<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 June 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 JULY 31, 2000
COMMON STOCK, $.01 PAR VALUE 20,292,420
<PAGE> 2
PART I.
FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 .................................1
Condensed Consolidated Statements of Income
Three Months Ended June 30, 2000 and 1999............................2
Condensed Consolidated Statements of Income
Six Months Ended June 30, 2000 and 1999..............................3
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 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>
June 30, December 31,
2000 1999
-------- --------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,459 $ --
Accounts receivable, less allowance for doubtful
accounts of $20,390 at June 30, 2000, and
$16,494 at December 31, 1999 91,332 84,269
Inventories 12,641 11,122
Prepaid expenses and other 9,472 6,534
-------- --------
Total current assets 123,904 101,925
Property, plant and equipment, net 196,980 186,129
Other assets:
Cost in excess of net assets acquired, net 191,050 193,904
Other assets 47,002 15,658
-------- --------
Total assets $558,936 $497,616
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,367 $ 14,927
Accrued salaries and benefits 16,015 10,790
Accrued expenses 12,997 14,558
Current maturities of long-term obligations 2,520 2,223
-------- --------
Total current liabilities 45,899 42,498
Long-term obligations, less current maturities 205,100 259,992
Other liabilities 11,441 9,997
Minority interest 824 770
-------- --------
Total noncurrent liabilities 217,365 270,759
Stockholders' equity:
Common stock--$0.01 par value; authorized 50,000,000 and
25,000,000 shares at June 30, 2000, and December 31, 1999,
respectively; issued and outstanding 20,292,176 and
15,742,048 shares at June 30, 2000, and December 31, 1999,
respectively 203 157
Additional paid-in-capital 264,073 163,593
Retained earnings 31,396 20,609
-------- --------
Total stockholders' equity 295,672 184,359
-------- --------
Total liabilities and stockholders' equity $558,936 $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 June 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue:
Net patient service revenue $111,226 $ 74,879
Management and professional services 3,132 3,724
Reimbursable expenses 1,608 1,683
Other 1,869 939
-------- --------
Net operating revenue 117,835 81,225
Expenses:
Salaries, wages and benefits 44,554 32,703
Reimbursable expenses 1,608 1,683
Purchased services 12,256 9,427
Supplies 14,059 9,091
Provision for doubtful accounts 11,485 6,112
Other operating expenses 11,445 7,238
Rentals and leases 1,828 1,806
Depreciation and amortization 6,700 4,496
Interest expense 4,198 2,791
Minority interest 18 32
Loss (gain) on sale of assets 12 (8)
-------- --------
Total expenses 108,163 75,371
-------- --------
Income before provision for income taxes 9,672 5,854
Provision for income taxes 4,111 2,547
-------- --------
Net income $ 5,561 $ 3,307
======== ========
Net income per common share:
Basic $ 0.28 $ 0.21
======== ========
Diluted $ 0.27 $ 0.21
======== ========
</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>
Six Months
Ended June 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue:
Net patient service revenue $214,639 $ 142,135
Management and professional services 6,271 7,174
Reimbursable expenses 3,318 3,460
Other 2,708 1,702
-------- ---------
Net operating revenue 226,936 154,471
Expenses:
Salaries, wages and benefits 88,760 62,211
Reimbursable expenses 3,318 3,460
Purchased services 22,748 16,663
Supplies 26,411 17,308
Provision for doubtful accounts 19,554 10,789
Other operating expenses 21,245 13,382
Rentals and leases 3,631 3,489
Depreciation and amortization 13,033 8,673
Interest expense 9,410 5,365
Minority interest 53 91
Loss (gain) on sale of assets 13 (8)
-------- ---------
Total expenses 208,176 141,423
-------- ---------
Income before provision for income taxes 18,760 13,048
Provision for income taxes 7,973 5,676
-------- ---------
Net income $ 10,787 $ 7,372
======== =========
Net income per common share:
Basic $ 0.61 $ 0.47
======== =========
Diluted $ 0.59 $ 0.46
======== =========
</TABLE>
See accompanying notes.
