UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission file number 001-15925
COMMUNITY HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3893191
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
155 Franklin Road, Suite 400
Brentwood, Tennessee
(Address of principal executive offices)
37027
(Zip Code)
615-373-9600
(Registrant's telephone number)
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Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes /X/ No / /
As of August 13, 2001, there were outstanding 86,354,287
shares of the Registrant's Common Stock, $.01 par value.
COMMUNITY HEALTH SYSTEMS, INC.
Form 10-Q
For the Quarter Ended June 30, 2001
Page
PART I.Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets - June 30, 2001 and December 31, 2000 2
Consolidated Statements of Operations - Three and Six Months Ended
June 30, 2001 and June 30, 2000 3
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2001 and
June 30, 2000 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition And Results of
Operations 7
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II Other Information
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities and Use of Proceeds 15
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
INDEX TO EXHIBITS 18
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2001 2000
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 35,740 $ 13,740
Patients accounts receivable, net 316,499 309,826
Supplies 41,860 39,679
Prepaid expenses and income taxes 14,169 19,989
Current deferred income taxes 2,233 2,233
Other current assets 15,330 23,110
----------- -----------
Total current assets 425,831 408,577
----------- -----------
PROPERTY AND EQUIPMENT 936,336 850,201
Less: accumulated depreciation and amortization (169,627) (142,120)
----------- -----------
Property and equipment, net 766,709 708,081
----------- -----------
GOODWILL, NET 991,557 985,568
----------- -----------
OTHER ASSETS, NET 95,989 111,611
----------- -----------
TOTAL ASSETS $ 2,280,086 $ 2,213,837
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 21,499 $ 17,433
Accounts payable 86,460 83,191
Current income taxes payable 16,998 --
Accrued interest 20,278 27,389
Accrued liabilities 111,488 112,860
----------- -----------
Total current liabilities 256,723 240,873
----------- -----------
LONG-TERM DEBT 1,229,507 1,201,590
----------- -----------
OTHER LONG-TERM LIABILITIES 14,015 15,200
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value per share, 100,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value per share, 300,000,000 shares authorized; 87,296,185
shares issued and 86,320,636 shares outstanding at June 30, 2001; and
87,105,562 shares issued and 86,137,582 shares outstanding at December 31, 2000 873 871
Additional paid-in capital 1,001,204 998,092
Accumulated deficit (215,284) (235,783)
Treasury stock, at cost, 975,549 shares at June 30, 2001 and 967,980 shares at
December 31, 2000 (6,678) (6,587)
Notes receivable for common stock (211) (334)
Unearned stock compensation (63) (85)
----------- -----------
Total stockholders' equity 779,841 756,174
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,280,086 $ 2,213,837
=========== ===========
See accompanying notes.
2
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
NET OPERATING REVENUES $ 400,909 $ 317,136 $ 799,554 $ 625,787
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Salaries and benefits 156,047 123,815 309,781 244,222
Provision for bad debts 36,986 28,639 73,959 56,594
Supplies 46,129 36,431 92,888 72,410
Other operating expenses 78,071 61,038 152,161 118,168
Rent 9,846 7,438 19,687 14,537
Depreciation and amortization 21,633 17,530 43,094 33,910
Amortization of goodwill 7,028 6,210 14,074 12,378
----------- ----------- ----------- -----------
Total operating costs and expenses 355,740 281,101 705,644 552,219
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 45,169 36,035 93,910 73,568
INTEREST EXPENSE, NET 25,621 32,622 53,174 65,305
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 19,548 3,413 40,736 8,263
PROVISION FOR INCOME TAXES 9,897 3,235 20,237 7,164
----------- ----------- ----------- -----------
NET INCOME $ 9,651 $ 178 $ 20,499 $ 1,099
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.11 $ 0.00 $ 0.24 $ 0.02
=========== =========== =========== ===========
Diluted $ 0.11 $ 0.00 $ 0.23 $ 0.02
=========== =========== =========== ===========
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 85,713,343 58,175,050 85,696,119 56,423,677
=========== =========== =========== ===========
Diluted 87,517,797 59,310,601 87,554,317 57,554,519
=========== =========== =========== ===========
See accompanying notes.
3
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,499 $ 1,099
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 57,168 46,288
Stock compensation expense 22 43
Other non-cash expenses (income), net 474 (498)
Changes in operating assets and liabilities, net of effects of
acquistions and divestitures:
Patient accounts receivable 6,277 (9,321)
Supplies, prepaid expenses and other current assets 6,275 (3,989)
Accounts payable, accrued liabilities and income taxes 2,677 (30,486)
Compliance settlement payment -- (30,900)
Other 2,136 (6,635)
--------- ---------
Net cash provided by (used in) operating activities 95,528 (34,399)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquistions of facilities, pursuant to purchase agreements (50,063) (40,639)
Purchases of property and equipment (39,056) (24,006)
Proceeds from sale of equipment 53 62
Increase in other assets (15,398) (9,678)
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Net cash used in investing activities (104,464) (74,261)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of expenses -- 225,225
Proceeds from exercise of stock options 2,289 --
Common stock purchased for treasury (91) --
Borrowings under credit agreement 69,000 137,731
Repayments of long-term indebtedness (40,262) (252,588)
--------- ---------
Net cash provided by financing activities 30,936 110,368
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 22,000 1,708
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,740 4,282
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,740 $ 5,990
========= =========
See accompanying notes.
4
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Community Health
Systems, Inc. and its subsidiaries (the "Company") as of and for the three and
six month periods ended June 30, 2001 and June 30, 2000, have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such periods. All intercompany transactions
and balances have been eliminated. The results of operations for the six months
ended June 30, 2001 are not necessarily indicative of the results to be expected
for the full fiscal year ending December 31, 2001.
Certain information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted as permitted by
the rules and regulations of the Securities and Exchange Commission, although
the Company believes the disclosure is adequate to make the information
presented not misleading. The accompanying unaudited financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2000 contained in the Company's Annual
Report on Form 10-K.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management of the Company to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements. Actual results could
differ from the estimates.
3. ACQUISTIONS
Effective June 1, 2001, the Company acquired, through a purchase transaction,
the assets and working capital of a hospital for consideration of approximately
$60.7 million, including liabilities assumed. Licensed beds at the facility
totaled 168. The Company borrowed $49.0 million against its acquisition loan
revolving facility to fund this transaction.
4. RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
On July 20, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets" (the "Statements").
These Statements make significant changes to the accounting for business
combinations, goodwill and intangible assets.
SFAS No. 141 eliminates the pooling-of-interests method of accounting for
business combinations. In addition, it further clarifies the criteria for
recognition of intangible assets separately from goodwill. This statement's
provisions apply to business combinations accounted for using the purchase
method for which the date of acquisition is July 1, 2001, or later.
SFAS No. 142 discontinues the practice of amortizing goodwill and indefinite
life intangible assets. Its nonamortization provisions are effective January 1,
2002 for goodwill existing at June 30, 2001, and are effective immediately for
business combinations with acquisition dates after June 30, 2001. Intangible
assets with a determinable useful life will continue to be amortized over that
period. SFAS No. 142 requires the Company to complete a transitional goodwill
impairment test during the initial interim period of calendar 2002. Any
impairment loss will be recorded as soon as possible, but in no case later than
December 31, 2002. In addition, SFAS No. 142 requires that intangible assets and
goodwill be tested at least annually for impairment of carrying value;
intangible assets would be tested for impairment more frequently if certain
indicators are encountered.
5
We expect to adopt SFAS No. 142 effective January 1, 2002. Early adoption and
retroactive application of SFAS No. 141 and SFAS No. 142 are not permitted.
The Company expects that the adoption of these statements will not have a
significant effect on its financial position, but will have a favorable
effect on its results of operations.
5. ACCOUNTING PRONOUNCEMENT ADOPTED
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
is effective for all fiscal years beginning after June 15, 2000. SFAS No.
133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. Under SFAS No. 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company adopted SFAS No. 133 on January 1,
2001. The adoption of SFAS No. 133 did not impact the financial position,
results of operations, or cash flows of the Company.
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except share and per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
NUMERATOR:
Net income $ 9,651 $ 178 $ 20,499 $ 1,099
=========== =========== =========== ===========
DENOMINATOR:
Weighted-average number of shares
outstanding--basic 85,713,343 58,175,050 85,696,119 56,423,677
Effect of dilutive options 1,804,454 1,135,551 1,858,198 1,130,842
----------- ----------- ----------- -----------
Weighted-average number of shares
outstanding--diluted 87,517,797 59,310,601 87,554,317 57,554,519
=========== =========== =========== ===========
Basic earnings per share $ 0.11 $ 0.00 $ 0.24 $ 0.02
=========== =========== =========== ===========
Diluted earnings per share $ 0.11 $ 0.00 $ 0.23 $ 0.02
=========== =========== =========== ===========
7. SUBSEQUENT EVENTS
Effective July 19, 2001, the Company amended its 1999 Amended and Restated
Credit Agreement. The Credit Agreement is syndicated with a group of lenders led
by The Chase Manhatten Bank and co-agents, Bank of America, N.A. and The Bank of
Nova Scotia. This amendment, among other things, extends the maturity of
approximately 80% of the $200 million revolving credit facility and the $263.2
million in acquisition loan commitments from December 31, 2002 to January 2,
2004.
On July 13, 2001, the Company signed a definitive agreement to acquire Southern
Chester County Medical Center, a 59-bed hospital located in West Grove,
Pennsylvania. Southern Chester County Medical Center is the sole provider of
general acute hospital services in its community. On August 2, 2001 the Company
signed a definitive agreement to acquire 369-bed Easton Hospital, the only
hospital in the city of Easton and Northampton County, Pennsylvania. These
transactions are subject to state regulatory approvals and licensing and are
expected to be completed and closed during the fourth quarter of 2001.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements included herein.
