<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File Number 0-23639
PROVINCE HEALTHCARE COMPANY
(Exact Name of Registrant as specified in Its Charter)
DELAWARE 62-1710772
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
105 WESTWOOD PLACE
SUITE 400
BRENTWOOD, TENNESSEE 37027
(Address of Principal Executive Offices) (Zip Code)
(615) 370-1377
(Registrant's Telephone Number, Including Area Code)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 1, 2000
COMMON STOCK, $.01 PAR VALUE 30,840,673
<PAGE> 2
PART I.
FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999.......................1
Condensed Consolidated Statements of Income
Three Months Ended September 30, 2000 and 1999.................2
Condensed Consolidated Statements of Income
Nine Months Ended September 30, 2000 and 1999..................3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999..................4
Notes to Condensed Consolidated Financial Statements...............5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.....................................12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...................................................21
</TABLE>
<PAGE> 3
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,603 $ --
Accounts receivable, less allowance for doubtful accounts
of $12,343 in 2000 and $16,494 in 1999 91,603 84,269
Inventories 12,998 11,122
Prepaid expenses and other 11,211 6,534
-------- --------
Total current assets 120,415 101,925
Property, plant and equipment, net 228,010 186,129
Other assets:
Cost in excess of net assets acquired 192,863 193,904
Other assets 21,744 15,658
-------- --------
Total assets $563,032 $497,616
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,791 $ 14,927
Accrued salaries and benefits 14,415 10,790
Accrued expenses 11,429 14,558
Current maturities of long-term obligations 2,572 2,223
-------- --------
Total current liabilities 46,207 42,498
Long-term obligations, less current maturities 195,064 259,992
Other liabilities 11,297 9,997
Minority interest 898 770
-------- --------
Total noncurrent liabilities 207,259 270,759
Stockholders' equity:
Common stock - $0.01 par value; 50,000,000 and
25,000,000 shares authorized at September 30, 2000 and
December 31, 1999, respectively; issued and outstanding
30,842,995 and 23,613,072 shares at September 30, 2000
and December 31, 1999, respectively 308 157
Additional paid-in-capital 272,464 163,593
Retained earnings 36,794 20,609
-------- --------
Total stockholders' equity 309,566 184,359
-------- --------
Total liabilities and stockholders' equity $563,032 $497,616
======== ========
</TABLE>
See accompanying notes.
1
<PAGE> 4
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Revenue:
Net patient service revenue $113,854 $ 80,016
Management and professional services 2,763 3,402
Reimbursable expenses 1,459 1,644
Other 1,603 620
-------- --------
Net operating revenue 119,679 85,682
Expenses:
Salaries, wages and benefits 45,528 34,293
Reimbursable expenses 1,459 1,644
Purchased services 13,284 10,591
Supplies 13,913 9,637
Provision for doubtful accounts 12,251 6,017
Other operating expenses 11,690 8,041
Rentals and leases 1,727 1,869
Depreciation and amortization 6,433 4,908
Interest expense 3,928 3,310
Minority interest 75 22
Loss (gain) on sale of assets 1 (2)
-------- --------
Total expenses 110,289 80,330
-------- --------
Income before provision for income taxes 9,390 5,352
Income taxes 3,992 2,328
-------- --------
Net income $ 5,398 $ 3,024
======== ========
Net income per common share:
Basic $ 0.18 $ 0.13
======== ========
Diluted $ 0.17 $ 0.13
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 5
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
----------- ------------
<S> <C> <C>
Revenue:
Net patient service revenue $328,492 $ 222,151
Management and professional services 9,034 10,576
Reimbursable expenses 4,777 5,104
Other 4,311 2,322
-------- ---------
Net operating revenue 346,614 240,153
Expenses:
Salaries, wages and benefits 134,288 96,504
Reimbursable expenses 4,777 5,104
Purchased services 36,032 27,255
Supplies 40,323 26,944
Provision for doubtful accounts 31,805 16,806
Other operating expenses 32,935 21,422
Rentals and leases 5,357 5,358
Depreciation and amortization 19,466 13,581
Interest expense 13,338 8,675
Minority interest 128 113
Loss (gain) on sale of assets 15 (10)
-------- ---------
Total expenses 318,464 221,752
-------- ---------
Income before income taxes 28,150 18,401
Income taxes 11,965 8,005
-------- ---------
Net income $ 16,185 $ 10,396
======== =========
Net income per common share:
Basic $ 0.58 $ 0.44
======== =========
Diluted $ 0.56 $ 0.43
======== =========
</TABLE>
See accompanying notes.