3
<PAGE> 6
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 14,926 $ 23,442
INVESTING ACTIVITIES
Purchase of property, plant and equipment (18,376) (6,449)
Purchase of acquired companies (31,712) (41,515)
Other -- 339
--------- --------
Net cash used in investing activities (50,088) (47,625)
FINANCING ACTIVITIES
Proceeds from long-term debt 84,532 57,229
Repayments of debt (139,315) (25,920)
Issuance of common stock 5,579 382
Proceeds from stock offering 94,784 --
Other 41 --
--------- --------
Net cash provided by financing activities 45,621 31,691
--------- --------
Net increase in cash and cash equivalents 10,459 7,508
Cash and cash equivalents at beginning of period -- 2,113
--------- --------
Cash and cash equivalents at end of period $ 10,459 $ 9,621
========= ========
ACQUISITIONS
Fair value of assets acquired $ 35,697 $ 48,459
Liabilities assumed (3,985) (6,944)
--------- --------
Cash paid $ 31,712 $ 41,515
========= ========
</TABLE>
See accompanying notes.
4
<PAGE> 7
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
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 generally accepted accounting principles
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 generally accepted accounting
principles for complete financial statements. Certain balance sheet
reclassifications have been made to the prior year financial statements to
conform to the 2000 presentation.
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 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 $5.1 million 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 $37.1 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 lease
agreement, the assets and business of the City of Ennis Hospital. The long-term
lease payments total $3.0 million over a 30-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 lease
agreement, the assets and business of Bolivar Medical Center in Cleveland,
Mississippi. The 40-year lease totals $26.4 million, which was prepaid at the
date of closing. To finance the prepaid lease payment and the purchase of
working capital, the Company borrowed $24.6 million under its revolving credit
facility. 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. The unallocated purchase price is included in
other assets on the balance sheet.
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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net operating revenue $ 119,598 $ 110,249 $ 237,311 $ 224,222
Net income to common shareholders 5,331 5,233 10,550 7,385
Basic net income per share to
common shareholders 0.27 0.33 0.60 0.47
Diluted net income per share to
common shareholders 0.26 0.33 0.58 0.46
</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 June 30, 2000, the Company had $196.4 million outstanding under its
revolving line of credit and $87.7 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 4,222,504
shares of common stock at an offering price of $23.875 per share. Net proceeds
from the offering of approximately $94.8 million were used primarily to reduce
debt.
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 six months ended June
30, 2000 and 1999, differs from the statutory income tax computation due to
permanent differences and the provision for state income taxes. The IRS is
currently engaged in an examination of the predecessor company's federal income
tax returns for 1995 and 1996. Finalization of the examination is not expected
to 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 Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 5,561 $ 3,307 $10,787 $ 7,372
======= ======= ======= =======
Denominator:
Denominator for basic income per share --
Weighted-average shares 19,622 15,724 17,696 15,721
Effect of dilutive securities -
Employee stock options 735 330 613 322
------- ------- ------- -------
Denominator for diluted income per share --
Adjusted weighted average shares 20,357 16,054 18,309 16,043
======= ======= ======= =======
Basic net income per share $ 0.28 $ 0.21 $ 0.61 $ 0.47
======= ======= ======= =======
Diluted net income per share $ 0.27 $ 0.21 $ 0.59 $ 0.46
======= ======= ======= =======
</TABLE>
9
<PAGE> 12
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
During the second quarter of 2000, employees exercised options to
acquire 150,863 shares of common stock at an average exercise price of $16.63
per share. During the six-month period ended June 30, 2000, employees exercised
options to acquire 305,944 shares of common stock at an average exercise price
of $17.09 per share. Also, during the six-month period ended June 30, 2000, the
Company issued 21,680 shares of common stock at a price of $16.15 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 is currently, 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 June 30, 2000 and 1999, and the six-month periods ended June 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 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 6.27% fixed interest rate on the 1997 swap agreement, and a
10
<PAGE> 13
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
5.625% fixed interest 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.