SOURCES OF OPERATING REVENUE
Net operating revenues include amounts estimated by management to be
reimbursable by Medicare and Medicaid under prospective payment systems and
provisions of cost-reimbursement and other payment methods. Approximately 45% of
net operating revenues for the three month period ended June 30, 2001 and 46% of
net operating revenues for the three month period ended June 30, 2000 are
related to services rendered to patients covered by the Medicare and Medicaid
programs. In addition, we are reimbursed under other programs by
non-governmental payors using a variety of payment methodologies. Amounts we
receive for treatment of patients covered by these programs are generally less
than the standard billing rates. We account for the differences between the
estimated program reimbursement rates and the standard billing rates as
contractual adjustments, which we deduct from gross revenues to arrive at net
operating revenues. Final settlements under some of these programs are subject
to adjustment based on administrative review and audit by third parties. We
record adjustments to the estimated billings in the periods that such
adjustments become known. We account for adjustments to previous program
reimbursement estimates as contractual adjustments and report them in future
periods as final settlements are determined. Adjustments related to final
settlements or appeals that affected revenue were insignificant in each of the
three and six month periods ended June 30, 2001 and 2000. Net amounts due to
third-party payors as of June 30, 2001 were $14.6 million and as of December 31,
2000 were $2.3 million. We included these amounts in accrued liabilities in the
accompanying balance sheets. Substantially all Medicare and Medicaid cost
reports are final settled through 1997.
We expect the percentage of our net revenues received from the Medicare program
to increase due to the general aging of the population and the restoration of
some payments under the Balanced Budget Refinement Act of 1999 and Benefit and
Improvement Protection Act of 2000. The payment rates under the Medicare program
for inpatients are based on a prospective payment system, based upon the
diagnosis of a patient. While these rates are indexed annually for inflation,
the increases have historically been less than actual inflation. Reductions in
the rate of increase in Medicare reimbursement may have an adverse impact on our
net operating revenue growth.
The implementation of Medicare's new prospective payment system for outpatient
hospital care, effective August 1, 2000, had a favorable, but not material
impact to our overall operating results.
In December 2000, the Benefit Improvement and Protection Act of 2000 became law.
It is estimated that the changes to be implemented to many facets of the
Medicare reimbursement system will increase reimbursement. We do not believe
these increases will be material to our overall operating results.
In addition, Medicaid programs, insurance companies, and employers are actively
negotiating the amounts paid to hospitals. The trend toward increased enrollment
in managed care may adversely affect our net operating revenue growth.
RESULTS OF OPERATIONS
Our hospitals offer a variety of services involving a broad range of inpatient
and outpatient medical and surgical services. These include orthopedics,
cardiology, OB/GYN, occupational medicine, rehabilitation treatment, home
health, and skilled nursing. The strongest demand for hospital services
generally occurs during January through April and the weakest demand for these
services occurs during the summer months. Accordingly, eliminating the effect of
new acquisitions, our net operating revenues and earnings are generally highest
during the first quarter and lowest during the third quarter.
7
The following tables summarize, for the periods indicated, selected operating
data.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
------- ------- ------- -------
(EXPRESSED AS A PERCENTAGE OF NET OPERATING REVENUES)
Net operating revenues 100.0 100.0 100.0 100.0
Operating expenses (a) 81.6 81.2 81.1 80.8
------- ------- ------- -------
EBITDA (b) 18.4 18.8 18.9 19.2
Depreciation and amortization 5.4 5.5 5.4 5.4
Amortization of goodwill 1.8 2.0 1.8 2.0
------- ------- ------- -------
Income from operations 11.3 11.4 11.7 11.8
Interest, net 6.4 10.3 6.7 10.4
------- ------- ------- -------
Income before income taxes 4.9 1.1 5.1 1.3
Provision for income taxes 2.5 1.0 2.5 1.1
------- ------- ------- -------
Net income 2.4 0.1 2.6 0.2
======= ======= ======= =======
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2001 JUNE 30, 2001
------------- -------------
(EXPRESSED IN PERCENTAGES)
PERCENTAGE CHANGE FROM SAME PERIOD PRIOR YEAR:
Net operating revenues 26.4 27.8
Admissions 18.1 20.9
Adjusted admissions (c) 15.3 18.7
Average length of stay -- (2.6)
EBITDA 23.5 26.0
SAME-HOSPITALS PERCENTAGE CHANGE FROM SAME PERIOD PRIOR YEAR (d):
Net operating revenues 11.6 11.1
Admissions 5.2 6.0
Adjusted admissions 3.1 4.3
EBITDA 14.4 14.4
- ----------
(a) Operating expenses include salaries and benefits, provision for bad debts,
supplies, rent, and other operating expenses.
(b) EBITDA consists of income before interest, income taxes, depreciation and
amortization, and amortization of goodwill. EBITDA should not be considered a
measure of financial performance under generally accepted accounting principles.
Items excluded from EBITDA are significant components in understanding and
assessing financial performance. EBITDA is a key measure used by management to
evaluate our operations and provide useful information to investors. EBITDA
should not be considered in isolation or as an alternative to net income, cash
flows generated by operations, investing or financing activities, or other
financial statement data presented in the consolidated financial statements as
indicators of financial performance or liquidity. Because EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as presented
may not be comparable to other similarly titled measures of other companies.
(c) Adjusted admissions is a general measure of combined inpatient and
outpatient volume. We computed adjusted admissions by multiplying admissions by
gross patient revenues and then dividing that number by gross inpatient
revenues.
(d) Includes acquired hospitals to the extent we operated them during comparable
periods in both years. The six months ended June 30, 2000 includes one more
business day in the period due to leap year.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Net operating revenues increased by 26.4% to $400.9 million for the three months
ended June 30, 2001 from $317.1 million for the three months ended June 30,
2000. Of the $83.8 million increase in net operating revenues, the five
hospitals we acquired after April 1, 2000 contributed approximately $47.3
million, and hospitals we owned throughout both periods contributed $36.5
million, an increase of 11.6%.
8
The increase from hospitals owned throughout both periods was attributable
primarily to volume increases, rate increases from managed care and other payors
and an increase in government reimbursement.
Inpatient admissions increased by 18.1%. Adjusted admissions increased by 15.3%.
Adjusted admissions is a general measure of combined inpatient and outpatient
volume. We computed adjusted admissions by multiplying admissions by gross
patient revenues and then dividing that number by gross inpatient revenues.
Average length of stay remained unchanged. On a same-hospital basis, inpatient
admissions increased by 5.2% and adjusted admissions increased by 3.1%. The
increase in same-hospital inpatient admissions and adjusted admissions was due
primarily to an increase in services offered, physician relationship development
efforts and the addition of physicians through our focused recruitment program.
On a same-hospital basis, net outpatient revenues increased 12.4%.
Operating expenses, as a percentage of net operating revenues, increased from
81.2% for the three months ended June 30, 2000 to 81.6% for the three months
ended June 30, 2001, primarily due to an increase in provision for bad debts,
increases in utility expense and an increase in rent expense, offset by
improvements in salaries and benefits. Operating expenses include salaries and
benefits, provision for bad debts, supplies, rent and other operating expenses.
Salaries and benefits, as a percentage of net operating revenues, decreased to
38.9% from 39.0% for the comparable periods, due to the continued realization of
savings from improvements made at the hospitals acquired, offset by hospitals
acquired more recently having higher salaries and benefits as a percentage of
net operating revenues for which savings have not yet been realized. Provision
for bad debts, as a percentage of net operating revenues, increased to 9.2% for
the three months ended June 30, 2001 from 9.0% for the comparable period in 2000
due primarily to an increase in self-pay business. Supplies as a percentage of
net operating revenues remained unchanged at 11.5% for the comparable periods in
2000 and 2001. Rent and other operating expenses, as a percentage of net
operating revenues, increased from 21.7% for the three months ended June 30,
2000 to 22.0% for the three months ended June 30, 2001. EBITDA margin decreased
from 18.8% for the three months ended June 30, 2000 to 18.4% for the three
months ended June 30, 2001 due primarily to the acquisition of a previously
managed facility and the lower initial EBITDA margins associated with hospitals
acquired in 2000 and 2001.
On a same-hospital basis, operating expenses as a percentage of net operating
revenues decreased from 81.5% for the three months ended June 30, 2000 to 81.0%
for the three months ended June 30, 2001. We achieved this reduction through
efficiency and productivity gains in payroll and supplies expense reductions,
offset by a smaller increase in bad debt expense and other operating expenses.
Depreciation and amortization increased by $4.1 million from $17.5 million for
the three months ended June 30, 2000 to $21.6 million for the three months ended
June 30, 2001. The seven hospitals acquired in 2000 and one hospital acquired in
2001 accounted for $1.6 million of the increase; facility renovations and
purchases of equipment, information systems upgrades, the inclusion of a
hospital previously held for divestiture and other deferred items accounted for
the remaining $2.5 million.
Amortization of goodwill increased from $6.2 million for the three months ended
June 30, 2000 to $7.0 million for the comparable period in 2001 related to
acquired hospitals.
Interest, net decreased by $7.0 million from $32.6 million for the three months
ended June 30, 2000 to $25.6 million for the three months ended June 30, 2001.
The decrease in average long-term debt during the three months ended June 30,
2001 as compared to the three months ended June 30, 2000 accounted for $4.5
million of the decrease while a decrease in interest rates accounted for $2.5
million of the decrease. The decrease in average debt balance is the result of
debt repayments from proceeds raised from the issuance of common stock in 2000
being greater than additional sums borrowed to finance hospital acquisitions.
Income before income taxes increased from $3.4 million for the three months
ended June 30, 2000 to $19.5 million for the three months ended June 30, 2001
primarily as a result of the increases in revenue and decreases in expenses as
discussed above.