3
<PAGE> 6
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
2000 1999
------------- ---------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 26,424 $ 21,976
INVESTING ACTIVITIES
Purchase of property, plant and equipment (30,142) (11,990)
Purchase of acquired companies (31,608) (42,800)
Cash held for acquisitions -- (77,000)
Other -- 340
--------- ---------
Net cash used in investing activities (61,750) (131,450)
FINANCING ACTIVITIES
Proceeds from long-term debt 89,891 151,864
Repayments of debt (154,614) (39,821)
Issuance of common stock 9,842 382
Proceeds from stock offering 94,784 --
Other 26 --
--------- ---------
Net cash provided by financing activities 39,929 112,425
--------- ---------
Net increse in cash and cash equivalents 4,603 2,951
Cash and cash equivalents at beginning of period -- 2,113
--------- ---------
Cash and cash equivalents at end of period $ 4,603 $ 5,064
========= =========
ACQUISITIONS
Fair value of assets acquired 36,870 45,516
Liabilities assumed (5,262) (2,716)
--------- ---------
Cash paid $ 31,608 $ 42,800
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 7
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. Interim results
are not necessarily indicative of results that may be expected for the full
year. In the opinion of management, the accompanying interim financial
statements contain all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows of Province Healthcare Company (the
"Company").
The balance sheet at December 31, 1999, has been derived from the
audited financial statements at that date, but does not include all of the
financial information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. Certain balance
sheet reclassifications have been made to the prior year financial statements to
conform to the 2000 presentation.
On September 28, 2000, the Company completed a three-for-two stock
split in the form of a 50% common stock dividend to shareholders of record on
September 15, 2000. All historical references in this document to transactions
in the common stock and earnings per share data have been restated to reflect
the stock split.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued, and was required to be adopted in years
beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
the effective date of SFAS No. 133 for one year. This Statement requires all
derivatives to be recorded on the balance sheet at fair value. This results in
the offsetting changes in fair values or cash flows of both the hedge and the
hedged item being recognized in earnings in the same period. Changes in fair
value of derivatives not meeting the Statement's hedge criteria are included in
income. The Company's only derivatives relate to interest rate swap agreements.
The Company expects to adopt the new Statement January 1, 2001. The Company does
not expect the adoption of this Statement to have a significant effect on its
results of operations or financial position.
5
<PAGE> 8
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
3. ACQUISITIONS
EUNICE COMMUNITY MEDICAL CENTER
In February 1999, the Company entered into a special services agreement
for the lease of Eunice Community Medical Center in Eunice, Louisiana by
purchasing assets totaling $4.9 million and assuming certain liabilities and
entering into a ten-year lease agreement with a five-year renewal option,
totaling $0.8 million. Cost in excess of net assets acquired in the acquisition
totaled approximately $2.9 million and is being amortized over 15 years.
GLADES GENERAL HOSPITAL
In April 1999, the Company acquired assets totaling $17.2 million and
assumed liabilities totaling $4.9 million of Glades General Hospital in Belle
Glade, Florida. To finance this acquisition, the Company borrowed $13.5 million
under its revolving credit facility. Cost in excess of net assets acquired in
the acquisition totaled approximately $8.9 million and is being amortized over
35 years.
DOCTORS' HOSPITAL OF OPELOUSAS
In June 1999, the Company acquired assets totaling $25.7 million and
assumed liabilities totaling $2.8 million of Doctors' Hospital of Opelousas, in
Opelousas, Louisiana. To finance this acquisition, the Company borrowed $22.0
million under its revolving credit facility. Cost in excess of net assets
acquired in the acquisition totaled approximately $5.7 million, including final
working capital settlement, and is being amortized over 35 years.
TRINITY VALLEY MEDICAL CENTER AND MINDEN MEDICAL CENTER
In October 1999, the Company acquired assets totaling $82.5 million and
assumed liabilities totaling $4.2 million of Trinity Valley Medical Center in
Palestine, Texas and Minden Medical Center in Minden, Louisiana. To finance this
acquisition, the Company borrowed $77.0 million under its revolving credit
facility. Trinity Valley Medical Center was merged with and into Memorial Mother
Frances Hospital, a hospital already owned by the Company in Palestine, Texas,
and the name changed to Palestine Regional Medical Center. Cost in excess of net
assets acquired in the acquisition totaled approximately $37.5 million and is
being amortized over 35 years.
6
<PAGE> 9
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
ENNIS REGIONAL HOSPITAL
In February 2000, the Company acquired, through a long-term capital
lease agreement, the assets and business of the City of Ennis Hospital in Ennis,
Texas. The long-term lease payments total $3.0 million over a thirty-year
period, including a rent prepayment of $2.0 million. To finance this
acquisition, the Company borrowed $2.0 million under its revolving credit
facility. The hospital had been closed prior to its acquisition by the Company.
BOLIVAR MEDICAL CENTER
In April 2000, the Company acquired, through a long-term capital lease
agreement, the assets and business of Bolivar Medical Center in Cleveland,
Mississippi. The forty-year lease totals $26.4 million, which was prepaid at the
date of the acquisition. To finance the prepaid lease payment and the purchase
of working capital, the Company borrowed $24.6 million under its revolving
credit facility. Cost in excess of net assets acquired in the acquisition
totaled approximately $2.9 million and is being amortized over 35 years. The
allocation of the purchase price has been determined based on currently
available information and is subject to further refinement pending final working
capital settlement.