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 June 30,
2000, we owned and operated 16 general acute care hospitals in nine states with
a total of 1,511 licensed beds, and managed 44 hospitals in 17 states, with a
total of 3,454 licensed beds.
Our owned and leased hospitals accounted for 95.6% and 93.2% of our net
operating revenue in the three months ended June 30, 2000 and 1999,
respectively, and 95.6 % and 93.1% of our net operating revenue in the six
months ended June 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
12
<PAGE> 15
Hospital, a hospital that we already owned in Palestine, Texas, and changed the
name of the hospital to Palestine Regional Medical Center.
2000 Acquisitions
In February 2000, we acquired, through a long-term lease agreement, the
assets and business of the 45-bed City of Ennis Hospital from the City of Ennis,
Texas. The long-term lease totals $3.0 million over a 30-year period, including
a prepayment of $2.0 million. To finance the lease payment, we borrowed $2.0
million under our revolving credit facility.
In April 2000, we acquired, through a long-term lease agreement, the
assets and business of the 165-bed Bolivar Medical Center in Cleveland,
Mississippi, from Bolivar County. The 40-year lease totals $26.4 million, which
was prepaid at the date of closing. 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 June
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 June 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 materially affect 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>
Percentage
Three Months Ended Increase
June 30, (Decrease)
------------------ of Dollar
2000 1999 Amounts
------ ------ -------
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 45.1%
Operating expenses (1) 82.5 83.8 42.9
------ ------
EBITDA (2) 17.5 16.2 56.5
Depreciation and amortization 5.7 5.5 49.0
Interest 3.6 3.4 50.4
Minority interest 0.0 0.0 (43.8)
Loss on sale of assets 0.0 0.0 0.0
------ ------
Income before income taxes 8.2 7.3 65.2
Provision for income taxes 3.5 3.2 61.4
------ ------
Net income 4.7% 4.1% 68.2%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Percentage
Six Months Ended Increase
June 30, (Decrease)
------------------ of Dollar
2000 1999 Amounts
------ ------ -------
<S> <C> <C> <C>
Net operating revenue 100.0% 100.0% 46.9%
Operating expenses (1) 81.8 82.4 45.8
------ ------
EBITDA (2) 18.2 17.6 51.9
Depreciation and amortization 5.7 5.6 50.3
Interest 4.1 3.5 75.4
Minority interest 0.1 0.1 (41.8)
Loss on sale of assets 0.0 0.0 0.0
------ ------
Income before income taxes 8.3 8.4 44.6
Provision for income taxes 3.5 3.6 40.5
------ ------
Net income 4.8% 4.8% 46.3%
====== ======
</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 Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
CONSOLIDATED HOSPITALS:
Number of hospitals end of period 16 13 16 13
Licensed beds end of period 1,511 1,008 1,511 1,008
Beds in service end of period 1,401 909 1,401 909
Inpatient admissions 11,684 7,344 22,633 14,443
Patient days 54,547 36,236 106,106 72,502
Adjusted patient days 95,096 64,400 182,928 125,449
Average length of stay (days) 4.7 4.9 4.7 5.0
Occupancy rates (licensed beds) 39.7% 39.5% 38.6% 39.7%
Occupancy rates (beds in service) 42.8% 43.8% 41.6% 44.1%
Gross inpatient revenue $128,442,469 $79,267,333 $255,655,975 $154,506,604
Gross outpatient revenue 95,480,596 61,600,244 185,098,311 113,033,023
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Net operating revenue was $117.8 million for the three months ended June
30, 2000, compared to $81.2 million for the comparable period of 1999, an
increase of $36.6 million or 45.1%. Cost report settlements and the filing of
cost reports resulted in minimal revenue adjustments for the three months ended
June 30, 2000 and 1999. Net patient revenue generated by
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<PAGE> 18
hospitals owned during both periods increased $17.4 million, or 23.8%, resulting
from market expansion, inpatient volume increases, new services and price
increases. The remaining increase was primarily attributable to the
Acquisitions.