9
Provision for income taxes increased from $3.2 million for the three months
ended June 30, 2000 to $9.9 million for the three months ended June 30, 2001 as
a result of the increase in pre-tax income.
Net income was $9.7 million for the three months ended June 30, 2001 compared to
net income of $0.2 million for the three months ended June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Net operating revenues increased 27.8% to $799.6 million for the six months
ended June 30, 2001 from $625.8 million for the six months ended June 30, 2000.
Of the $173.8 million increase in net operating revenues, the seven hospitals
acquired in 2000 and one hospital acquired in 2001 contributed approximately
$104.9 million, and hospitals we owned throughout both periods contributed $68.9
million, an increase of 11.1%. The increase from hospitals owned throughout both
periods was attributable primarily to volume increases, rate increases from
managed care and other payors and an increase in government reimbursement; these
increases were offset by the 2001 period having one fewer day as compared to the
2000 period, resulting from 2000 being a leap year.
Inpatient admissions increased by 20.9%. Adjusted admissions increased by 18.7%.
Adjusted admissions is a general measure of combined inpatient and outpatient
volume. We computed adjusted admissions by multiplying admissions by gross
patient revenues and then dividing that number by gross inpatient revenues.
Average length of stay decreased by 2.6%. On a same hospital basis, inpatient
admissions increased by 6.0% and adjusted admissions increased by 4.3%. The
increase in same hospital inpatient admissions and adjusted admissions was due
primarily to an increase in services offered, physician relationship development
efforts and the addition of physicians through our focused recruitment program.
On a same hospital basis, net outpatient revenues increased 12.5%.
Operating expenses, as a percentage of net operating revenues, increased from
80.8% for the six months ended June 30, 2000, to 81.1% for the six months ended
June 30, 2001, primarily due to an increase in provision for bad debts,
increases in utility expense and an increase in rent expense, offset by
improvements in salaries and benefits. Salaries and benefits, as a percentage of
net operating revenues, decreased to 38.7% from 39.0% for the comparable
periods, due to the continued realization of savings from improvements made at
the hospitals acquired offset by hospitals acquired more recently having higher
salaries and benefits as a percentage of net operating revenues for which
savings have not yet been realized. Provision for bed debts, as a percentage of
net operating revenues, increased to 9.3% for the six months ended June 30, 2001
from 9.0% for the comparable period in 2000 due primarily to an increase in
self-pay business. Supplies as a percentage of net operating revenues remained
unchanged at 11.6% for the comparable periods in 2000 and 2001. Rent and other
operating expenses, as a percentage of net operating revenues, increased from
21.2% for the six months ended June 30, 2000 to 21.5% for the six months ended
June 30, 2001. EBITDA margins decreased from 19.2% for the six months ended June
30, 2000 to 18.9% for the six months ended June 30, 2001 due primarily to the
acquisition of a previously managed facility and the lower initial EBITDA
margins associated with hospitals acquired in 2000 and 2001.
On a same hospital basis, operating expenses as a percentage of net operating
revenues decreased from 81.2% for the six months ended June 30, 2000 to 80.6%
for the six months ended June 30, 2001. We achieved this reduction through
efficiency and productivity gains in payroll and supplies expense reductions,
offset by a smaller increase in bed debt expense and other operating expenses.
Depreciation and amortization increased by $9.2 million from $33.9 million for
the six months ended June 30, 2000 to $43.1 million for the six months ended
June 30, 2001. The seven hospitals acquired in 2000 and one hospital acquired in
2001 accounted for $2.9 million of the increase, facility renovations and
purchases of equipment, information system upgrades, the inclusion of a hospital
previously held for divestiture and other deferred items accounted for the
remaining $6.3 million.
Amortization of goodwill increased from $12.4 million for the six months ended
June 30, 2000 to $14.1 million for the comparable period in 2001 related to
acquired hospitals.
10
Interest, net decreased from $65.3 million for the six months ended June 30,
2000 to $53.2 million for the six months ended June 30, 2001. The decrease in
average long-term debt during the comparable periods in 2000 and 2001 accounted
for $9.8 million of the decrease while a net decrease in interest rates
accounted for the remaining difference. The decrease in average debt balance is
the result of debt repayments from proceeds raised from the issuance of common
stock in 2000 being greater than additional sums borrowed to finance hospital
acquisitions.
Income before income taxes increased from $8.3 million for the six months ended
June 30, 2000 to $40.7 million for the six months ended June 30, 2001 primarily
as a result of the increases in revenue and decreases in expenses as discussed
above.
Provision for income taxes increased from $7.2 million for the six months ended
June 30, 2000 to $20.2 million for the six months ended June 30, 2001 as a
result of the increase in pre-tax income.
Net income was $20.5 million for the six months ended June 30, 2001 compared to
$1.1 million for the six months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased $129.9 million to $95.5
million for the six months ended June 30, 2001 from a cash use of $34.4 million
for the six months ended June 30, 2000. This increase represents an increase in
net income of $19.4 million, an increase in non-cash expenses of $11.8 million,
an increase of cash from working capital of $67.8 million and the absence of the
one-time compliance settlement payment of $30.9 million made in 2000 when
comparing the six month periods ended June 30, 2000 and 2001. The increase of
cash from working capital can be attributed primarily to improvement in
collections of accounts receivable, an increase in our tax provision, which we
anticipate will be substantially offset by our existing net operating loss
carryforwards and therefore not result in cash outflow, and overall better
management of other working capital items. The use of cash from investing
activities increased from $74.3 million for the six months ended June 30, 2000
to $104.5 million for the six months ended June 30, 2001. This increase is the
result of the additional cost of the acquisition in 2001 and additional
expenditures on property, equipment and other assets. Net cash provided by
financing activities decreased $79.4 million during the comparable periods as a
result of not borrowing to meet capital expenditure and working capital needs
during the 2001 period and not borrowing for the compliance settlement as was
done in the 2000 period.
CAPITAL EXPENDITURES
We expect to incur total capital expenditures of approximately $90 million in
2001, including $60 million for renovation and equipment purchases and $30
million for construction of replacement hospitals. Under hospital purchase
agreements in effect as of June 30, 2001, we are obligated to construct four
replacement hospitals through 2005 with an aggregate estimated construction
cost, including equipment, of approximately $120 million. During the six months
ended June 30, 2001, we incurred expenditures of approximately $9.0 million
related to these replacement hospitals.
CAPITAL RESOURCES
Net working capital was $169.1 million at June 30, 2001 compared to $167.7
million at December 31, 2000. The $1.4 million increase was attributable
primarily to an increase in cash and cash equivalents, an increase in accounts
receivable consistent with the increase in net revenues and a decrease in
accrued interest and other current liabilities offset by a decrease in prepaid
expenses and an increase in current income taxes payable that we expect to
settle using net operating loss carry forwards.
In July 2001, we amended our credit agreement. Our amended credit agreement
provides for $644 million in term debt with quarterly amortization and staggered
maturities in 2001, 2002, 2003, 2004 and 2005. This agreement also provides for
revolving facility debt for working capital of $200 million and acquisitions of
11
$263.2 million at June 30, 2001. This new amendment extends the maturity of
approximately 80% of the revolver commitments from approving lenders to January
2, 2004. Borrowings under the facility bear interest at either LIBOR or prime
rate plus various applicable margins which are based upon financial covenant
ratio tests. As of June 30, 2001 using amended rates, our weighted average
interest rate under our credit agreement was 7.04%. As of June 30, 2001, we had
availability to borrow an additional $162.1 million under the working capital
revolving facility and an additional $144.2 million under the acquisition loan
revolving facility.
We are required to pay a quarterly commitment fee at a rate of 0.375% to 0.500%
based on specified financial criteria. This fee applies to unused commitments
under the revolving credit facility and the acquisition loan facility.
The terms of the credit agreement include various restrictive covenants. These
covenants include restrictions on additional indebtedness, investments, asset
sales, capital expenditures, dividends, sale and leasebacks, contingent
obligations, transactions with affiliates, and fundamental changes. The
covenants also require maintenance of various ratios regarding senior
indebtedness, senior interest, and fixed charges.
We believe that internally generated cash flows and borrowings under our
revolving credit facility and acquisition facility will be sufficient to finance
acquisitions, capital expenditures and working capital requirements through the
next 12 months. If funds required for future acquisitions exceed existing
sources of capital, we will need to increase our credit facilities or obtain
additional capital by other means.
REIMBURSEMENT, LEGISLATIVE AND REGULATORY CHANGES
Legislative and regulatory action has resulted in continuing change in the
Medicare and Medicaid reimbursement programs which will continue to limit
payment increases under these programs. Within the statutory framework of the
Medicare and Medicaid programs, there are substantial areas subject to
administrative rulings, interpretations, and discretion which may further affect
payments made under those programs, and the federal and state governments might,
in the future, reduce the funds available under those programs or require more
stringent utilization and quality reviews of hospital facilities. Additionally,
there may be a continued rise in managed care programs and future restructuring
of the financing and delivery of healthcare in the United States. These events
could have an adverse effect on our future financial results.
INFLATION
The healthcare industry is labor intensive. Wages and other expenses increase
during periods of inflation and when labor shortages occur in the marketplace.
In addition, suppliers pass along rising costs to us in the form of higher
prices. We have implemented cost control measures, including our case and
resource management program, to curb increases in operating costs and expenses.
We have, to date, offset increases in operating costs by increasing
reimbursement for services and expanding services. However, we cannot predict
our ability to cover or offset future cost increases.
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
On July 20, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets" (the "Statements").
These Statements make significant changes to the accounting for business
combinations, goodwill and intangible assets.
SFAS No. 141 eliminates the pooling-of-interests method of accounting for
business combinations. In addition, it further clarifies the criteria for
recognition of intangible assets separately from goodwill. This statement's
provisions apply to business combinations accounted for using the purchase
method for which the date of acquisition is July 1, 2001, or later.
