79 per share (diluted), for the same period last year. Loss on discontinued operations for the year ended December 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.

The consolidated financial results for the year ended December 31, 2006, reflect an 11.9% 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, net operating revenues increased 7.0%, admissions increased 1.1% and adjusted admissions increased 0.9%, compared with the same period last year.

Before giving effect to the increase in the provision for bad debts discussed above, adjusted EBITDA for the year ended December 31, 2006, was $637.0 million, compared with $573.2 million for the same period last year, representing an 11.1% increase. After giving effect to the increase in the provision for bad debts discussed above, adjusted EBITDA for the year ended December 31, 2006, was $572.0 million, compared with $573.2 million for the same period last year, representing a 0.2% decrease. Net cash provided by operating activities for the year ended December 31, 2006, was $350.3 million, compared with $411.0 million for the same period last year.

The results for the year ended December 31, 2006, also include additional compensation expense of $14.8 million, or $0.10 per diluted share, resulting from stock-based compensation calculated under SFAS No. 123R, "Share-Based Payment", which was adopted on a prospective basis beginning January 1, 2006.

"Our fourth quarter performance marked a solid finish to another good year for Community Health Systems," commented Wayne T. Smith, chairman, president and chief executive officer of Community Health Systems, Inc. "We posted record revenues of $4.4 billion in 2006, a 17 percent gain over the prior year, reflecting strong volume growth across our network of hospitals throughout the country. Our same store growth metrics are another important measure of our success in 2006 and these favorable trends demonstrate consistent execution of our operating strategy."

On November 1, 2006, the Company completed the acquisition of two separate hospitals. Campbell Memorial Hospital is a 99-bed acute care general hospital located in Weatherford, Texas. This hospital was acquired from a county hospital district and has been renamed "Weatherford Regional Medical Center." The second acquisition was Union County Hospital, a 25-bed hospital located in Anna, Illinois. From September 2001 to November 1, 2006, the Company operated this hospital under a management agreement for a government entity.

"We further extended our market reach in 2006 with the acquisition of eight hospitals," Smith added. "Community Health Systems has continued to pursue an aggressive acquisition strategy with a proven track record for finding suitable hospitals and successfully assimilating these facilities into our system. More importantly, we have enhanced the level of healthcare in more communities throughout the country. As we look ahead to 2007, we will continue to pursue our ongoing strategy of recruiting qualified physicians, adding new healthcare services and investing in our existing facilities and, at the same time, look for additional acquisition opportunities. We are excited about our prospects for growth and we remain focused on delivering value to both our shareholders and the communities we serve."

Included on pages 11 and 12 of this press release is a table setting forth selected information concerning the updated projected consolidated operating results of the Company for the year ending December 31, 2007. This projection reaffirms the Company's previous guidance provided on October 25, 2006, with only minor changes and disclosure of the Company's projection range for income from continuing operations per share by quarter.

Located in the Nashville, Tennessee, suburb of Franklin, 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 77 hospitals in 22 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, Inc. will hold a conference call to discuss this press release on Friday, February 16, 2007, 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 CYH 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 continue through March 16, 2007. A copy of the Company's Form 8-K (including this press release) and conference call slide show will also be available on the Company's 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 Company's annual report on Form 10-K and current reports on Forms 8-K and 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.

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(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 $0.03 per share and $0.10 per share (diluted) for the quarter and year ended December 31, 2006, respectively, resulting from stock-based compensation calculated under SFAS No. 123R "Share-Based Payment." The Company adopted SFAS No. 123R beginning January 1, 2006, using the modified prospective application transition method.

(c) For purposes of calculating earnings per share for the quarter and 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 quarter and year ended December 31, 2006, included the shares issuable upon conversion of the convertible notes.

(e) 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 fourth quarter and year ended December 31, 2006, and 2005 (in thousands):

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

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

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Regulation FD Disclosure

The following table sets forth selected information concerning the Company's updated projected consolidated operating results of the Company for the year ending December 31, 2007. This projection is based on the Company's historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time. This projection reaffirms the Company's previous guidance provided on October 25, 2006, with only minor changes and disclosure of the Company's projection range for income from continuing operations per share by quarter.

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

* For the year ending December 31, 2007, the Company anticipates recognizing stock-based compensation expense ranging from $30 million to $32 million, or $0.19 to $0.21 per diluted share. Based on historical stock option and restricted stock grants, the 2007 projected results assume new stock option and restricted stock grants and include additional stock-based compensation expense ranging from $10 million to $12 million, or $0.06 to $0.08 per diluted share, which represents the third year of stock options and restricted stock compensation expense based on the Company's three-year vesting period. No significant restricted stock or options were granted in 2004.

* Expressed as a percentage of net operating revenues, the provision for bad debts is projected to be approximately 11.5% to 12.0% for 2007.

* Expressed as a percent of net operating revenues, total depreciation and amortization is projected to be approximately 4.2% to 4.5% for 2007; however, this is a fixed cost and the percentages may vary as revenue varies.

* For the purpose of providing 2007 interest expense projection range guidance, the Company assumes that future LIBOR rates for borrowing under the Company's $2.025 billion Senior Secured Credit Facility will increase at a slower pace in 2007, several interest swap agreements mature in 2006 and 2007 reducing the interest expense savings impact of such instruments, and the estimated average debt balance is projected to increase from approximately $1.9 billion to $2.2 billion by the end of 2007. Based on these assumptions, expressed as a percentage of net operating revenue, interest expense is projected to be approximately 2.4% to 2.6% for 2007; however, this is a fixed cost and the percentages may vary as revenue varies.

* 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 has commenced and 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. No shares have been purchased under this new repurchase plan. Through December 13, 2006, the Company had repurchased pursuant to its prior repurchase plan 5,000,000 shares at a weighted-average price of $35.26 per share. The assumed interest expense and weighted average diluted shares set forth in this guidance reflect the impact of the shares repurchased pursuant to this repurchase plan through December 13, 2006.

* Expressed as a percentage of income before income taxes, provision for income tax is projected to be approximately 38.3% to 38.7% for 2007.

* Capital expenditures are as follows (in millions):

         2006  >            >  20  >







       Actual  >            >  Gu  >







Total    $269  >            >   $  >
to

$ 330

* No divestures have been assumed in this guidance.

* The following table reconciles adjusted EBITDA, as defined, to the Company's estimated net cash provided by operating activities as presented in the guidance shown on page 11:

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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;

* demographic changes;

* existing governmental regulations and changes in, or the failure to comply with, governmental regulations;

* legislative proposals for healthcare reform;

* the impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which includes specific reimbursement changes for small urban and non-urban hospitals;

* our ability, where appropriate, to enter into managed care provider arrangements and the terms of these arrangements;

* changes in inpatient or outpatient Medicare and Medicaid payment levels;

* increases in the amount and risk of collectibility of patient accounts receivable;

* uncertainty regarding the application of the Health Insurance Portability and Accountability Act of 1996 regulations;

* increases in wages as a result of inflation or competition for highly technical positions and rising supply cost due to market pressure from pharmaceutical companies and new product releases;

* liability and other claims asserted against us, including self-insured malpractice claims;

* competition;

* our ability to attract and retain 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 generally accepted accounting principles;

* the availability and terms of capital to fund additional acquisitions or replacement facilities;

* our ability to successfully acquire and integrate additional hospitals;

* our ability to obtain adequate levels of general and professional liability insurance;

* potential adverse impact of known and unknown government investigations;

* 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 year ended December 31, 2006, are not necessarily indicative of the results that may be experienced for any such future period or for any future fiscal year, including this fiscal year.

The Company cautions that the projections for calendar year 2007, 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.