Operating expenses were $97.2 million, or 82.5% of net operating
revenue, for the three months ended June 30, 2000, compared to $68.1 million, or
83.8% of net operating revenue, for the comparable period of 1999. The provision
for doubtful accounts increased to 9.7% of net revenue in 2000, from 7.5% of net
revenue in 1999, primarily as a result of increases at two hospitals acquired in
1999. The majority of the increase in operating expenses was attributable to the
Acquisitions. Operating expenses of hospitals owned during both periods
decreased to 78.6% of net operating revenue for the three months ended June 30,
2000, compared to 80.2% for the comparable period of 1999.
EBITDA was $20.6 million or 17.5% of net operating revenue for the three
months ended June 30, 2000, compared to $13.2 million, or 16.2% of net operating
revenue, for the comparable period of 1999, primarily as a result of the
Acquisitions and improved operations at hospitals owned during both periods.
Depreciation and amortization expense was $6.7 million, or 5.7% of net
operating revenue, for the three months ended June 30, 2000, compared to $4.5
million, or 5.5% of net operating revenue for the comparable period of 1999. The
increase in depreciation and amortization resulted primarily from the
Acquisitions and capital expenditures at hospitals owned during both periods.
Interest expense as a percent of net operating revenue increased to 3.6% for the
three months ended June 30, 2000, from 3.4% for the comparable period of 1999,
as a result of increased borrowings to finance the Acquisitions.
Income before provision for income taxes was $9.7 million for the three
months ended June 30, 2000, compared to $5.9 million for the comparable period
of 1999, an increase of $3.8 million or 65.2%.
Our provision for income taxes was $4.1 million for the three months
ended June 30, 2000, compared to $2.5 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 $5.6 million, or 4.7% of net operating revenue, for the three
months ended June 30, 2000, compared to $3.3 million, or 4.1% of net operating
revenue for the comparable period of 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Net operating revenue was $226.9 million for the six months ended June
30, 2000, compared to $154.5 million for the comparable period of 1999, an
increase of $72.5 million or 46.9%. Cost report settlements and the filing of
cost reports resulted in minimal revenue adjustments for the six months ended
June 30, 2000 and 1999. Net patient revenue generated by hospitals owned during
both periods increased $31.2 million, or 22.5%, resulting from market expansion,
inpatient volume increases, new services and price increases. The remaining
increase was primarily attributable to the Acquisitions.
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<PAGE> 19
Operating expenses were $185.7 million, or 81.8% of net operating
revenue, for the six months ended June 30, 2000, compared to $127.3 million, or
82.4% of net operating revenue, for the comparable period of 1999. The provision
for doubtful accounts increased to 8.6% of net revenue in 2000 from 7.0% of net
revenue in 1999, primarily as a result of the Acquisitions. The majority of the
increase in operating expenses was attributable to the Acquisitions. Operating
expenses of hospitals owned during both periods decreased to 76.1% of net
operating revenue for the six months ended June 30, 2000, compared to 78.1% for
the comparable period of 1999.
EBITDA was $41.3 million or 18.2% of net operating revenue for the six
months ended June 30, 2000, compared to $27.2 million, or 17.6% of net operating
revenue, for the comparable period of 1999, primarily as a result of the
Acquisitions and improved operations at hospitals owned during both periods.
Depreciation and amortization expense was $13.0 million, or 5.7% of net
operating revenue, for the six months ended June 30, 2000, compared to $8.7
million, or 5.6% of net operating revenue for the comparable period of 1999. The
increase in depreciation and amortization resulted primarily from the
Acquisitions and capital expenditures at hospitals owned during both periods.