All of the acquisitions described above were accounted for as purchase
business combinations, and the results of operations of the hospitals have been
included in the results of operations of the Company from the purchase date
forward.
The following pro forma information reflects the operations of the
entities acquired in 2000 and 1999, as if the respective transactions had
occurred at the beginning of the periods presented (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net operating revenue $ 119,679 $ 108,971 $ 356,989 $ 333,193
Net income 5,398 2,439 15,948 8,857
Net income per common share:
Basic 0.18 0.10 0.57 0.38
Diluted 0.17 0.10 0.55 0.37
</TABLE>
7
<PAGE> 10
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
The pro forma results of operations do not purport to represent what
the Company's results of operations would have been had such transactions, in
fact, occurred at the beginning of the periods presented or to project the
Company's results of operations in any future period.
4. LONG-TERM OBLIGATIONS
At September 30, 2000, the Company had $186.4 million outstanding under
its revolving line of credit and $90.6 million available, which includes
availability under the end-loaded lease facility that can be converted to
revolver availability at the Company's option.
5. STOCKHOLDERS' EQUITY
In April 2000, the Company completed its public offering of 6,333,756
shares of common stock at an offering price of $15.92 per share. Net proceeds
from the offering of approximately $94.8 million were used primarily to reduce
debt.
The Company distributed a three-for-two stock split, effected in the
form of a 50% stock dividend, on September 28, 2000, to stockholders of record
on September 15, 2000, which resulted in the issuance of 10.3 million shares of
common stock and a transfer between additional paid in capital and common stock
of $103,000. All historical references and all common share and earnings per
share amounts included in the condensed consolidated financial statements and
notes thereto have been restated to reflect the three-for-two split.
6. COMPREHENSIVE INCOME
The Company had no items of other comprehensive income in 2000 or 1999,
and accordingly, comprehensive income is equivalent to net income.
7. INCOME TAXES
The income tax provision for the three months and nine months ended
September 30, 2000 and 1999, differs from the statutory income tax computation
due to permanent differences and the provision for state income taxes. The IRS
completed an examination of the predecessor company's federal income tax returns
for 1995 and 1996 on October 17, 2000. Finalization of the examination did not
have a significant effect on the financial condition or results of operations of
the Company.
8
<PAGE> 11
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 5,398 $ 3,024 $16,185 $10,396
======= ======= ======= =======
Denominator:
Denominator for basic income per share--
Weighted-average shares 30,624 23,592 27,914 23,585
Effect of dilutive securities--
Employee stock options 1,481 281 987 443
------- ------- ------- -------
Denominator for diluted income per share--
Adjusted weighted average shares 32,105 23,873 28,901 24,028
======= ======= ======= =======
Basic net income per share $ 0.18 $ 0.13 $ 0.58 $ 0.44
======= ======= ======= =======
Diluted net income per share $ 0.17 $ 0.13 $ 0.56 $ 0.43
======= ======= ======= =======
</TABLE>
9
<PAGE> 12
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
During the third quarter of 2000, employees exercised options to
acquire 404,736 shares of common stock at an average exercise price of $10.59
per share. During the nine-month period ended September 30, 2000, employees
exercised options to acquire 863,679 shares of common stock at an average price
of $11.02 per share. Also, during the nine-month period ended September 30,
2000, the Company issued 32,520 shares of common stock at a price of $10.77 per
share under its Employee Stock Purchase Plan.
9. CONTINGENCIES
Management continually evaluates contingencies based on the best
available evidence and believes that adequate provision for losses has been
provided to the extent necessary. In the opinion of management, the ultimate
resolution of the following contingencies will not have a material effect on the
Company's results of operations or financial position.
GENERAL AND PROFESSIONAL LIABILITY RISKS
At December 31, 1999, the Company purchased a tail policy in the
commercial insurance market to transfer all risk, through that date, for its
professional liability.
LITIGATION
The Company currently is, and from time to time is expected to be,
subject to claims and suits arising in the ordinary course of business.
NET PATIENT SERVICE REVENUE
Final determination of amounts earned under the Medicare and Medicaid
programs often occurs in subsequent periods because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Differences between original estimates and subsequent revisions (including
settlements) are included in the statement of income in the period in which
revisions are made, and resulted in minimal adjustments for the three-month
periods ended September 30, 2000 and 1999, and the nine-month periods ended
September 30, 2000 and 1999.
FINANCIAL INSTRUMENTS
Interest rate swap agreements are used to manage the Company's interest
rate exposure under the Credit Agreement. In 1997, the Company entered into an
interest rate swap agreement, which effectively converted for a five-year period
$35.0 million of floating-rate borrowings to fixed-rate borrowings. In June
2000, the counterparty exercised its option to terminate the swap agreement. In
1998, the Company entered into an interest rate swap agreement, which
effectively converted for a five-year period $45.0 million of floating-rate
borrowings to fixed-rate borrowings. The Company secured a 5.625% fixed interest
10
<PAGE> 13
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
rate on the 1998 swap agreement. This agreement exposes the Company to credit
losses in the event of non-performance by the counterparty to its financial
instruments. The Company anticipates that the counterparty will fully satisfy
its obligations under the contract.