12
SFAS No. 142 discontinues the practice of amortizing goodwill and indefinite
lived intangible assets. Its nonamortization provisions are effective January 1,
2002 for goodwill existing at June 30, 2001, and are effective immediately for
business combinations with acquisition dates after June 30, 2001. Intangible
assets with a determinable useful life will continue to be amortized over that
period. SFAS No. 142 requires the Company to complete a transitional goodwill
impairment test during the initial interim period of calendar year 2002. Any
impairment loss will be recorded as soon as possible, but in no case later than
December 31, 2002. In addition, SFAS No. 142 requires that intangible assets and
goodwill be tested at least annually for impairment of carrying value;
intangible assets would be tested for impairment more frequently if certain
indicators are encountered.
We expect to adopt SFAS No. 142 effective January 1, 2002. Early adoption and
retroactive application of SFAS No. 141 and SFAS No 142 are not permitted.
Subject to final analysis, the Company expects application of the
nonamortization provisions of the Statements to result in a positive effect on
net income of at least $23 million or $0.25 per share - diluted in calendar
year 2002. The Company will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of January 1, 2002. The
Company doesn't expect the effect of these Statements to have a significant
effect on its financial position.
FEDERAL INCOME TAX EXAMINATIONS
The Internal Revenue Service is examining our filed federal income tax returns
for the tax periods ended between December 31, 1993 and December 31, 1996. A
Revenue Agent's Report has been issued in connection with the examination of the
December 31, 1993, 1994, 1995 and July 10, 1996 tax periods wherein the Internal
Revenue Service has prepared several adjustments, primarily involving temporary
or timing differences. To date, a Revenue Agent's Report has not been issued in
connection with the examination of the December 31, 1996 period. While we
anticipate a resolution of the current examinations by the end of the current
calendar year, we do not expect that the ultimate outcome of the Internal
Revenue Service examinations will have a material effect on us.
FORWARD-LOOKING STATEMENTS
Some of the matters discussed in this filing include forward-looking statements.
Statements that are predictive in nature, that depend upon or refer to future
events or conditions or that include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," "thinks," and similar expressions
are forward-looking statements. These statements involve known and unknown
risks, uncertainties, and other factors that may cause our actual results and
performance to be materially different from any future results or performance
expressed or implied by these forward-looking statements. These factors include
the following:
o general economic and business conditions, both nationally and in the
regions in which we operate;
o demographic changes;
o existing governmental regulations and changes in, or the failure to comply
with, governmental regulations or our corporate compliance agreement;
o legislative proposals for healthcare reform;
o our ability, where appropriate, to enter into managed care provider
arrangements and the terms of these arrangements;
o changes in Medicare and Medicaid payment levels;
o liability and other claims asserted against us;
o competition;
o our ability to attract and retain qualified personnel, including
physicians;
o trends toward treatment of patients in lower acuity healthcare settings;
o changes in medical or other technology;
o changes in generally accepted accounting principles;
o the availability and terms of capital to fund additional acquisitions or
replacement facilities; and
o our ability to successfully acquire and integrate additional hospitals.
13
Although we believe that these statements are based upon reasonable assumptions,
we can give no assurance that our goals will be achieved. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on these forward-looking statements. These forward-looking statements are made
as of the date of this filing. We assume no obligation to update or revise them
or provide reasons why actual results may differ.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate changes, primarily as a result of our credit
agreement which bears interest based on floating rates. We have not taken any
action to cover interest rate market risk, and are not a party to any interest
rate market risk management activities.
A 1% change in interest rates on variable rate debt would have resulted in
interest expense fluctuating approximately $1.8 million for the three months
ended June 30, 2001 and $3.5 for the six months ended June 30, 2001.
14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the matter of U.S. EX REL. BLEDSOE V. COMMUNITY HEALTH SYSTEMS,
INC., Case # 2-00-0083, transferred from the Northern District of
Georgia and now pending in the Middle District of Tennessee, the
relator has filed a motion seeking from the United States government a
portion of the settlement proceeds from the Company's May 2000
settlement with the U.S. Department of Justice, the Office of the
Inspector General, and applicable state Medicaid programs. The
government is vigorously opposing this motion. Should the relator
prevail on this motion, any monies would come from the United States
and not the Company, and at least a portion of the relator's lawsuit
would likely be dismissed. We are still awaiting disposition of our
motion to dismiss the case.
In the matter of U.S. EX REL. SMITH V. COMMUNITY HEALTH SYSTEMS, INC.,
which was filed in the Middle District of Tennessee, the Department of
Justice notified us earlier this year that it would not intervene in
the case and the relator has subsequently dismissed the case.
In the matter of U.S. EX REL. KOWATLI V. RUSSELL COUNTY MEDICAL CENTER,
ET al. filed in Abingdon, Virginia, the Department of Justice has
notified the Court that it will not intervene in the case. We have not
yet been served with a complaint in this case. The relator has filed a
motion similar to the relator's motion in the Bledsoe case, seeking a
portion of the proceeds of the May 2000 settlement. The government is
vigorously opposing this motion and has moved to dismiss the case
against it.
In August 2001, the Company reached a civil settlement with the U.S.
Department of Justice regarding the Harris Hospital mammography
investigation. The Company paid $65,000 in connection with the
settlement, but admitted no liability in the matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the company's annual meeting of stockholders, held on May 22, 2001,
in New York, New York, the following directors were elected as Class I
directors of the Company: W. Larry Cash, Robert J. Dole, J. Anthony
Forstmann, and Harvey Klein, M.D. The terms of the Class I directors
will expire at the annual meeting of stockholders in 2004 but not
before their respective successors are elected and qualified. The terms
of the following Class II directors will continue until the annual
meeting of stockholders in 2002: Dale F. Frey, Sandra J. Horbach, and
Michael A. Miles. The terms of the following Class II directors will
continue until the annual meeting of stockholders in 2003: Sheila P.
Burke, Theodore J. Forstmann, Thomas H. Lister, and Wayne T. Smith. The
stockholders also ratified the appointment of Deloitte & Touche LLP as
the company's independent public accountants for the year ending
December 31, 2001.
In the elections described above, votes were cast as follows:
ELECTION OF - VOTES FOR VOTES WITHHELD
- ------------- --------- --------------
Robert J. Dole 77,430,423 55,860
J. Anthony Forstmann 77,429,803 56,480
Harvey Klein, M.D. 77,429,553 56,730
W. Larry Cash 71,100,261 6,386,022
RATIFICATION OF - VOTES FOR VOTES AGAINST VOTES ABSTAINING
- ----------------- --------- ------------- ----------------
Deloitte & Touche, LLP 77,465,112 18,071 3,100
15
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index to Exhibits located on page 19.
(b) Reports on Form 8-K
Form 8-K, dated April 25, 2001, in connection with our press
release related to first quarter 2001 operating results.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 2001 COMMUNITY HEALTH SYSTEMS, INC.
(Registrant)
By: /s/ Wayne T. Smith
-------------------------------------
Wayne T. Smith
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
By: /s/ W. Larry Cash
-------------------------------------
W. Larry Cash
Executive Vice President and Chief
Financial Officer
(principal financial officer)
By: /S/ T. Mark Buford
-------------------------------------
T. Mark Buford
Vice President and Corporate Controller
(principal accounting officer)
17
INDEX TO EXHIBITS
NO. DESCRIPTION
- --- -----------
(10) Material contracts
Included herein as Exhibit 10.1 (Second and Third Amendment to the
Amended and Restated Credit Agreement)
18
Exhibit 10.1
EXECUTION COPY
SECOND AMENDMENT
SECOND AMENDMENT, dated as of October 13, 2000 (this "Amendment"),
to the AMENDED AND RESTATED CREDIT AGREEMENT, dated as of March 26, 1999, as
amended (as amended, the "CREDIT AGREEMENT"), among COMMUNITY HEALTH SYSTEMS,
INC., a Delaware corporation (the "BORROWER"), COMMUNITY HEALTH SYSTEMS HOLDINGS
CORP., a Delaware corporation ("HOLDCO"), the several lenders from time to time
parties thereto (the "LENDERS"), THE CHASE MANHATTAN BANK, as administrative
agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT") and
NATIONSBANK, N.A. and THE BANK OF NOVA SCOTIA, as the co-agents for the Lenders
(collectively, the "CO-AGENTS").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower, HoldCo, the Administrative Agent, the
Co-Agents and the Lenders are parties to the Credit Agreement;
WHEREAS, the Borrower and HoldCo, have requested that the
Administrative Agent and the Required Lenders agree to amend certain provisions
of the Credit Agreement; and
WHEREAS, the Administrative Agent and the Lenders parties hereto are
willing to agree to the requested amendments, but only upon the terms and
conditions set forth herein;
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
premises contained herein, the parties hereto agree as follows:
SECTION I. AMENDMENTS TO THE CREDIT AGREEMENT.
1.1 DEFINED TERMS. Unless otherwise defined herein, capitalized
terms which are defined in the Credit Agreement are used herein as defined
therein.
1.2 AMENDMENT TO SECTION 14. (a) Section 14 of the Credit Agreement
is hereby amended by deleting paragraph (l) therein in its entirety and
substituting, in lieu thereof, the following:
"(l) FL Affiliates shall cease to own at least 25% of the
outstanding capital stock of HoldCo, free and clear of all Liens; or, any person
or group (other than the FL Affiliates) acquires beneficial ownership (within
the meaning of Rule 13d-3 of the Securities and Exchange Commission promulgated
under the Securities Exchange Act of 1934, as amended) of a percentage of the
outstanding capital stock of HoldCo greater than that percentage owned
beneficially by the FL Affiliates; or, any person or group (other than the FL
Affiliates) shall at any time have the right to designate or elect a majority of
the Board of Directors of HoldCo;"
SECTION II. MISCELLANEOUS.