Interest expense as a percent of net operating revenue increased to 4.1% for the
six months ended June 30, 2000, from 3.5% for the comparable period of 1999, as
a result of increased borrowings to finance the Acquisitions.
Income before provision for income taxes was $18.8 million for the six
months ended June 30, 2000, compared to $13.0 million for the comparable period
of 1999, an increase of $5.8 million or 44.6%.
Our provision for income taxes was $8.0 million for the six months ended
June 30, 2000, compared to $5.7 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 $10.8 million, or 4.8% of net operating revenue, for the six months
ended June 30, 2000, compared to $7.4 million, or 4.8% of net operating revenue
for the comparable period of 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had working capital of $78.0 million, including
cash and cash equivalents of $10.5 million. The ratio of current assets to
current liabilities was 2.7 to 1.0 at June 30, 2000, and 2.4 to 1.0 at December
31, 1999.
In April 2000, we completed our public offering of 4,222,504 shares of
common stock. Net proceeds from the offering were approximately $94.8 million.
Total long-term obligations decreased to $205.1 million at June 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.
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<PAGE> 20
Cash provided by operations was $14.9 million for the six months ended
June 30, 2000. Cash used in investing activities was $50.1 million for the six
months ended June 30, 2000, relating primarily to acquisitions and capital
expenditures. Net cash provided by financing activities was $45.6 million for
the six months ended June 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 six months ended
June 30, 2000 and 1999, were $18.4 million and $6.4 million, respectively.
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.
GENERAL
The federal Medicare program accounted for approximately 55.1% and 57.7%
of hospital patient days for the three and six month periods ended June 30,
2000, respectively. The state Medicaid programs accounted for approximately
18.3% and 16.1% of hospital patient days for the three and six month periods
ended June 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 legislators are continuing to scrutinize the
health care industry for the
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<PAGE> 21
purpose of reducing health 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 are expected to convert 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
impact upon 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 42.6% and 42.0% of gross patient service revenue for the three and
six months ended June 30, 2000, respectively, compared to 43.7% and 42.2% of
gross patient revenue for the three and six months ended June 30, 1999,
respectively.
The billing and collection of accounts receivable by hospitals are
complicated by:
- the complexity of the Medicare and Medicaid regulations;
- increases in managed care;
- hospital personnel turnover;
- the dependence of hospitals on physician documentation of
medical records; and
- 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 rapidly increasing the
resources devoted
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<PAGE> 22
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:
- the highly competitive nature of the healthcare business;
- the efforts of insurers, healthcare providers and others to
contain healthcare costs;
- possible changes in the Medicare program that may further limit
reimbursements to healthcare providers and insurers;
- changes in federal, state or local regulation affecting the
healthcare industry;
- the possible enactment of federal or state healthcare reform;
- the departure of key members of our management;
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<PAGE> 23
- claims and legal actions relating to professional liability;
- our ability to implement successfully our acquisition and
development strategy;
- potential federal or state investigations;
- fluctuations in the market value of our common stock;
- changes in accounting practices;
- changes in general economic conditions; and
- 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 six months ended June 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. 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. Since 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On June 16, 2000, we filed with the Secretary of State of the State of
Delaware an Amended and Restated Certificate of Incorporation (the "Amended
Certificate"). The purpose of the Amended Certificate was to (i) increase the
number of authorized shares of the Company's common stock from 25,000,000 to
50,000,000 shares and (ii) eliminate references to the Series A Senior Preferred
Stock and Series B Junior Preferred Stock from the certificate of incorporation,
both of which series had been previously redeemed in full. We believe an
increase in the number of authorized shares of common stock would enable us to
continue our acquisition strategy or to engage in future equity financings. At
the time of the amendment we had, and we currently have no plans or obligations
to issue shares of common stock in connection with any acquisition or financing
activity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On Thursday, May 25, 2000, we held the Province Healthcare Company 2000
Annual Meeting of Shareholders. At such meeting, the shareholders voted on the
following three proposals:
First, the shareholders voted on the election of six nominees to the
Board of Directors. The incumbent Board of Directors, consisting of Martin S.