10. SUBSEQUENT EVENT
In October 2000, the Company sold substantially all the assets,
including working capital, of Ojai Valley Community Hospital in Ojai, California
for approximately $2.0 million. The Company recorded a loss on the sale of
approximately $10.6 million, which included the write-off of the unamortized
balance of goodwill recorded in connection with the purchase of Ojai Valley
Community Hospital in December 1996. The resulting loss on sale of assets is
subject to an income tax benefit at the Company's effective tax rate of 42.5%,
resulting in a net loss on this transaction of approximately $6.0 million.
11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following along with the Condensed Consolidated
Financial Statements and accompanying notes.
OVERVIEW
We are a healthcare services company focused on acquiring and operating
hospitals in attractive non-urban markets in the United States. As of September
30, 2000, we owned and operated 16 general acute care hospitals in nine states
with a total of 1,511 licensed beds, and managed 41 hospitals in 16 states, with
a total of 3,178 licensed beds.
Our owned and leased hospitals accounted for 96.3% and 94.0% of our net
operating revenue in the three months ended September 30, 2000 and 1999,
respectively, and 95.8% and 93.4% of our net operating revenue in the nine
months ended September 30, 2000 and 1999, respectively.
IMPACT OF ACQUISITIONS
1999 Acquisitions
In February 1999, we entered into a special services agreement for the
lease of Eunice Community Medical Center in Eunice, Louisiana, by purchasing
assets totaling $4.9 million and assuming certain liabilities and entering into
a ten-year lease agreement, with a five-year renewal option, totaling $0.8
million. We are obligated under the lease to construct a replacement facility
(currently estimated to cost approximately $20.0 million) at such time as the
net patient service revenue of the hospital reaches a pre-determined level. The
lease will terminate at the time the replacement facility commences operations.
In April 1999, we acquired assets totaling $17.2 million and assumed
liabilities totaling $4.9 million of Glades General Hospital in Belle Glade,
Florida. To finance this acquisition, we borrowed $13.5 million under our
revolving credit facility. We are obligated under the Asset Purchase Agreement
to build a replacement hospital following the fifth year after the closing, at a
cost of not less than $25.0 million, contingent upon the hospital meeting
certain financial targets following the closing.
In June 1999, we acquired assets totaling $25.7 million and assumed
certain liabilities totaling $2.8 million of Doctors' Hospital of Opelousas in
Opelousas, Louisiana. To finance this acquisition, we borrowed $22.0 million
under our revolving credit facility.
In October 1999, we acquired assets totaling $82.5 million and assumed
liabilities totaling $4.2 million of Trinity Valley Medical Center in Palestine,
Texas and Minden Medical Center in Minden, Louisiana. To finance the
acquisition, we borrowed $77.0 million under our revolving credit facility.
Following the acquisition, we merged Trinity Valley Medical Center into Memorial
Mother Frances Hospital, a hospital that we already owned in Palestine, Texas,
and changed the name of the hospital to Palestine Regional Medical Center.
12
<PAGE> 15
2000 Acquisitions
In February 2000, we acquired, through a long-term capital lease
agreement, the assets and business of the 45-bed City of Ennis Hospital from the
City of Ennis, Texas. The aggregate rental payments required under the
thirty-year lease total $3.0 million, including a prepayment of $2.0 million. To
finance the lease prepayment, we borrowed $2.0 million under our revolving
credit facility.
In April 2000, we acquired, through a long-term capital lease
agreement, the assets and business of the 165-bed Bolivar Medical Center in
Cleveland, Mississippi, from Bolivar County. Aggregate rental payments required
under the forty-year lease total $26.4 million, and were prepaid at the date of
the acquisition. To finance the prepaid lease payment and the purchase of
working capital, we borrowed $24.6 million under our revolving credit facility.
All of the acquisitions described above were accounted for as purchase
business combinations, and the results of operations of the hospitals have been
included in our results of operations from the purchase dates forward. The
September 30, 2000 results include City of Ennis Hospital, effective March 1,
2000, Bolivar Medical Center, effective May 1, 2000, and Trinity Valley Medical
Center and Minden Medical Center for the entire period. The September 30, 1999
results include Doctors' Hospital of Opelousas effective June 1, 1999, Glades
General Hospital effective May 1, 1999, and Eunice Community Medical Center
effective April 1, 1999.
Due to the relatively small number of owned and leased hospitals, each
hospital acquisition can affect materially our overall operating margin. Upon
the acquisition of a hospital, we typically take a number of steps to lower
operating costs. The impact of such actions may be offset by other cost
increases to expand services, strengthen medical staff and improve market
position. The benefits of these investments and of other activities to improve
operating margins generally do not occur immediately. Consequently, the
financial performance of a newly acquired hospital may adversely affect overall
operating margins in the short term. As we make additional hospital
acquisitions, we expect that this effect will be mitigated by the expanded
financial base of existing hospitals and the allocation of corporate overhead
among a larger number of hospitals.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenue. Such information has been
derived from our Condensed Consolidated Statements of Income included elsewhere
in this report. The results of operations for the periods presented include
hospitals from their acquisition dates, as discussed above.