2.1 REPRESENTATIONS AND WARRANTIES. On and as of the date hereof and
after giving effect to this Amendment, the Borrower hereby confirms, reaffirms
and restates the representations and warranties set forth in Section 10 of the
Credit Agreement MUTATIS MUTANDIS, except to the extent that such
representations and warranties expressly relate to a specific earlier date in
which case the Borrower hereby confirms, reaffirms and restates such
representations and warranties as of such earlier date, PROVIDED that the
references to the Credit Agreement in such representations and warranties shall
be deemed to refer to the Credit Agreement as amended pursuant to this
Amendment.
2.2 CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective as of the date hereof upon the satisfaction of the conditions that (i)
the Administrative Agent shall have received counterparts of this Amendment duly
executed and delivered by each of the Borrower, the Administrative Agent and the
Required Lenders, and (ii) HoldCo shall have issued and sold in a registered
public offering consummated on or after the effective date of this Amendment
7,500,000 shares of its common stock, the proceeds of which shall be used to
repay outstanding Loans.
2.3 CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as expressly set
forth in this Amendment, all of the terms and provisions of the Credit Agreement
are and shall remain in full force and effect and the Borrower shall continue to
be bound by all of such terms and provisions. The amendments provided for herein
are limited to the specific subsections of the Credit Agreement specified herein
and shall not constitute an amendment of, or an indication of the Administrative
Agent's or the Lenders' willingness to amend or waive, any other provisions of
the Credit Agreement or the same subsections for any other date or purpose.
2.4 EXPENSES. The Borrower agrees to pay and reimburse the
Administrative Agent for all its reasonable costs and expenses incurred in
connection with the preparation and delivery of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
2.5 COUNTERPARTS. This Amendment may be executed by one or more of
the parties to this Amendment on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Amendment
signed by the parties hereto shall be delivered to the Borrower and the
Administrative Agent.
2.6 GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
COMMUNITY HEALTH SYSTEMS, INC.
By:
------------------------------
Name:
Title:
COMMUNITY HEALTH SYSTEMS HOLDINGS
CORP.
By:
------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By:
------------------------------
Name:
Title:
BANK OF AMERICA, N.A., as Co-Agent and as
a Lender
By:
------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, as Co-Agent
and as a Lender
By:
------------------------------
Name:
Title:
AERIES-II FINANCE LTD., as a Lender
By:
------------------------------
Name:
Title:
AIMCO CDO SERIES 2000-A, as a Lender
By:
------------------------------
Name:
Title:
ALLSTATE INSURANCE COMPANY, as a Lender
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
ALLSTATE LIFE INSURANCE CO., as a Lender
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
AMSOUTH BANK OF ALABAMA, as a Lender
By:
------------------------------
Name:
Title:
APEX (IDM) CDO I, Ltd., as a Lender
By:
------------------------------
Name:
Title:
BHF (USA) CAPITAL CORPORATION, as a
Lender
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC., as a Lender
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
BANK ONE, NA, as a Lender
By:
------------------------------
Name:
Title:
BANK OF AMERICA, as a Lender
By:
------------------------------
Name:
Title:
THE BANK OF NEW YORK, as a Lender
By:
------------------------------
Name:
Title:
BANKBOSTON, N.A., as a Lender
By:
------------------------------
Name:
Title:
CAPTIVA FINANCE LTD., as a Lender
By:
------------------------------
Name:
Title:
CERES FINANCE, LTD., as a Lender
by: Stanfield Capital Partners LLC
By:
------------------------------
Name:
Title:
CITADELL HILL 2000 Ltd.,
as a Lender
By:
------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH,
as a Lender
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
ELC (CAYMAN) LTD., as a Lender
By:
------------------------------
Name:
Title:
ELC (CAYMAN) LTD. 1999-II,
as a Lender
By:
------------------------------
Name:
Title:
ELC (CAYMAN) LTD. 1999-III,
as a Lender
By:
------------------------------
Name:
Title:
ELC (CAYMAN) LTD. 2000-1,
as a Lender
By:
------------------------------
Name:
Title:
ELC (CAYMAN) LTD. CDO SERIES 1999-I,
as a Lender
By:
------------------------------
Name:
Title:
FIRST DOMINION FUNDING II, as a Lender
By:
------------------------------
Name:
Title:
FIRST NATIONAL BANK OF BOSTON,
as a Lender
By:
------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK N.C., as a Lender
By:
------------------------------
Name:
Title:
FLOATING RATE PORTFOLIO, as a Lender
By: INVESCO Senior Secured Management, Inc.,
as attorney in fact
By:
------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION, as a Lender
By:
------------------------------
Name:
Title:
GIBRALTAR, LTD., as a Lender
By:
------------------------------
Name:
Title:
HSBC BANK USA, as a Lender
By:
------------------------------
Name:
Title:
INDUSTRIAL BANK OF JAPAN, LTD.,
as a Lender
By:
------------------------------
Name:
Title:
JACKSON NATIONAL LIFE INSURANCE
COMPANY, as a Lender
By:
------------------------------
Name:
Title:
KZH ING-1 LLC, as a Lender
By:
------------------------------
Name:
Title:
KZH ING-2 LLC, as a Lender
By:
------------------------------
Name:
Title:
KZH STERLING LLC, as a Lender
By:
------------------------------
Name:
Title:
KEYPORT LIFE INSURANCE COMPANY, as a
Lender
By: Stein Roe & Farnham Incorporated, as Agent
By:
------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER INC., as a Lender
By:
------------------------------
Name:
Title:
LIBERTY-STEIN ROE ADV. FLOATING RATE,
as a Lender
By:
------------------------------
Name:
Title:
MSDW PRIME INCOME TRUST, as a Lender
By:
------------------------------
Name:
Title:
MAGNETITE ASSET INVESTORS,
as a Lender
By:
------------------------------
Name:
Title:
MASS MUTUAL HIGH YIELD PARTNERS II, LLC,
as a Lender
By:
------------------------------
Name:
Title:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, as a Lender
By:
------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO,
as a Lender
By:
------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By:
------------------------------
Name:
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION, as a Lender
By:
------------------------------
Name:
Title:
NATEXIS BANQUE POPULAIRES, as a Lender
By:
------------------------------
Name:
Title:
NATIONAL CITY BANK OF KENTUCKY, as a
Lender
By:
------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY,
as a Lender
By:
------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION, as a Lender
By:
------------------------------
Name:
Title:
NUVEEN SENIOR INCOME FUND, as a Lender
By:
------------------------------
Name:
Title:
OASIS COLLATERAL HIGH INCOME
PORTFOLIO-1, as a Lender
By: INVESCO Senior Secured Management, Inc.,
as Subadvisor
By:
------------------------------
Name:
Title:
OCTAGON INVESTMENT PARTNERS II, LLC,
as a Lender
By:
------------------------------
Name:
Title:
OCTAGON INVESTMENT PARTNERS III, LTD.
as a Lender
By:
------------------------------
Name:
Title:
PNC BANK, KENTUCKY, INC.,
as a Lender
By:
------------------------------
Name:
Title:
PARIBAS, as a Lender
By:
------------------------------
Name:
Title:
PILGRIM AMERICAN HIGH INCOME
INVESTMENT LTD., as a Lender
By: Pilgrim Investments, Inc., as its
investment manager
By:
------------------------------
Name:
Title:
PILGRIM CLO 1999-1 LTD.,
as a Lender
By: Pilgrim Investments, Inc., as its
investment manager
By:
------------------------------
Name:
Title:
PILGRIM PRIME RATE INCOME TRUST,
as a Lender
By: Pilgrim Investments, Inc., as its
investment manager
By:
------------------------------
Name:
Title:
SAAR HOLDINGS CDO, LIMITED,
as a Lender
By:
------------------------------
Name:
Title:
SEQUILS - PILGRIM I, LTD.,
as a Lender
By: Pilgrim Investments, Inc., as its
investment manager
By:
------------------------------
Name:
Title:
SPS SWAPS, as a Lender
By:
------------------------------
Name:
Title:
SRF 2000 LLC, as a Lender
By:
------------------------------
Name:
Title:
SRF TRADING, INC., as a Lender
By:
------------------------------
Name:
Title:
SENECA CBO II L.P., as a Lender
By:
------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO, as a Lender
By: Boston Management and Research,
as Investment Advisor
By:
------------------------------
Name:
Title:
SIMSBURY CLO, LIMITED,
as a Lender
By: MassMutual Life Insurance
By:
------------------------------
Name:
Title:
SKANDINAVISKA ENSILDA BANKEN,
as a Lender
By:
------------------------------
Name:
Title:
STANFIELD CLO, LTD.,
as a Lender
By: Stanfield Capital Partners LLC
By:
------------------------------
Name:
Title:
STANFIELD\RMF TRANSATLANTIC CDO, LTD.,
as a Lender
By: Stanfield Capital Partners LLC
By:
------------------------------
Name:
Title:
STEIN ROE & FARNHAM CLO I LTD.,
as a Lender
By: Stein Roe & Farnham Incorporated, as
Portfolio Manager
By:
------------------------------
Name:
Title:
STEIN ROE FLOATING RATE LLC,
as a Lender
By: Stein Roe & Farnham Incorporated, as
Portfolio Manager
By:
------------------------------
Name:
Title:
STRATA FUNDING LIMITED,
as a Lender
By:
------------------------------
Name:
Title:
SWAPS CSLT, as a Lender
By:
------------------------------
Name:
Title:
VAN KAMPEN CLO I, LIMITED,
as a Lender
By: Van Kampen Management Inc., as Collateral
Manager
By:
------------------------------
Name:
Title:
VAN KAMPEN CLO II, LIMITED,
as a Lender
By: Van Kampen Management Inc., as Collateral
Manager
By:
------------------------------
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
as a Lender
By: Van Kampen Management Inc., as Collateral
Manager
By:
------------------------------
Name:
Title:
VAN KAMPEN SENIOR INCOME TRUST
as a Lender
By: Van Kampen Management Inc., as Collateral
Manager
By:
------------------------------
Name:
Title:
EXHIBIT A
THIRD AMENDMENT
THIRD AMENDMENT, dated as of July 19, 2001 (this "THIRD Amendment"),
representing an amendment to the Amended and Restated Credit Agreement, dated as
of March 26, 1999 (as amended, supplemented or otherwise modified, the "CREDIT
AGREEMENT"), among CHS/COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation
and formerly known as Community Health Systems, Inc. (the "BORROWER"), COMMUNITY
HEALTH SYSTEMS, INC., a Delaware corporation and formerly known as Community
Health Systems Holdings Corp. ("HOLDCO"), the several lenders from time to time
parties thereto (the "LENDERS"), THE CHASE MANHATTAN BANK, as administrative
agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT") and BANK OF
AMERICA, N.A. and THE BANK OF NOVA SCOTIA, as the co-agents for the Lenders
(collectively, the "CO-AGENTS").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower, HoldCo, the Administrative Agent, the
Co-Agents and the Lenders are parties to the Credit Agreement;
WHEREAS, the Borrower and HoldCo have requested that the
Administrative Agent and the Required Lenders agree to amend certain provisions
of the Credit Agreement; and
WHEREAS, the Administrative Agent and the Lenders parties hereto are
willing to agree to the requested amendments, but only upon the terms and
conditions set forth herein;
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
premises contained herein, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
which are defined in the Credit Agreement are used herein as defined therein.