Rash, Richard D. Gore, Bruce V. Rauner, Joseph P. Nolan, A.E. Brim, Winfield C.
Dunn and David L. Steffy, determined that the size of the Board of Directors be
set at six members. The Board of Directors then nominated Martin S. Rash,
Richard D. Gore, Joseph P. Nolan, A.E. Brim, Winfield C. Dunn and David L.
Steffy, for election at such Annual Meeting to serve until the 2001 Annual
Meeting of Shareholders. The directors were elected by the following vote:
<TABLE>
<CAPTION>
Withhold
Name For Against Abstain Authority
---- --- ------- ------- ---------
<S> <C> <C> <C> <C>
Martin S. Rash 14,243,824 0 0 112,110
Richard D. Gore 14,243,824 0 0 112,110
Joseph P. Nolan 14,243,624 0 0 112,310
A.E. Brim 14,243,824 0 0 112,110
Winfield C. Dunn 14,242,759 0 0 113,175
David L. Steffy 14,243,024 0 0 112,910
</TABLE>
Second, the shareholders voted to approve the appointment of Ernst &
Young LLP as independent auditors of our company and its subsidiaries for the
fiscal year ending December 31, 2000. At the Annual Meeting, the shareholders
voted to ratify the appointment of Ernst & Young LLP, with 14,350,165 votes for,
2,417 votes against and 3,352 abstentions.
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<PAGE> 25
PART II
OTHER INFORMATION
(CONTINUED)
Third, the shareholders voted to approve adoption of the amendment to
our amended and restated certificate of incorporation. Prior to the Annual
Meeting, the Board of Directors had adopted, subject to shareholder approval, an
amendment to (i) increase the number of authorized shares of our common stock
from 25,000,000 to 50,000,000 and (ii) eliminate references to the Series A
Senior Preferred Stock and Series B Junior Preferred Stock from the amended and
restated certificate of incorporation. At the Annual Meeting, the shareholders
voted to approve the amendment, with 13,422,353 votes for, 277,399 votes
against, and 656,182 abstentions.
Finally, the shareholders voted to approve adoption of an amendment to
the Province Healthcare Company 1997 Long-Term Equity Incentive Plan (the
"Amendment"). Prior to the Annual Meeting the Board of Directors had adopted,
subject to shareholder approval, the Amendment to increase the number of
authorized shares of common stock that are available for awards under the plan
by 1,000,000 shares. As a result of the Amendment, the number of shares of
common stock available for issuance under the 1997 Long-Term Equity Incentive
Plan increased from 2,609,016 to 3,609,016. At the Annual Meeting, the
shareholders voted to approve the Amendment, with 8,214,936 votes for, 4,645,114
votes against, 658,251 abstentions and 837,633 broker non-votes.
ITEM 5. OTHER INFORMATION
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 8-K.
(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
3.2 Amended and Restated Bylaws of Province Healthcare Company (a)
27.1 Financial Data Schedule (for SEC use only)
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<PAGE> 26
PART II
OTHER INFORMATION
(CONTINUED)
(a) Incorporated by reference to the Exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 333-34421
(b) Reports on Form 8-K
During the three months ended June 30, 2000, we filed the following
reports on Form 8-K:
(i) Form 8-K, dated April 4, 2000, in connection with the Company's
execution of a long-term lease agreement with Bolivar Medical
Center, located in Cleveland, Mississippi, pursuant to which a
wholly-owned subsidiary of the Company will lease the property
and assets which comprise the business of Bolivar Medical
Center.
(ii) Form 8-K, dated May 2, 2000, in connection with the closing of
the acquisition described in the Company's Form 8-K filed on
April 4, 2000.
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<PAGE> 27
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: August 10, 2000 By: /s/ Brenda B. Rector
----------------------------------------
Brenda B. Rector
Vice President and Controller
25