13
<PAGE> 16
<TABLE>
<CAPTION>
Three Months Ended September 30, Percentage
-------------------------------------- Increase(Decrease)
2000 1999 of Dollar Amounts
---------------- ------------------- ----------------------
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 39.7%
Operating expenses (1) (83.4) (84.1) 38.5
---------------- -------------------
EBITDA (2) 16.6 15.9 45.9
Depreciation and amortization (5.4) (5.7) 31.1
Interest (3.3) (3.9) 18.7
Minority interest 0.1 -- 240.9
Loss on sale of assets -- -- 0.0
---------------- -------------------
Income before income taxes 7.8 6.3 75.4
Provision for income taxes (3.3) (2.8) 71.5
---------------- -------------------
Net income 4.5% 3.5% 78.5%
================ ===================
Nine Months Ended September 30, Percentage
-------------------------------------- Increase(Decrease)
2000 1999 of Dollar Amounts
---------------- ------------------- ----------------------
Net operating revenue 100.0% 100.0% 44.3%
Operating expenses (1) (82.4) (83.0) 43.2
---------------- -------------------
EBITDA (2) 17.6 17.0 49.9
Depreciation and amortization (5.6) (5.7) 43.3
Interest (3.8) (3.6) 53.8
Minority interest -- -- 13.3
Loss on sale of assets -- -- 250.0
---------------- -------------------
Income before income taxes 8.2 7.7 53.0
Provision for income taxes (3.5) (3.4) 49.5
---------------- -------------------
Net income 4.7% 4.3% 55.7%
================ ===================
</TABLE>
14
<PAGE> 17
(1) Operating expenses represent expenses before interest, minority
interest, loss on sale of assets, income taxes, depreciation and
amortization expense.
(2) EBITDA represents the sum of income before income taxes, interest,
minority interest, depreciation and amortization, and loss on sale of
assets. We understand that industry analysts generally consider EBITDA
to be one measure of the financial performance of a company that is
presented to assist investors in analyzing the operating performance of
the Company and its ability to service debt. We believe that an
increase in EBITDA level is an indicator of our improved ability to
service existing debt, to sustain potential future increases in debt
and to satisfy capital requirements. However, EBITDA is not a measure
of financial performance under generally accepted accounting principles
and should not be considered an alternative to net income as a measure
of operating performance or to cash flows from operating, investing, or
financing activities as a measure of liquidity. Given that 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.
SELECTED OPERATING STATISTICS - OWNED OR LEASED HOSPITALS
The following table sets forth certain operating statistics for our
company's owned or leased hospitals for each of the periods presented.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Consolidated Hospitals:
Number of hospitals at end of period 16 13 16 13
Licensed beds at end of period 1,511 1,008 1,511 1,008
Beds in service at end of period 1,401 909 1,401 909
Inpatient admissions 12,262 7,828 34,895 22,271
Patient days 55,928 36,995 162,034 109,497
Adjusted patient days 97,811 66,049 282,036 192,163
Average length of stay (days) 4.6 4.7 4.6 4.9
Occupancy rates (average licensed beds) 40.2% 39.9% 39.1% 39.6%
Occupancy rates (average beds in service) 43.4% 44.2% 42.2% 44.0%
Gross inpatient revenue $ 130,518,413 $82,997,321 $386,174,388 $237,503,925
Gross outpatient revenue 98,097,088 65,449,531 283,195,399 178,482,554
</TABLE>
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<PAGE> 18
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net operating revenue was $119.7 million for the three months ended
September 30, 2000, compared to $85.7 million for the comparable period of 1999,
an increase of $34.0 million or 39.7%. Cost report settlements and the filing of
cost reports resulted in minimal revenue adjustments for the three months ended
September 30, 2000 and 1999. Net patient revenue generated by hospitals owned
during both periods increased $18.2 million, or 22.7%, resulting from market
expansion, inpatient volume increases, new services and price increases. The
remaining increase was primarily attributable to the acquisition of additional
hospitals in 2000.
Operating expenses were $99.9 million, or 83.4% of net operating
revenue, for the three months ended September 30, 2000, compared to $72.1
million, or 84.1% of net operating revenue, for the comparable period of 1999.
The provision for doubtful accounts increased to 10.2% of net revenue in 2000
from 7.0% of net revenue in 1999, primarily related to increases at two
hospitals acquired in 1999. The majority of the increase in operating expenses
was attributable to the acquisition of additional hospitals in 2000.
EBITDA was $19.8 million, or 16.6% of net operating revenue, for the
three months ended September 30, 2000, compared to $13.6 million, or 15.9% of
net operating revenue, for the comparable period of 1999, primarily as a result
of the acquisition of additional hospitals in 2000, and improved operations at
hospitals owned during both periods.