2. Amendment to Subsection 1.1 (Defined Terms). (a) Subsection 1.1
of the Credit Agreement is hereby amended by deleting in their respective
entireties definitions in such subsection for the following defined terms and
substituting, in lieu thereof, the following definitions:
"ACQUISITION LOAN COMMITMENT PERCENTAGE": as to any Lender at any
time, the percentage which such Lender's Acquisition Loan Commitment
constitutes of all such Acquisition Loan Commitments (or, if the
Acquisition Loan Commitments shall have been terminated, the percentage of
the outstanding Acquisition Loans constituted by such Lender's Acquisition
Loans), it being understood that such percentage shall be appropriately
adjusted as of the date of any reduction in the Acquisition Loan
Commitments of the Non-Extending Acquisition Loan Lenders or the First
Extending Acquisition Loan Lenders to reflect such reduction.
"ACQUISITION LOAN COMMITMENT PERIOD": (a) with respect to any
Non-Extending Acquisition Loan Lender or First Extending Acquisition Loan
Lender, the period from and including the Original Closing Date to but not
including the Original Acquisition Loan Termination Date, and (b) with
respect to any Second Extending Acquisition Loan Lender, the period from
and including the Original Closing Date to but not including the Extended
Acquisition Loan Termination Date.
"ACQUISITION LOAN TERMINATION DATE": as to any Non-Extending
Acquisition Loan Lender or First Extending Acquisition Loan Lender, the
Original Acquisition Loan Termination Date, and as to any Second Extending
Acquisition Loan Lender, the Extended Acquisition Loan Termination Date,
as the case may be.
"REVOLVING CREDIT COMMITMENT PERIOD": (a) with respect to any
Non-Extending Revolving Credit Lender, the period from and including the
Original Closing Date to but not including the Non-Extended Revolving
Credit Termination Date and, (b) with respect to any Extending Revolving
Credit Lender, the period from and including the original Closing Date to
but not including the Extended Revolving Credit Termination Date.
"REVOLVING CREDIT TERMINATION DATE": as to any Non-Extending
Revolving Credit Lender, the Non-Extended Revolving Credit Termination
Date, and as to any Extending Revolving Credit Lender, the Extended
Revolving Credit Termination Date, as the case may be.
(b) Subsection 1.1 of the Credit Agreement is hereby amended by
deleting paragraph (B) in the definition of "Interest Period" in such subsection
in its entirety and substituting, in lieu thereof, the following:
(B) any Interest Period with respect to any Revolving Credit Loan or
Acquisition Loan that would otherwise extend beyond the Revolving Credit
Termination Date of any Lender or the Acquisition Loan Termination Date of
any Lender, as the case may be, shall end on such Revolving Credit
Termination Date or Acquisition Loan Termination Date, as the case may be,
or if such Revolving Credit Termination Date or Acquisition Loan
Termination Date, as the case may be, shall not be a Working Day, on the
next preceding Working Day;
(c) Subsection 1.1 of the Credit Agreement is hereby amended by
deleting paragraph (a) in the definition of "Applicable Margin" in such
subsection in its entirety and substituting, in lieu thereof, the following:
(a) (i) for each Revolving Credit Loan (other than any Revolving
Credit Loan held by an Extending Revolving Credit Lender after the Third
Amendment Effective Date), Tranche A Term Loan, Acquisition Loan (other
than any Acquisition Loan held by a Second Extending Acquisition Loan
Lender after the Third Amendment Effective Date) and Swing Line Loan (with
respect to ABR only) (other than a Swing Line Loan after the Third
Amendment Effective Date) for each day, the rate per annum for the
relevant Type
of such Loan set forth below opposite the Applicable Level in effect on
such day and (ii) for each Revolving Credit Loan held by any Extending
Revolving Credit Lender, Acquisition Loan held by any Second Extending
Acquisition Loan Lender and Swing Line Loan (with respect to ABR only) for
each day after the Third Amendment Effective Date, the rate per annum for
the relevant Type of such Loan set forth below opposite the Applicable
Level in effect on such day plus 0.50%:
ABR Loan Eurodollar Loan
-------- ---------------
Level 1 1.50% 2.50%
Level 2 1.25% 2.25%
Level 3 1.00% 2.00%
Level 4 0.75% 1.75%
Level 5 0.50% 1.50%
(d) Subsection 1.1 of the Credit Agreement is hereby amended by
adding alphabetically therein the following definitions:
"EXTENDED ACQUISITION LOAN TERMINATION DATE": the earlier of (i)
January 2, 2004 and (ii) any other date on which the Acquisition Loan
Commitments shall terminate hereunder.
"EXTENDED REVOLVING CREDIT TERMINATION DATE": the earlier of (i)
January 2, 2004 and (ii) any other date on which the Revolving Credit
Commitments shall terminate hereunder.
"EXTENDING REVOLVING CREDIT LENDERS": the Lenders with Revolving
Credit Commitments that consent to the Third Amendment in accordance with
the terms thereof.
"FIRST EXTENDED ACQUISITION LOAN COMMITMENT": as to any First
Extending Acquisition Loan Lender, its Acquisition Loan Commitment.
"FIRST EXTENDING ACQUISITION LOAN LENDERS": the Lenders with
Acquisition Loan Commitments that are listed on Schedule 1 (as in effect
on the records of the Administrative Agent immediately prior to the Third
Amendment Effective Date) as having Extended Acquisition Loan Commitments
and that do not consent to the Third Amendment in accordance with the
terms thereof.
"NON-EXTENDED ACQUISITION LOAN COMMITMENT": as to any Non-Extending
Acquisition Loan Lender, its Acquisition Loan Commitment."
"NON-EXTENDING ACQUISITION LOAN LENDERS": the Lenders with
Acquisition Loan Commitments that are listed on Schedule 1 (as in effect
on the records of the Administrative Agent immediately prior to the Third
Amendment Effective Date) as having Non-Extended Acquisition Loan
Commitments and that do not consent to the Third Amendment in accordance
with the terms thereof.
"NON-EXTENDING REVOLVING CREDIT LENDERS": the Lenders with Revolving
Credit Commitments that do not consent to the Third Amendment in
accordance with the terms thereof.
"NON-EXTENDED REVOLVING CREDIT TERMINATION DATE": the earlier of (i)
December 31, 2002 and (ii) any other date on which the Revolving Credit
Commitments shall terminate hereunder.
"ORIGINAL ACQUISITION LOAN TERMINATION DATE": the earlier of (i)
December 31, 2002 and (ii) any other date on which the Acquisition Loan
Commitments shall terminate hereunder.
"SECOND EXTENDED ACQUISITION LOAN COMMITMENT": as to any Second
Extending Acquisition Loan Lender, its Acquisition Loan Commitment.
"SECOND EXTENDING ACQUISITION LOAN LENDERS": the Lenders with
Acquisition Loan Commitments listed on Schedule 1 (as in effect on the
records of the Administrative Agent immediately prior to the Third
Amendment Effective Date) under the heading "Non-Extended Acquisition Loan
Commitment" or "Extended Acquisition Loan Commitment" that consent to the
Third Amendment in accordance with the terms thereof.
"THIRD AMENDMENT": the Third Amendment dated as of July 19, 2001 to
this Agreement.
"THIRD AMENDMENT EFFECTIVE DATE": as defined in section 16 of the
Third Amendment.
3. AMENDMENT TO SUBSECTION 6.3 (ISSUANCE OF LETTERS OF CREDIT).
Subsection 6.3 of the Credit Agreement is hereby amended by deleting paragraph
(b) of such subsection in its entirety and substituting, in lieu thereof, the
following:
(b) Each Letter of Credit issued hereunder shall, among other
things, (i) be in such form requested by the Company as shall be
acceptable to the Issuing Lender in its sole discretion and (ii) have an
expiry date, in the case of each Standby L/C, other than Existing Letters
of Credit, occurring not later than the earlier of (w) 365 days after the
date of issuance of such Standby L/C and (x) the Extended Revolving Credit
Termination Date, and, in the case of each Commercial L/C, occurring not
later than the earlier of (y) 180 days after the date of issuance of such
Commercial L/C; PROVIDED, HOWEVER, that at the request of the Company and
upon the consent, in its sole and absolute discretion, of the Issuing
Lender issuing such Commercial L/C, such date may be up to 360 days after
the date of issuance of such Commercial L/C and (z) the Extended Revolving
Credit Termination Date. Each L/C Application and each Letter of Credit
shall be subject to the Uniform Customs and, to the extent not
inconsistent therewith, the laws of the State of New York.