Depreciation and amortization expense was $6.4 million, or 5.4% of net
operating revenue, for the three months ended September 30, 2000, compared to
$4.9 million, or 5.7% of net operating revenue for the comparable period of
1999. The increase in depreciation and amortization resulted primarily from the
acquisition of additional hospitals in 2000, and capital expenditures at
hospitals owned during both periods. Interest expense was $3.9 million for the
three months ended September 30, 2000, compared to $3.3 million for the
comparable period of 1999, an increase of $0.6 million or 18.7%. This was a
result of increased borrowings to finance the acquisition of additional
hospitals in 2000 and higher interest rates, offset by the reduction in the
revolving credit facility with the net proceeds of the common stock offering in
April 2000.
Income before provision for income taxes was $9.4 million for the three
months ended September 30, 2000, compared to $5.4 million for the comparable
period of 1999, an increase of $4.0 million or 75.4%.
Our provision for income taxes was $4.0 million for the three months
ended September 30, 2000, compared to $2.3 million for the comparable period of
1999. These provisions reflect effective income tax rates of 42.5% for the 2000
period, compared to 43.5% for the 1999 period. As a result of the foregoing, our
net income was $5.4 million, or 4.5% of net operating revenue, for the three
months ended September 30, 2000, compared to $3.0 million, or 3.5% of net
operating revenue for the comparable period of 1999.
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<PAGE> 19
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Net operating revenue was $346.6 million for the nine months ended
September 30, 2000, compared to $240.2 million for the comparable period of
1999, an increase of $106.4 million, or 44.3%. Cost report settlements and the
filing of cost reports resulted in minimal revenue adjustments for the nine
months ended September 30, 2000 and 1999. Net patient revenue generated by
hospitals owned during both periods increased $49.5 million, or 22.6%, resulting
from market expansion, inpatient volume increases, new services and price
increases. The remaining increase was primarily attributable to the
acquisition of additional hospitals in 1999 and 2000.
Operating expenses were $285.5 million, or 82.4% of net operating
revenue, for the nine months ended September 30, 2000, compared to $199.4
million, or 83.0% of net operating revenue, for the comparable period of 1999.
The provision for doubtful accounts increased to 9.2% of net revenue in 2000
from 7.0% of net revenue in 1999, primarily related to two hospitals acquired in
1999. The majority of the increase in operating expenses was attributable to the
acquisition of additional hospitals in 1999 and 2000.
EBITDA was $61.1 million, or 17.6% of net operating revenue, for the
nine months ended September 30, 2000, compared to $40.8 million, or 17.0% of net
operating revenue, for the comparable period of 1999, primarily as a result of
the acquisition of additional hospitals in 1999 and 2000, and improved
operations at hospitals owned during both periods.
Depreciation and amortization expense was $19.5 million, or 5.6% of net
operating revenue, for the nine months ended September 30, 2000, compared to
$13.6 million, or 5.7% of net operating revenue for the comparable period of
1999. The increase in depreciation and amortization resulted primarily from the
acquisition of additional hospitals in 1999 and 2000, and capital expenditures
at hospitals owned during both periods. Interest expense was $13.3 million for
the nine months ended September 30, 2000, compared to $8.7 million for the
comparable period of 1999, an increase of $4.6 million or 53.8%. This was a
result of increased borrowings to finance the acquisition of additional
hospitals in 1999 and 2000, and higher interest rates, offset by the reduction
in the revolving credit facility with the net proceeds of the common stock
offering in April 2000.
Income before provision for income taxes was $28.2 million for the nine
months ended September 30, 2000, compared to $18.4 million for the comparable
period of 1999, an increase of $9.8 million or 53.0%.
Our provision for income taxes was $12.0 million for the nine months
ended September 30, 2000, compared to $8.0 million for the comparable period of
1999. These provisions reflect effective income tax rates of 42.5% for the 2000
period, compared to 43.5% for the 1999 period. As a result of the foregoing, our
net income was $16.2 million, or 4.7% of net operating revenue, for the nine
months ended September 30, 2000, compared to $10.4 million, or 4.3% of net
operating revenue, for the comparable period of 1999.
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<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had working capital of $74.2 million,
including cash and cash equivalents of $4.6 million. The ratio of current assets
to current liabilities was 2.6 to 1.0 at September 30, 2000, and 2.4 to 1.0 at
December 31, 1999.
In April 2000, we completed our public offering of 6,333,756 shares of
common stock. Net proceeds from the offering were approximately $94.8 million.
Total long-term obligations decreased to $195.1 million at September
30, 2000, from $260.0 million at December 31, 1999. The decrease resulted
primarily from the reduction in the revolving credit facility with the net
proceeds from the common stock offering, offset by borrowings to finance the
City of Ennis Hospital and Bolivar Medical Center acquisitions.
Cash provided by operations was $26.4 million for the nine months ended
September 30, 2000. Cash used in investing activities was $61.8 million for the
nine months ended September 30, 2000, relating primarily to acquisitions and
capital expenditures. Net cash provided by financing activities was $39.9
million for the nine months ended September 30, 2000, primarily as a result of
the common stock offering, borrowings on the revolving line of credit to finance
acquisitions and issuance of common stock through exercises of stock options and
through the Employee Stock Purchase Plan.
We intend to acquire additional acute care facilities, and are actively
seeking out such acquisitions. There can be no assurance that we will not
require additional debt or equity financing for any particular acquisition.
Also, we continually review our capital needs and financing opportunities and
may seek additional equity or debt financing for our acquisition program or
other needs.
Capital expenditures, excluding acquisitions, for the nine months ended
September 30, 2000 and 1999, were $30.1 million and $12.0 million, respectively,
inclusive of construction projects. Capital expenditures for the owned hospitals
may vary from year to year depending on facility improvements and service
enhancements undertaken by the hospitals. We expect to make total capital
expenditures in 2000 of approximately $24.3 million, exclusive of any
acquisitions of businesses or construction projects. Planned capital
expenditures for 2000 consist principally of capital improvements to owned and
leased hospitals. We expect to fund these expenditures through cash provided by
operating activities and borrowings under our revolving credit facility.
IMPACT OF YEAR 2000
In late 1999, we completed our remediation and testing of systems to
become Year 2000 ready. As a result of those planning and implementation
efforts, we experienced no disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from Year 2000 issues, either with our services, our
internal systems, or the products and services of third parties. We will
continue to monitor our mission critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
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<PAGE> 21
GENERAL
The federal Medicare program accounted for approximately 53.6% and
56.3% of hospital patient days for the three and nine-month periods ended
September 30, 2000, respectively. The state Medicaid programs accounted for
approximately 20.0% and 17.4% of hospital patient days for the three and
nine-month periods ended September 30, 2000, respectively. The payment rates
under the Medicare program for inpatients are prospective, based upon the
diagnosis of a patient. The Medicare payment rate increases historically have
been less than actual inflation.
Both federal and state legislatures are continuing to scrutinize the
health care industry for the purpose of reducing heath care costs. While we are
unable to predict what, if any, future health reform legislation may be enacted
at the federal or state level, we expect continuing pressure to limit
expenditures by governmental health care programs. The Balanced Budget Act of
1997 imposed certain limitations on increases in the inpatient Medicare rates
paid to acute care hospitals. Payments for Medicare outpatient services provided
at acute care hospitals and home health services historically have been paid
based on costs, subject to certain limits. The Balanced Budget Act of 1997
requires that the payment for those services be converted to a prospective
payment system. Medicare outpatient services converted to a prospective payment
system on August 1, 2000, and Medicare home health services converted to a
prospective payment system on October 1, 2000. The Balanced Budget Act of 1997
also includes a managed care option that could direct Medicare patients to
managed care organizations. Further changes in the Medicare or Medicaid programs
and other proposals to limit health care spending could have a material adverse
effect on the health care industry and our company.
Some of our acute care hospitals, like most acute care hospitals in the
United States, have significant unused capacity. The result is substantial
competition for patients and physicians. Inpatient utilization continues to be
affected negatively by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. We expect increased competition and admission
constraints to continue in the future. The ability to respond successfully to
these trends, as well as spending reductions in governmental health care
programs, will play a significant role in determining the ability of our
hospitals to maintain their current rate of net revenue growth and operating
margins.
We expect the industry trend in increased outpatient services to
continue because of the increased focus on managed care and advances in
technology. Outpatient revenue of our owned or leased hospitals was
approximately 42.9% and 42.3% of gross patient service revenue for the three and
nine months ended September 30, 2000, respectively, compared to 44.1% and 42.9%
of gross patient revenue for the three and nine months ended September 30, 1999,
respectively.
The billing and collection of accounts receivable by hospitals are
complicated by:
o the complexity of the Medicare and Medicaid regulations;
o increases in managed care;
o hospital personnel turnover;
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<PAGE> 22
o the dependence of hospitals on physician documentation of
medical records; and
o the subjective judgment involved.
There can be no assurance that these complications will not negatively
impact our future cash flows or results of operations.
The federal government and a number of states are increasing the
resources devoted to investigating allegations of fraud and abuse in the
Medicare and Medicaid programs. At the same time, regulatory and law enforcement
authorities are taking an increasingly strict view of the requirements imposed
on providers by the Social Security Act and Medicare and Medicaid regulations.
Although we believe that we are in material compliance with such laws, a
determination that we have violated such laws, or even the public announcement
that we were being investigated concerning possible violations, could have a
material adverse effect on our company.
Our historical financial trend has been impacted favorably by our
success in acquiring acute care hospitals. While we believe that trends in the
health care industry described above may create possible future acquisition
opportunities, there can be no assurances that we can continue to maintain our
current growth rate through hospital acquisitions and successfully integrate the
hospitals into our system.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions that affect the amounts reported in our financial statements.