4. AMENDMENT TO SECTION 6 (AMOUNT AND TERMS OF REVOLVING CREDIT
COMMITMENTS). Section 6 of the Credit Agreement is hereby amended by adding
subsection 6.9 thereto as follows:
6.9 PAYMENTS ON DECEMBER 31, 2002. On the Non-Extended Revolving
Credit Termination Date (if such date is not also the Extended Revolving
Credit Termination Date) the Company shall make a prepayment of the
Revolving Credit Loans of the Extending Revolving Credit Lenders in the
aggregate amount (if any) as may be necessary to reduce the Aggregate
Revolving Credit Extensions of Credit of the Extending Revolving Credit
Lenders to an amount equal to their aggregate Revolving Credit Commitments
on such date, after giving effect to any payments on such date of the
Revolving Credit Loans of the Non-Extending Revolving Credit Lenders and,
as provided in the next succeeding sentence, the release of their
liabilities in respect of Letters of Credit and Swing Line Loans. On such
date, so long as no Event of Default shall have occurred and be continuing
and so long as any prepayment contemplated by the immediate preceding
sentence of the Revolving Credit Loans of the Extending Revolving Credit
Lenders has been made, the Non-Extending Revolving Credit Lenders shall be
released from all liability in respect of the Letters of Credit and the
Swing Line Loans.
5. AMENDMENT TO SUBSECTION 7.2 (MANDATORY REDUCTION OF ACQUISITION
LOAN COMMITMENTS). Subsection 7.2 of the Credit Agreement is hereby amended by
deleting subsection 7.2 in its entirety and substituting, in lieu thereof, the
following:
7.2 MANDATORY REDUCTION OF ACQUISITION LOANS. On each anniversary of
the Original Closing Date as set forth on Schedule 7.2(a) or 7.2(b), as
the case may be, (a) the First Extended Acquisition Loan Commitments shall
automatically be permanently reduced to, and each Lender's First Extended
Acquisition Loan Commitment shall be permanently reduced to an amount
equal to such Lender's First Extended Acquisition Loan Commitment
Percentage of, the amount set forth on Schedule 7.2(a) and (b) the
Non-Extended Acquisition Loan Commitments shall automatically be
permanently reduced to, and each Lender's Non-Extended Acquisition Loan
Commitment shall be permanently reduced to an amount equal to such
Lender's Non-Extended Acquisition Loan Commitment Percentage of, the
amount set forth on Schedule 7.2(b); provided, however, that if prior to
any of the dates specified in Schedules 7.2(a) or 7.2(b), the First
Extended Acquisition Loan Commitments or the Non-Extended Acquisition Loan
Commitments shall have been permanently reduced pursuant to subsection 8.4
or 8.6 to an amount less than the amount to which the First Extended
Acquisition Loan Commitments or the Non-Extended Acquisition Loan
Commitments, as the case may be, are required to be reduced on such date
pursuant to such Schedule, the relevant Acquisition Loan Commitments shall
as of such date continue to be such lesser amount. If at the time of any
such mandatory reduction of the First Extended Acquisition Loan
Commitments or the Non-Extended Acquisition Loan Commitments the aggregate
principal amount of the First Extended Acquisition Loans or the
Non-Extended Acquisition Loans, as the case may be, then outstanding
exceeds the First Extended Acquisition Loan Commitments or the
Non-Extended Acquisition Loan Commitments, as the case may be, as so
reduced on such date, the Company shall on such date prepay the
relevant Acquisition Loans in the amount of such excess, together with
accrued interest thereon to the date of payment. The Second Extended
Acquisition Loan Commitments shall not be subject to any scheduled
mandatory reductions.
6. AMENDMENT TO SUBSECTION 8.2 (REPAYMENT OF LOANS; EVIDENCE OF
DEBT). Subsection 8.2 of the Credit Agreement is hereby amended by deleting
paragraph (a) of such subsection in its entirety and substituting, in lieu
thereof, the following:
(a) The Company hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender (i) the then unpaid
principal amount of each Revolving Credit Loan of such Lender on (if such
Lender is a Non-Extending Revolving Credit Lender) the Non-Extended
Revolving Credit Termination Date or (if such Lender is an Extending
Revolving Credit Lender) the Extended Revolving Credit Termination Date
(or such earlier date on which the Revolving Credit Loans become due and
payable pursuant to Section 14), (ii) the then unpaid principal amount of
each Acquisition Loan of such Lender on (if such Lender is a Non-Extending
Acquisition Loan Lender or a First Extending Acquisition Loan Lender) the
Original Acquisition Loan Termination Date or (if such Lender is a Second
Extending Acquisition Loan Lender) the Extended Acquisition Loan
Termination Date (or such earlier date on which the Acquisition Loans
become due and payable pursuant to Section 14), and (iii) the principal
amount of the Term Loan of such Lender, in accordance with the applicable
amortization schedule set forth in subsections 2.2, 3.2, 4.2 and 5.2 (or
the then unpaid principal amount of such Term Loans, on the date that any
or all of the Term Loans become due and payable pursuant to Section 14).
The Company hereby further agrees to pay interest on the unpaid principal
amount of the Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the dates,
set forth in subsection 8.7.
7. AMENDMENT TO SUBSECTION 8.9 (COMMITMENT FEES). Subsection 8.9 of
the Credit Agreement is hereby amended by deleting subsection 8.9 in its
entirety and substituting, in lieu thereof, the following:
8.9 COMMITMENT FEES. The Company agrees to pay to the Administrative
Agent, (i) for the account of each Lender (other than any Extending
Revolving Credit Lender or Second Extending Acquisition Loan Lender), a
commitment fee from and including the Closing Date to but excluding the
later of the Revolving Credit Termination Date and the Acquisition Loan
Termination Date on the sum of such Lender's Available Revolving Credit
Commitment and Available Acquisition Loan Commitment outstanding from time
to time, at the rate per annum for each day during the period for which
payment is made set forth opposite the Applicable Level on such day, and
(ii) for the account of each Extending Revolving Credit Lender and Second
Extending Acquisition Loan Lender, a commitment fee from and including the
Third Amendment Effective Date to but excluding the later of the Extended
Revolving Credit Termination Date and the Extended Acquisition Loan
Termination Date on the sum of such Lender's Available Revolving Credit
Commitment and Available Acquisition Loan Commitment outstanding from time
to time, at the rate per annum for each day during the period for which
payment is made set forth opposite the Applicable Level on such day plus,
for each of Levels 3 and 4, 0.125%:
Applicable Level Commitment Fee
---------------- --------------
Level 1 .500%
Level 2 .500%
Level 3 .375%
Level 4 .375%
Level 5 .375%
The commitment fee provided for in this subsection 8.9 shall be payable
quarterly in arrears on the last day of each fiscal quarter and on the
Revolving Credit Termination Date or Extended Revolving Credit Termination
Date, as the case may be, with respect to the Available Revolving Credit
Commitments and on the Acquisition Loan Termination Date or Extended
Acquisition Loan Termination Date, as the case may be, with respect to the
Available Acquisition Loan Commitments.
8. AMENDMENT TO SUBSECTION 8.11(A) (LETTER OF CREDIT FEES).
Subsection 8.11(a) of the Credit Agreement is hereby amended by deleting the
first paragraph of such subsection in its entirety and substituting, in lieu
thereof, the following:
(a) In lieu of any letter of credit commissions and fees provided
for in any L/C Application relating to Letters of Credit (other than
standard administrative issuance, amendment and negotiation fees), the
Company agrees to pay the Administrative Agent a Letter of Credit fee, for
the account of the Issuing Lender and the Participating Lenders, (i) with
respect to each Standby L/C, on the average outstanding amount available
to be drawn under each Standby L/C at a rate per annum equal to the
Applicable Margin for Revolving Credit Loans which are Eurodollar Loans in
effect at such time, whether or not there are any such Eurodollar Loans
outstanding at such time, payable in arrears, on the last day of each
fiscal quarter of the Company and on the Revolving Credit Termination Date
or the Extended Revolving Credit Termination Date as the case may be and
(ii) with respect to each Commercial L/C, on the aggregate face amount of
each Commercial L/C at a rate equal to the Applicable Margin for Revolving
Credit Loans which are Eurodollar Loans in effect at such time, whether or
not there are any such Eurodollar Loans outstanding at such time, payable
on the date such Commercial L/C is issued. After the Third Amendment
Effective Date, the Letter of Credit fees payable for the benefit of the
Non-Extending Revolving Credit Lenders and Extending Revolving Credit
Lenders, respectively, shall be as provided in the definition of
"Applicable Margin" in subsection 1.1.
9. AMENDMENT TO SUBSECTION 8.18 (PRO RATA TREATMENT AND PAYMENTS).
Subsection 8.18(a) of the Credit Agreement is hereby amended by adding the
following clause to the end of the second sentence of such subsection:
, provided that (i) so long as no Event of Default shall have occurred and
be continuing, the Company may pay the principal of the Revolving Credit
Loans of the Non-Extending Revolving Credit Lenders on or after the
Non-Extended
Revolving Credit Termination Date without making any equivalent payment of
principal of the Revolving Credit Loans of the Extending Revolving Credit
Lenders, (ii) so long as no Event of Default shall have occurred and be
continuing, the Company may make payments of principal of the Acquisition
Loans of the Non-Extending Acquisition Lenders or the First Extending
Acquisition Lenders without making any equivalent payment of principal of
the Acquisition Loans of the other Acquisition Lenders in order to reduce
the principal of the Acquisition Loans of such Non-Extending Acquisition
Lenders or such First Extending Acquisition Lenders to the amount of their
Acquisition Loan Commitments as of the date of any scheduled reduction of
the Non-Extended Acquisition Loan Commitments or the First Extended
Acquisition Loan Commitments or to pay in full the principal of its
Acquisition Loans on the Original Acquisition Loan Termination Date, (iii)
and on the Third Amendment Effective Date, borrowings under the
Acquisition Loan Commitments shall be made from among the Acquisition Loan
Lenders in order to make the ratio of the Acquisition Loans of each
Acquisition Loan Lender to its Acquisition Loan Commitment as close as
practicable to the ratio thereof for the other Acquisition Loan Lenders
and (iv) on and after the Third Amendment Effective Date, payments of
interest on the Revolving Credit Loans and the Acquisition Loans shall be
made PRO RATA according to the respective amounts of interest owing to the
Lenders who have made Revolving Credit Loans or Acquisition Loans, as the
case may be.