Resolution of matters, for example, final settlements with third party payors,
may result in changes from those estimates. The timing and amount of such
changes in estimates may cause fluctuations in our quarterly or annual operating
results.
FORWARD-LOOKING STATEMENTS
This report and other materials we have filed or may file with the
Securities and Exchange Commission, as well as information included in oral
statements or other written statements made, or to be made, by us, contain, or
will contain, disclosures which are "forward-looking statements."
Forward-looking statements include all statements that do not relate solely to
historical or current facts, and can be identified by the use of words such as
"may," believe," "will," "expect," "project," "estimate," "anticipate," "plan"
or "continue." These forward-looking statements address, among other things, our
strategic objectives. These forward-looking statements are based on the current
plans and expectations of our management and are subject to a number of
uncertainties and risks that could significantly affect our current plans and
expectations and future financial condition and results. These factors include,
but are not limited to:
o the highly competitive nature of the healthcare business;
o the efforts of insurers, healthcare providers and others to
contain healthcare costs;
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<PAGE> 23
o possible changes in the Medicare program that may further
limit reimbursements to healthcare providers and insurers;
o changes in federal, state or local regulation affecting the
healthcare industry;
o the possible enactment of federal or state healthcare reform;
o the departure of key members of our management;
o claims and legal actions relating to professional liability;
o our ability to implement successfully our acquisition and
development strategy;
o potential federal or state investigations;
o fluctuations in the market value of our common stock;
o changes in accounting principles generally accepted in the
United States;
o changes in economic and business conditions, generally, and in
the regions in which we operate; and
o other risks described in this report.
As a consequence, current plans, anticipated actions and future
financial conditions and results may differ from those expressed in any
forward-looking statements made by or on behalf of our company. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. You are cautioned
not to unduly rely on such forward-looking statements when evaluating the
information presented herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the nine months ended September 30, 2000, there were no material
changes in the quantitative and qualitative disclosures about market risks
presented in our annual Report on Form 10-K for the year ended December 31,
1999. Our Company's only derivatives relate to interest rate swap agreements. In
1997, we entered into an interest rate swap agreement, which effectively
converted for a five-year period $35.0 million of floating-rate borrowings to
fixed-rate borrowings. In June 2000, the counterparty exercised its option to
terminate the swap agreement. Because we generally expect to maintain a
substantial percent of our debt as fixed rate in nature by entering into
interest rate swap transactions, we intend to replace the cancelled agreement
with a similar swap agreement in the near future.
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<PAGE> 24
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On November 8, 2000, we announced our intent to offer, subject to
market and other conditions, $125 million of Convertible Subordinated Notes
(plus an additional amount to cover over-allotments, if any), due 2005, for
purchase by qualified institutional buyers under Rule 144A of the Securities Act
of 1933. The notes would be convertible into shares of our common stock at the
option of the holder, at a price to be determined. The offering is expected to
close in November 2000. We will file a registration statement for the resale of
the notes and the shares of common stock issuable upon conversion of the notes
within 90 days after the closing of the offering. The expected net proceeds of
the offering will be used to repay existing indebtedness, thereby increasing
amounts available for borrowing to fund future acquisitions, for working capital
and for general corporate purposes. In connection with the offering, we and our
directors and officers have agreed to execute "lockup" agreements pursuant to
which we will not issue or sell shares of common stock for a period of 90 days
after the closing of the offering. The initial purchasers of the notes have
agreed to an exception to these agreements to permit the sale of up to 150,000
shares by each of Martin S. Rash and Richard D. Gore.
The deadline for delivering to us notice of shareholder proposals,
other than proposals to be included in the proxy statement for the 2001 Annual
Meeting of Shareholders, will be March 2, 2001, pursuant to Rule 14a-4 under the
Securities Exchange Act of 1934. The persons named as proxies in the proxy
statement may exercise discretionary voting authority with respect to any matter
that is not submitted to us by such date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit
Number Description of Exhibits
------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of
Province Healthcare Company, as filed with the
Delaware Secretary of State on June 16, 2000. (a)
3.2 Amended and Restated Bylaws of Province Healthcare
Company (b)
27.1 Financial Data Schedule (for SEC use only)
--------------------------------------
(a) Incorporated by reference to the Exhibits filed with
our Quarterly Report on Form 10-Q for the period
ended June 30, 2000.
(b) Incorporated by reference to the Exhibits filed with
our Registration Statement on Form S-1, Registration
No. 333-34421.
(b) Reports on Form 8-K
During the three months ended September 30, 2000, we filed the
following report on Form 8-K:
(i) Form 8-K, dated September 5, 2000, in connection with
the announcement by our company of a three-for-two
stock split to be effected in the form of a 50% stock
dividend.
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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.
PROVINCE HEALTHCARE COMPANY
Date: November 9, 2000 By: /s/ Brenda B. Rector
--------------------------------
Brenda B. Rector
Vice President and Controller
23