10. AMENDMENT TO SUBSECTION 13.2 (INDEBTEDNESS). Subsection 13.2 of
the Credit Agreement is hereby amended by:
(a) deleting paragraph (k) of such subsection in its entirety and
substituting, in lieu thereof, the following:
(k) Indebtedness on any date of the Company or any of its
Subsidiaries assumed or issued in connection with a Permitted Acquisition
(or, in the case of any Permitted Acquisition involving the purchase of
capital stock or other equity interests in any Person, Indebtedness of
such Person remaining outstanding after such Permitted Acquisition) and
any extension or renewal thereof, PROVIDED that the aggregate principal
amount of any such Indebtedness assumed or issued after the Third
Amendment Effective Date, together with the aggregate amount of net
investments made after the Third Amendment Effective Date in Permitted
Acquisitions pursuant to subsection 13.7(l) (and calculated as at such
date as provided herein), shall not exceed $500,000,000.
11. AMENDMENT TO SUBSECTION 13.4 (LIMITATION ON CONTINGENT
OBLIGATIONS). Subsection 13.4 of the Credit Agreement is hereby amended by
adding paragraph (g) thereto as follows:
(g) Contingent Obligations in respect of any accounts receivable
sold or otherwise disposed of pursuant to subsection 13.6(a)(ii).
12. AMENDMENT TO SUBSECTION 13.6 (PROHIBITION ON SALE OF ASSETS).
Subsection 13.6 of the Credit Agreement is hereby amended by deleting paragraph
(a) of such subsection in its entirety and substituting, in lieu thereof, the
following:
(a) for the sale or other disposition of (i) any tangible personal
property that, in the reasonable judgment of the Company, has become
uneconomic, obsolete or worn out, and which is disposed of in the ordinary
course of business or (ii) any accounts receivable of the Company or any
of its Subsidiaries more than 180 days past due or are written-off at the
time of such sale or disposition or any self-pay accounts receivable of
the Company or any of its Subsidiaries that are determined by the Company
to be unabled to be paid in full within 150 days of the related service
date, PROVIDED that the face value of such sold or disposed of accounts
receivable shall not exceed $50,000,000 in the aggregate;
13. AMENDMENT TO SUBSECTION 13.7 (LIMITATION ON INVESTMENTS, LOANS
AND ADVANCES). Subsection 13.7 of the Credit Agreement is hereby amended by
deleting paragraph (l) of such subsection in its entirety and substituting, in
lieu thereof, the following:
(l) the Company and its Subsidiaries may make Permitted Acquisitions
and may make loans or advances to, or acquisitions or investments in,
other Persons in connection with or pursuant to the terms of Permitted
Acquisitions, PROVIDED that the consideration paid by the Company or any
of its Subsidiaries in all such transactions after the Third Amendment
Effective Date (net, in the case of loans, advances, investments and other
transfers of any repayments or return of capital in respect thereof
actually received in cash by the Company or its Subsidiaries (net of
applicable taxes) after the Third Amendment Effective Date and excluding
consideration delivered by the Company or its Subsidiaries in any Asset
Exchange permitted under Section 13.6(h)) does not exceed in the
aggregate, when added to the principal amount of Indebtedness outstanding
as permitted pursuant to subsection 13.2(k) and incurred after the Third
Amendment Effective Date, $500,000,000;
14. AMENDMENT TO SUBSECTION 13.9 (LIMITATION ON DIVIDENDS).
Subsection 13.9 of the Credit Agreement is hereby amended by deleting paragraph
(c) of such subsection in its entirety and substituting, in lieu thereof, the
following:
(c) so long as no Default or Event of Default has occurred or would
occur after giving effect to such declaration or payment, the Company may,
from time to time, declare and pay cash dividends to HoldCo on the common
stock of the Company; PROVIDED that the proceeds of such dividends shall
be used within 30 days of the receipt of such dividends by HoldCo to
repurchase HoldCo stock from management employees of HoldCo or any of its
Subsidiaries and, PROVIDED FURTHER, that the aggregate amount of such cash
dividends paid after the Third Amendment Effective Date does not exceed
$10,000,000, as such amount may be increased by the proceeds of any
additional HoldCo capital stock which is issued after the Third Amendment
Effective Date to any management employees of HoldCo or any of its
Subsidiaries so long as such proceeds are contributed by HoldCo to the
capital of the Company; and
15. AMENDMENT TO SECTION 14 (EVENTS OF DEFAULT). Section 14 of the
Credit Agreement is hereby amended by deleting paragraph (k) of such section in
its entirety and substituting, in lieu thereof, the following:
(k) HoldCo shall cease to own, directly or indirectly, 100% of the
issued and outstanding capital stock of the Company, free and clear of all
Liens (other than the Lien granted pursuant to the HoldCo Pledge
Agreement), or HoldCo shall conduct, transact or otherwise engage in any
business or operations, incur, create, assume or suffer to exist any
Indebtedness, Contingent Obligations or other liabilities or obligations
or Liens (other than pursuant to any of the Credit Documents), or own,
lease, manage or otherwise operate any properties or assets, other than
(1) incident to the ownership of the Pledged Stock and the Pledged Note
(as such terms are defined in the HoldCo Pledge Agreement), (2) as
permitted by this Agreement, (3) incident to the ownership of capital
stock or other equity interests in any person to the extent (i) the
acquisition thereof by the Company would constitute a Permitted
Acquisition and (ii) such capital stock or equity interests are
contributed to the Company promptly following HoldCo's acquisition thereof
and (4) the making of the Subordinated Loan or the issuance of the
Subordinated HoldCo Debentures and (5) to the extent necessary to effect
the IPO and subsequent offerings or issuances of shares of common stock of
HoldCo and other transactions customarily incident thereto; or
16. CONDITIONS TO EFFECTIVENESS OF THIS THIRD AMENDMENT. This Third
Amendment shall become effective upon the satisfaction of the following
conditions precedent (such date, the "THIRD AMENDMENT EFFECTIVE DATE"):
(a) the Administrative Agent shall have received counterparts of
this Third Amendment duly executed and delivered by each of the Borrower, HoldCo
and the Administrative Agent, consented to by the Required Lenders (including
each Extending Revolving Credit Lender and each Second Extending Acquisition
Loan Lender), and
(b) the Administrative Agent shall have received, dated the Third
Amendment Effective Date and addressed to the Administrative Agent and the
Lenders, legal opinions of Fried, Frank, Harris, Shriver & Jacobson, special
counsel to HoldCo and the Borrower, and from the internal counsel to HoldCo and
the Borrower, in each case in form and substance satisfactory to the
Administrative Agent.
17. REPRESENTATIONS AND WARRANTIES. On and as of the date hereof and
after giving effect to this Third Amendment, the Borrower hereby confirms,
reaffirms and restates the representations and warranties set forth in Section
10 of the Credit Agreement mutatis mutandis, except to the extent that such
representations and warranties expressly relate to a specific earlier date in
which case the Borrower hereby confirms, reaffirms and restates such
representations and warranties as of such earlier date, provided that the
references to the Credit Agreement in such representations and warranties shall
be deemed to refer to the Credit Agreement as amended pursuant to this
Amendment.
18. SCHEDULE 1. Promptly following the Third Amendment Effective
Date, the Administrative Agent shall furnish to the Borrower and each of the
Lenders a schedule setting forth the Revolving Credit Commitments of the
Extending Revolving Credit Lenders and the Non-Extending Revolving Credit
Lenders and the respective Acquisition Loan Commitments of the Second Extending
Acquisition Loan Lenders, First Extending Acquisition Loan Lenders and the
Non-Extending Acquisition Loan Lenders.
19. CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as expressly set
forth in this Third Amendment, all of the terms and provisions of the Credit
Agreement are and shall remain in full force and effect and the Borrower shall
continue to be bound by all of such terms and provisions. The amendments
provided for herein are limited to the specific subsections of the Credit
Agreement specified herein and shall not constitute an amendment of, or an
indication of the Administrative Agent's or the Lenders' willingness to amend or
waive, any other provisions of the Credit Agreement or the same subsections for
any other date or purpose.
20. EXPENSES. The Borrower agrees to pay and reimburse the
Administrative Agent for all its reasonable costs and expenses incurred in
connection with the preparation and delivery of this Third Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
21. COUNTERPARTS. This Third Amendment may be executed by one or
more of the parties to this Third Amendment on any number of separate
counterparts (including by telecopy), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of the
copies of this Third Amendment signed by the parties hereto shall be delivered
to the Borrower and the Administrative Agent. The execution and delivery of this
Third Amendment by any Lender shall be binding upon each of its successors and
assigns (including Transferees of its commitments and Loans in whole or in part
prior to effectiveness hereof) and binding in respect of all of its commitments
and Loans, including any acquired subsequent to its execution and delivery
hereof and prior to the effectiveness hereof.
22. GOVERNING LAW. THIS THIRD AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By:
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Name:
Title:
COMMUNITY HEALTH SYSTEMS, INC.
By:
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Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and Issuing Lender
By:
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Name:
Title:
