<PAGE>
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
TRIAD HOSPITALS, INC. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors............................................................. F-2
Consolidated Statements of Operations - for the years ended
December 31, 1999, 1998 and 1997........................................................ F-3
Consolidated Balance Sheets--December 31, 1999 and 1998.................................... F-4
Consolidated Statements of Equity--for the years ended December 31, 1999, 1998 and 1997.... F-5
Consolidated Statements of Cash Flows - for the years ended December 31, 1999, 1998
and 1997................................................................................ F-6
Notes to Consolidated Financial Statements................................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders
Triad Hospitals, Inc.
We have audited the accompanying consolidated balance sheets of Triad
Hospitals, Inc. (see Note 1) as of December 31, 1999 and 1998 and the related
consolidated statements of operations, equity and cash flows for each of the
three years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of management of Triad Hospitals, Inc. (the
"Company"). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Triad
Hospitals, Inc. at December 31, 1999 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
As explained in Note 7 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of accounting for start-up
costs.
ERNST & YOUNG LLP
Dallas, Texas
January 10, 2001
F-2
<PAGE>
TRIAD HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31 1999, 1998 AND 1997
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ------------------ --------------
<S> <C> <C> <C>
Revenues........................................................ $1,329.1 $1,588.7 $1,609.3
Salaries and benefits........................................... 570.9 700.5 666.8
Supplies........................................................ 200.1 241.6 232.8
Other operating expenses........................................ 301.5 362.6 385.9
Provision for doubtful accounts................................. 129.0 138.4 138.5
Depreciation and amortization................................... 98.5 109.6 102.9
Interest expense allocated from Columbia/HCA.................... 22.5 66.2 58.4
Interest expense................................................ 45.2 2.7 2.1
Interest income................................................. (2.5) -- --
ESOP expense.................................................... 3.7 -- --
Management fees allocated from Columbia/HCA..................... 8.9 29.3 25.4
Gain on sales of assets......................................... (8.6) -- --
Impairments of long-lived assets................................ 69.2 55.1 13.7
-------- -------- --------
1,438.4 1,706.0 1,626.5
-------- -------- --------
Loss from continuing operations before minority interests,
equity in earnings (loss) and income taxes................... (109.3) (117.3) (17.2)
Minority interests in earnings of consolidated entities......... (8.7) (11.0) (11.5)
Equity in earnings (loss) of affiliates......................... (3.1) 3.4 2.5
-------- -------- --------
Loss from continuing operations before income taxes............. (121.1) (124.9) (26.2)
Income tax benefit.............................................. 25.5 39.4 7.2
-------- -------- --------
Loss from continuing operations................................. (95.6) (85.5) (19.0)
Discontinued operations:
Income (loss) from operations, net of income taxes (benefit)
of $(0.7) and $3.2 for the years ended December 31,
1998 and 1997............................................ -- (1.6) 4.9
Estimated loss on disposal, net of income tax benefit
of $1.9.................................................. -- -- (2.9)
-------- -------- --------
(95.6) (87.1) (17.0)
Loss before cumulative effect of change in accounting principles
Cumulative effect of accounting change, net of income tax
benefit of $1.8.......................................... -- -- (2.8)
-------- -------- --------
Net loss........................................................ $ (95.6) $ (87.1) $ (19.8)
======== ======== ========
Basic loss per share:
Loss from continuing operations........................... $ (3.12) $ (2.80) $ (0.62)
Income (loss) from discontinued operations................ -- (0.05) 0.06
Cumulative effect of accounting change.................... -- -- (0.09)
-------- -------- --------
Net loss............................................ $ (3.12) $ (2.85) $ (0.65)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
TRIAD HOSPITALS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(Dollars in millions)
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 70.9 $ --
Accounts receivable, less allowances for doubtful accounts of
$156.7 and $155.9 at December 31, 1999 and 1998, respectively.... 150.6 199.3
Inventories......................................................... 32.5 44.8
Deferred income taxes............................................... 46.5 37.9
Other............................................................... 52.9 23.9
-------- --------
353.4 305.9
Property and equipment, at cost:
Land................................................................ 63.4 82.0
Buildings and improvements.......................................... 485.8 604.9
Equipment........................................................... 626.5 712.0
Construction in progress (estimated cost to complete and
equip after December 31, 1999--$43.4)............................ 44.8 63.7
-------- --------
1,220.5 1,462.6
Accumulated depreciation............................................ (520.8) (703.1)
-------- --------
699.7 759.5
Intangible assets, net of accumulated amortization of $53.8 and
$50.2 at December 31, 1999 and 1998, respectively...................... 175.9 272.9
Investment in and advances to affiliates.................................. 103.0 24.3
Other..................................................................... 9.1 8.7
-------- --------
Total assets.............................................................. $1,341.1 $1,371.3
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................................................... $ 57.7 $ 47.5
Accrued salaries.................................................... 32.1 34.8
Current portion of long-term debt................................... 18.3 0.9
Other current liabilities........................................... 57.7 37.8
-------- --------
165.8 121.0
Intercompany balances payable to Columbia/HCA............................. -- 613.7
Long-term debt............................................................ 537.1 13.4
Deferred taxes and other liabilities...................................... 31.3 62.5
Commitments and contingencies............................................. -- --
Minority interests in equity of consolidated entities..................... 47.0 60.0
Stockholders' equity:
Equity investments by Columbia/HCA................................ -- 500.7
Common stock .01 par value: 90,000,000 shares authorized,
33,943,282 shares issued and outstanding at December 31, 1999.. 0.3 --
Additional paid-in capital........................................ 653.4 --
Unearned ESOP compensation and stockholder notes receivable....... (40.1) --
Accumulated deficit............................................... (53.7) --
-------- --------
Total stockholders' equity........................................ 559.9 500.7
-------- --------
Total liabilities and stockholders' equity $1,341.1 $1,371.3
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
TRIAD HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in millions)
<TABLE>
<CAPTION>
Unearned
ESOP
Compensation Equity
Common and Investments
Stock Additional Stockholder by Total
------------------ Paid-in Notes Accumulated Columbia/ Stockholders'
Shares Amount Capital Receivable Deficit HCA Equity
------------------ ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997............. -- $ -- $ -- $ -- $ -- $ 607.6 $ 607.6
Net loss.......................... -- -- -- -- -- (19.8) (19.8)
----------- ----- ---------- ------------ ----------- ----------- -------------
Balance December 31, 1997........... -- -- -- -- -- 587.8 587.8
Net loss.......................... -- -- -- -- -- (87.1) (87.1)
----------- ----- ---------- ------------ ----------- ----------- -------------
Balance December 31, 1998........... -- -- -- -- -- 500.7 500.7
Elimination of intercompany
balances and other equity
transactions..................... -- -- -- -- -- 800.1 800.1
Assumption of long-term debt
(net of discount)................ -- -- -- -- -- (649.0) (649.0)
Net loss prior to Spin-off........ -- -- -- -- -- (41.9) (41.9)
----------- ----- ---------- ------------ ----------- ----------- -------------
Balance May 11, 1999................ -- -- -- -- -- 609.9 609.9
Spin-off of Triad shares to
Columbia/HCA shareholders........ 29,898,688 0.3 609.6 -- -- (609.9) --
Issuance of common stock for
Executive Stock Purchase Plan
loans............................ 970,000 -- 9.1 (9.1) -- -- --
Issuance of common stock.......... 74,594 -- -- -- -- -- --
Issuance of common shares for
ESOP note receivable............. 3,000,000 -- 34.5 (34.5) -- -- --
ESOP compensation earned.......... -- -- 0.2 3.5 -- -- 3.7
Net loss post Spin-off............ -- -- -- (53.7) -- (53.7)
----------- ----- ---------- ------------ ----------- ----------- -------------
Balance December 31, 1999........... 33,943,282 $ 0.3 $ 653.4 $ (40.1) $ (53.7) $ -- $ 559.9
=========== ===== ========== ============ =========== =========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
TRIAD HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in millions)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. $ (95.6) $ (87.1) $ (19.8)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Provision for doubtful accounts............................................. 129.0 138.4 138.5
Depreciation and amortization............................................... 98.5 109.6 102.9
ESOP expense................................................................ 3.7 -- --
Minority interests.......................................................... 8.7 11.0 11.5
Equity in (earnings) loss of affiliates..................................... 3.1 (3.4) (2.5)
Gain on sales of assets..................................................... (8.6) -- --
Deferred income tax benefit................................................. (25.5) (24.6) (10.8)
Impairment of long-lived assets............................................. 69.2 55.1 13.7
Loss (income) from discontinued operations.................................. -- 1.6 (2.0)
Cumulative effect of accounting change...................................... -- -- 2.8
Increase (decrease) in cash from operating assets and liabilities:
Accounts receivable....................................................... (94.1) (145.9) (115.3)
Inventories and other assets.............................................. 14.4 (2.1) (1.6)
Accounts payable and other current liabilities............................ 56.3 (18.9) (6.8)
Other....................................................................... (3.9) (0.1) --
------- ------- -------
Net cash provided by operating activities................................ 155.2 33.6 110.6
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment.......................................... (132.7) (114.9) (120.1)
Investment in and advances to affiliates..................................... (54.7) 0.7 --
Proceeds received on sale of assets.......................................... 117.8 -- --
Other........................................................................ 11.9 5.9 8.1
------- ------- -------
Net cash used in investing activities.................................... (57.7) (108.3) (112.0)
------- ------- -------
Cash flows from financing activities:
Payments of long-term debt................................................... (114.2) (0.9) (1.3)
Distributions to minority partners........................................... (18.6) (13.1) (12.8)
Increase in intercompany balances with Columbia/HCA, net..................... 106.2 88.7 15.5
------- ------- -------
Net cash provided by (used in) financing activities...................... (26.6) 74.7 1.4
------- ------- -------
Change in cash and cash equivalents........................................... 70.9 -- --
Cash and cash equivalents at beginning of period.............................. -- -- --
------- ------- -------
Cash and cash equivalents at end of period.................................... $ 70.9 $ -- $ --
======= ======= =======
Cash paid for:
Interest payments............................................................. $ 59.2 $ 69.4 $ 61.1
Income tax payments (refunds), net............................................ $ -- $ (15.9) $ 3.6
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-- SPIN-OFF OF TRIAD HOSPITALS, INC.
On May 11, 1999, Columbia/HCA Healthcare Corporation ("Columbia/HCA")
completed the spin-off of Triad Hospitals, Inc. ("Triad") to its shareholders
(the "Spin-off") by a pro rata distribution of 29,898,688 shares of common
stock.
On the Spin-off date, Triad became an independent, publicly owned company
encompassing the operations of what had comprised the Pacific Group of
Columbia/HCA. At the Spin-off, the common shares of Triad were distributed to
the record date holders of Columbia/HCA at a ratio of one share for every
nineteen outstanding Columbia/HCA shares. Following the Spin-off, Columbia/HCA
had no ownership in Triad.
Triad has entered into separation and other related agreements (see NOTE 13)
governing the Spin-off transaction and Triad's subsequent relationship with
Columbia/HCA. These agreements provide certain indemnifications for the
parties, and provide for the allocation of tax and other assets, liabilities and
obligations arising from periods prior to the Spin-off.
On May 11, 1999, Columbia/HCA also completed the spin-off of a separate,
independent company, LifePoint Hospitals, Inc. ("LifePoint"). Columbia/HCA,
Triad and LifePoint entered into various agreements subsequent to the Spin-off
(See NOTE 13).
NOTE 2--ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements present Triad's financial
position, results of operations and cash flows as if Triad had been an
independent, publicly owned comapny for all periods presented. Certain
allocations of previously unallocated Columbia/HCA's expenses, as well as
computations of separate tax provisions, have been made to facilitate such
presentation. The accompanying financial statements for the periods prior to the
Spin-off were prepared on the push down basis of the historical cost to
Columbia/HCA and represent the combined financial position, results of
operations and cash flows of Triad for those periods.
The consolidated financial statements include the accounts of Triad and all
affiliated subsidiaries and entities controlled by Triad through Triad's direct
or indirect ownership of a majority voting interest. All intercompany
transactions have been eliminated. Investments in entities which Triad does not
control, but in which it has a substantial ownership interest and can exercise
significant influence, are accounted for using the equity method.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--ACCOUNTING POLICIES (continued)
Reclassification
Certain prior year amounts have been reclassified to conform to the current
presentation.
Equity
The equity for the year ended December 31, 1999 includes certain Spin-off
related transactions, such as elimination of intercompany balances with
Columbia/HCA as of the Spin-off, reclassification of Columbia/HCA's net
investment in Triad to additional paid in capital and certain post Spin-off
settlements with Columbia/HCA.
Equity as of December 31, 1998 and 1997 represented the net investment in
Triad by Columbia/HCA. It includes common stock, additional paid-in-capital and
net earnings.
Revenues
Triad's health care facilities have entered into agreements with third-party
payers, including government programs and managed care health plans, under which
the facilities are paid based upon established charges, the cost of providing
services, predetermined rates per diagnosis, fixed per diem rates or discounts
from established charges.
Revenues are recorded at estimated net amounts due from patients, third-party
payers and others for health care services provided. Settlements under
reimbursement agreements with third-party payers are estimated and recorded in
the period the related services are rendered and are adjusted in future periods
as adjustments become known or as years are no longer subject to audit, review
or investigation. Laws and regulations governing the Medicare and Medicaid
programs are extremely complex and subject to interpretation. As a result, there
is at least a reasonable possibility that recorded estimates will change by a
material amount in the near term. The net adjustments to estimated settlements
resulted in decreases to revenues of $1.7 million for the year ended
December 31, 1999 and increases to revenues of $3.0 million for the year ended
December 31, 1998, (adjustments for 1997 had no significant impact on revenues).
In association with ongoing federal investigations into certain of
Columbia/HCA's business practices, applicable governmental agencies ceased the
settlement of cost reports. The settlement of cost reports started to resume
during 1999. Due to the cost reports not being settled, Triad is not receiving
all of the updated information which has historically been the basis used to
adjust estimated settlement amounts. At this time, Triad cannot predict when, or
if, the historical cost report settlement process will be completed. Management
believes that adequate provisions have been made for adjustments that may result
from final determination of amounts earned under these programs. The estimated
net cost report settlements as of December 31, 1999 was a credit of
approximately $35.9 million and is included in accounts receivable in the
accompanying balance sheet. In connection with the Spin-off, Columbia/HCA agreed
to indemnify Triad for any payments which it is required to make in respect of
Medicare, Medicaid and Blue Cross cost reports relating to periods ending on or
prior to the Spin-off, and Triad agreed to indemnify Columbia/HCA for and pay to
Columbia/HCA any payments received by it relating to such cost reports relating
to periods ending on or prior to the Spin-off. Triad will be responsible for the
filing of these cost reports and any terminating cost reports. Triad has
recorded a net receivable from Columbia/HCA relating to the indemnification of
$28.0 million as of December 31, 1999 (See NOTE 13).
Triad provides care without charge to patients who are financially unable to
pay for the health care services they receive. Because Triad does not pursue
collection of amounts determined to qualify as charity care, they are not
reported in revenues.
F-8
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
Cash equivalents consist of all investments with an original maturity of
three months or less.
Accounts Receivable
Accounts receivable are recorded at the estimated net realizable amounts from
federal and state agencies (under the Medicare, Medicaid and CHAMPUS programs),
managed care health plans, commercial insurance companies, employers and
patients. During the years ended December 31, 1999, 1998 and 1997, approximately
31.9%, 35.2%, and 36.5%, respectively, of Triad's net revenues related to
patients participating in the Medicare program. Triad recognizes that revenues
and receivables from government agencies are significant to its operations, but
it does not believe that there are significant credit risks associated with
these government agencies. During the years ended December 31, 1999, 1998 and
1997 approximately 32.7%, 27.0% and 26.0%, respectively, of Triad's net revenues
related to patients in various managed care plans. Approximately half of Triad's
facilities are located in the states of Arizona and Texas. Triad does not
believe that there are any other significant concentrations of revenues from any
particular payer or geographic area that would subject it to any significant
credit risks in the collection of its accounts receivable
Inventories
Inventories of supplies are stated at the lower of cost (first-in, first-out)
or market.
Long-Lived Assets
(a) Property and Equipment
Property and equipment are stated at cost. Routine maintenance and repairs
are charged to expense as incurred. Expenditures that increase capacities or
extend useful lives are capitalized.
Depreciation expense, computed using the straight-line method, was $89.8
million, $99.0 million, and $90.8 million for the years ended December 31, 1999,
1998, and 1997, respectively. Buildings and improvements are depreciated over
estimated useful lives ranging from 10 to 40 years. Equipment is depreciated
over estimated useful lives ranging from 3 to 10 years.
(b) Intangible Assets
Intangible assets, consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities. These costs of $174.5 million and
$270.9 million at December 31, 1999 and 1998, respectively, are amortized using
the straight-line method, generally over periods ranging from 30 to 40 years for
hospital acquisitions and periods ranging from 5 to 20 years for physician
practice and clinic acquisitions. During the year ended December 31, 1999, these
costs were reduced by $83.7 million from sales of facilities and impairments of
long-lived assets (See NOTE 3 and 5). Noncompete agreements and debt issuance
costs are amortized based upon the terms of the respective contracts or loans.
Amortization expense was $8.7 million, $10.6 million and $12.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
F-9
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--ACCOUNTING POLICIES (continued)
When events, circumstances and operating results indicate that the carrying
values of certain long-lived assets and the related identifiable intangible
assets might be impaired, Triad prepares projections of the undiscounted future
cash flows expected to result from the use of the assets and their eventual
disposition. If the projections indicate that the recorded amounts are not
expected to be recoverable, such amounts are reduced to estimated fair value.
Income Taxes
Triad accounts for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". Under
SFAS 109, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax benefits consist of
Triad's current benefit for federal and state income taxes and the change in
Triad's deferred income tax assets and liabilities.
For periods prior to the Spin-off, Columbia/HCA filed consolidated federal
and state income tax returns which included all of its eligible subsidiaries,
including Triad. The provisions for income taxes (benefits) in the consolidated
statements of operations for all periods presented were computed on a separate
return basis (i.e., assuming Triad had not been included in a consolidated
income tax return with Columbia/HCA).
General and Professional Liability Risks
Columbia/HCA assumed the liability for all general and professional liability
claims incurred through the Spin-off. Subsequent to the Spin-off, Triad obtained
first dollar insurance coverage on a claims incurred basis from Columbia/HCA's
captive insurance company. The cost of general and professional liability
coverage was determined by Columbia/HCA's captive insurance company based on
actuarially determined estimates. The cost for the years ended December 31,
1999, 1998, and 1997 was approximately $23.2 million, $27.0 million and $22.9
million, respectively.
For periods after the Spin-off, Triad instituted its own self-insured program
for workers compensation and health insurance. Reserves for workers compensation
and health claim liability risk were $3.3 million and $3.6 million,
respectively, at December 31, 1999. Prior to the Spin-off, Triad participated in
a self-insured program for workers' compensation and health insurance
administered by Columbia/HCA. Columbia/HCA retained sole responsibility for all
workers' compensation and health claims incurred prior to the Spin-off.
Accordingly, no reserves for worker's compensation and health claims liability
risks were recorded at December 31, 1998 in the accompanying consolidated
balance sheets. The cost for these programs is based upon claims paid, plus an
actuarially determined amount for claims incurred but not reported. The cost for
the years ended December 31, 1999, 1998, and 1997 under all programs was
approximately $5.8 million, $8.1 million, and $8.1 million, respectively.
Management Fees
Prior to the Spin-off, corporate overhead expenses relating to various
Columbia/HCA corporate general and administrative expenses were allocated to
Triad based on net revenues. In the opinion of Columbia/HCA management, this
allocation method was reasonable.
F-10
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. Cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities
are reflected in the consolidated financial statements at fair value because of
the short-term maturity of these instruments. The fair value of long-term debt
was determined by using quoted market prices, when available, or discounted cash
flows to calculate these fair values.
NOTE 3--COMPANY OPERATIONS
As of January 1, 1999, Triad owned or operated 39 hospitals (including one
facility that is leased from others and an investment in one hospital that is
accounted for using the equity method), 19 free-standing ambulatory surgery
centers (including two investments in ambulatory surgery centers that are
accounted for using the equity method) and related health care entities located
in eleven southwestern, western and southcentral states. During the year ended
December 31, 1999, Triad sold ten hospitals, including two sales prior to the
Spin-off of which the proceeds were retained by Columbia/HCA. Also, on
January 1, 1999, Triad transferred two acute care hospitals and three ambulatory
surgery centers located in the Kansas City, Missouri area to an unaffiliated
third party pursuant to a long-term lease which provides for payment to Triad of
rental amounts approximating $16.0 million per year (See NOTE 9). Triad also
opened one new hospital that is accounted for using the equity method. Triad
received a capital contribution from its partner in this joint venture facility
of $37.0 million on February 28, 2000.
On June 1, 1999, Triad completed the exchange of one hospital located in
Laredo, Texas for one hospital located in Victoria, Texas and $4.4 million in
cash.
Triad sold its joint venture facility in Amarillo, Texas on September 1, 1999
and received $23.1 million in net proceeds. A gain on the sale of $14.2 million
was recorded during the year ended December 31, 1999. Triad retained the
accounts receivable and certain liabilities with a net book value of $(0.3)
million at December 31, 1999. For the years ended December 31, 1999, 1998 and
1997, this facility had net revenues of $6.6 million, $10.9 million and $9.6
million, respectively, and pre-tax income before gain on sale of assets and
impairment charges of $0.3 million, $2.1 million and $1.2 million, respectively.
Triad sold all of its assets in its acute care hospitals in Anaheim,
California and Huntington Beach, California and its interest in an ambulatory
surgery center in Anaheim, California on September 3, 1999 for $43.3 million. A
gain of $1.4 million on the sale was recorded during the year ended December 31,
1999. For the years ended December 31, 1999, 1998 and 1997, these facilities had
net revenues of $67.1 million, $95.8 million and $103.9 million, respectively,
and pre-tax losses before gain on sale of assets and impairment charges of $3.5
million, $8.3 million and $4.2 million, respectively.
Triad sold its acute care hospitals in Beaumont, Texas and Silsbee, Texas and
its interest in an ambulatory surgery center in Beaumont, Texas on September 30,
1999 for $13.7 million. Triad retained the accounts receivable and certain
liabilities with a net book value of $(1.7) million at December 31, 1999. A
loss on the sale of $2.9 million was recorded during the year ended December 31,
1999. For the years ended December 31, 1999, 1998 and 1997, these facilities had
net revenues of $36.4 million, $59.6 million and $66.2 million, respectively,
and pre-tax losses before loss on sale of assets and impairment charges of $15.1
million, $12.5 million and $10.5 million, respectively.
F-11
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--COMPANY OPERATIONS (continued)
On October 31, 1999 Triad sold its stock interest in a psychiatric hospital
in Kansas City, Missouri for $4.3 million. A gain on the sale of $0.6 million
was recorded during the year ended December 31, 1999. For the years ended
December 31, 1999, 1998 and 1997, this facility had net revenues of $8.0
million, $10.2 million and $11.2 million, respectively and pre-tax income before
gain on sale of assets and impairment charges of $0.0 million, $0.4 million and
$0.5 million, respectively.
Triad sold a majority of the assets of its acute care hospital in Phoenix,
Arizona for $29.2 million on November 30, 1999. A loss on the sale of $3.8
million was recorded during the year ended December 31, 1999. Triad retained the
accounts receivable and certain liabilities with a book value at December 31,
1999 of $(0.8) million. For the years ended December 31, 1999, 1998 and 1997,
this facility had net revenues of $35.4 million, $65.4 million and $86.8
million, respectively, and pre-tax losses before loss on sale of assets and
impairment charges of $21.5 million, $13.5 million and $9.0 million,
respectively.
Triad sold the assets of its acute care hospital in DeQueen, Arkansas for
approximately $4.0 million plus approximately $0.5 million of assumed
liabilities on November 30, 1999. A loss on the sale of $0.5 million was
recorded during the year ended December 31, 1999. Triad retained the accounts
receivable and certain liabilities with a book value at December 31, 1999 of
$1.6 million. For the years ended December 31, 1999, 1998 and 1997, this
facility had net revenues of $11.5 million, $14.1 million and $13.7 million,
respectively, and pre-tax income (losses) before loss on sale of assets and
impairment charges of ($4.2) million, ($1.8) million and $0.1 million,
respectively.
In February 2000, Triad closed its acute care hospital in Roseberg, Oregon.
An impairment charge of $6.8 million on this facility was recognized during the
year ended December 31, 1999. As of December 31, 1999, the carrying value of
this facility after impairment charge was $7.4 million. For the years ended
December 31, 1999, 1998 and 1997, this facility had net revenues of $21.8
million, $21.5 million and $26.3 million, respectively, and pre-tax losses
before impairment charges and income tax of $5.6 million, $6.6 million and $2.3
million, respectively.
Triad used the proceeds of the sales to retire certain outstanding
indebtedness (see NOTE 8).
NOTE 4--INCOME TAXES
The income tax benefit for the years ended December 31, 1999, 1998 and 1997
consists of the following (dollars in millions):
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Current:
Federal........................................................................ $10.3 $12.5 $(3.0)
State.......................................................................... (1.8) 2.3 (0.6)
Deferred:
Federal........................................................................ 14.5 20.8 9.1
State.......................................................................... 2.5 3.8 1.7
----- ----- -----
$25.5 $39.4 $ 7.2
===== ===== =====
</TABLE>
F-12
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--INCOME TAXES (continued)
A reconciliation of the federal statutory rate to the effective income tax
rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Federal statutory rate........................................................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit......................... 2.8 3.1 2.4
Non-deductible intangible assets.............................................. -- (6.5) (8.8)
Non-deductible impairment reserves............................................ (11.5) -- --
Non-deductible goodwill amortization.......................................... (2.5) -- --
Other items, net.............................................................. (2.7) (0.2) (1.5)
----- ----- ----
Effective income tax rate..................................................... 21.1% 31.4% 27.1%
===== ===== ====
</TABLE>
A summary of the items comprising the deferred tax assets and liabilities at
December 31 follows (dollars in millions):
<TABLE>
<CAPTION>
1999 1998
----------------------- --------------------
Assets Liabilities Assets Liabilities
--------- ------------ ------- -----------
<S> <C> <C> <C> <C>
Depreciation and fixed asset basis differences..................... $ -- $34.7 $ -- $63.4
Accounts and other receivables..................................... 33.4 -- 29.8 --
Net operating loss carry forwards.................................. 9.7 -- -- --
Compensation reserves.............................................. 6.1 -- 8.4 --
Other.............................................................. 2.3 -- 5.3 4.0
----- ----- ----- -----
51.5 34.7 43.5 67.4
Valuation allowances............................................... (1.0) -- -- --
----- ----- ----- -----
$50.5 $34.7 $43.5 $67.4
===== ===== ===== =====
</TABLE>
As part of the Spin-off, Columbia/HCA, Lifepoint and Triad entered into a tax
sharing and indemnification agreement (See NOTE 13). The tax sharing and
indemnification agreement will not have an impact on the realization of deferred
tax assets or the payment of deferred tax liabilities of Triad except to the
extent that the temporary differences giving rise to such deferred tax assets
and liabilities as of the Spin-off are adjusted as a result of final tax
settlements after the Spin-off. In the event of such adjustments, the tax
sharing and indemnification agreement will provide for certain payments between
Columbia/HCA and Triad as appropriate.
Deferred income taxes of $46.5 million and $37.9 million at December 31, 1999
and 1998, respectively, are included in current assets. Noncurrent deferred
income tax liabilities totaled $30.7 million and $61.8 million at December 31,
1999 and 1998, respectively. Current and noncurrent deferred taxes totaled $15.8
million net tax deferred asset and $23.9 million net tax deferred liability at
December 31, 1999 and 1998, respectively. Included in the total current and
noncurrent deferred taxes were increases in tax deferred assets and reductions
to deferred tax liabilities equal to $15.6 million. The $15.6 million additional
net deferred tax asset resulted from equity adjustments through Columbia/HCA
pursuant to the tax sharing and indemnification agreement.
At December 31, 1999, state net operating loss carryforwards (expiring in
years 2000 through 2014) available to offset future taxable income approximated
$51 million. The majority of this net operating loss expires in 2004.
Utilization of net operating loss carryforwards in any one year may be limited
and, in certain cases, result in a reduction of deferred tax assets. Based on
available evidence, it is more likely than not that some portion of the state
net operating loss carryforwards will not be realized, therefore, a valuation
allowance of $1.0 million was recorded during the year ended December 31, 1999.
At December 31, 1999, the federal net operating loss available to offset
future taxable income approximated $18 million. The federal operating loss
carryforward will expire in the year 2019. Pursuant to the tax sharing and
indemnification agreement, Triad is entitled to the tax benefit of such losses.
F-13
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--IMPAIRMENT OF LONG-LIVED ASSETS
Triad follows the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and Long- Lived
Assets to be Disposed of ("SFAS 121"). SFAS 121 addresses accounting for the
impairment of long-lived assets and long-lived assets to be disposed of, certain
identifiable intangibles and goodwill related to those assets, and provides
guidance for recognizing and measuring impairment losses. The statement requires
that the carrying amount of impaired assets be reduced to fair value.
As discussed previously, during the year ended December 31, 1999, Triad sold
nine hospitals and one psychiatric hospital. Triad intends to sell two general,
acute care hospitals that were identified as not compatible with Triad's
operating plans, based upon management's review of all facilities, and after
giving consideration to current and expected competition in each market,
expected population trends in each market and the current and expected capital
needs in each market. At December 31, 1999, the carrying value of the long-lived
assets relating to the remaining facilities to be sold was $16.6 million. The
two facilities to be sold contributed net revenues of $49.9 million, $50.0
million and $56.5 million for the years ended December 31, 1999, 1998, and 1997
respectively. These facilities also contributed losses before impairment charges
and income tax benefit of $7.8 million, $13.0 million and $10.7 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Triad closed one
facility on February 11, 2000 and expects to complete the sales of these
facilities by December 31, 2000. Triad is required to use a portion of any sales
proceeds to retire certain outstanding indebtedness (see NOTE 8).
During the year ended December 31, 1999, the carrying values of the long-
lived assets related to five of the facilities sold and the two facilities to be
sold, were reduced to fair value, based on estimated selling values, for a total
non-cash charge of $66.1 million. These facilities had net revenues of
approximately $131.3 million, $168.9 million and $185.8 million for the years
ended December 31, 1999, 1998 and 1997, respectively. These facilities also
contributed losses from continuing operations before income tax benefit, gain on
sale of assets and the asset impairment charge of approximately $30.7 million,
$34.1 million and $25.9 million, for the years ended December 31, 1999, 1998 and
1997, respectively.
During the year ended December 31, 1999, Triad recorded further impairment
losses of $3.1 million related to one hospital facility where the recorded asset
values were not deemed to be fully recoverable based upon the operating results,
trends and projected future cash flows. These assets will continue to be used
and are now recorded at estimated fair value, based upon discounted, estimated
future cash flows.
During the third and fourth quarters of 1998 Triad decided to sell certain
hospital facilities and surgery centers that were identified as not compatible
with Triad's operating plans, based upon management's review of all facilities,
and giving consideration to current and expected competition in each market,
expected population trends in each market and the current and expected capital
needs in each market. The carrying value of the long-lived assets related to
certain of these facilities (4 hospital facilities and one surgery center), of
approximately $75.7 million, was reduced to fair value, based on estimates of
selling values, for a total non-cash charge of $31.1 million. For the years
ended December 31, 1998 and 1997, respectively, these facilities to be divested
had net revenues of approximately $91.8 million and $97.8 million and incurred
losses from continuing operations before income tax benefits and the asset
impairment charge of approximately $30.4 million and $28.2 million. Triad
completed the sales of these facilities during 1999.
Triad recorded, during the fourth quarters of 1998 and 1997, impairment
losses of approximately $24.0 million and $13.7 million, respectively, related
to one hospital facility in 1998 and intangibles and other long-lived assets of
certain surgery centers and physician practices in 1997, where the recorded
asset values were not deemed to be fully recoverable based upon the operating
results trends and projected future cash flows. These assets being held and used
are now recorded at estimated fair value, based upon discounted, estimated
future cash flows.
NOTE 6--DISCONTINUED OPERATIONS
During the fourth quarter of 1998, Columbia/HCA and Triad completed the
divestiture of their home health businesses and received proceeds of
approximately $3.9 million, which approximated the carrying value of the net
assets of discontinued operations. Columbia/HCA and Triad implemented plans to
sell the home health businesses during the third quarter of 1997. The
consolidated financial statements reflect the results of operations and net
assets of the home health businesses as discontinued operations.
Triad recorded a loss from discontinued operations of $1.6 million and income
from discontinued operations of $4.9 million (net of tax benefits) in 1998 and
1997, respectively. Triad was not able to reasonably estimate, at the time the
decision was made to sell the home health businesses, whether these businesses
would incur losses during the period they were being held for sale. The ability
to estimate operating results during the period these businesses were being held
for sale was negatively impacted by certain changes in Medicare reimbursement
rates, and the need to obtain certain regulatory approvals.
Revenues for the home health businesses disposed of were approximately $38.3
million and $74.4 million for the years ended December 31, 1998 and 1997,
respectively.
F-14
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6-- DISCONTINUED OPERATIONS (continued)
The after-tax loss incurred upon the divestiture of the home health
businesses of $(2.9) million was recorded during the fourth quarter of 1997 and
is presented in the "Discontinued operations" section of the consolidated
statements of operations.
NOTE 7--ACCOUNTING CHANGE
During 1997, Triad changed its method of accounting for start-up costs. The
change involved expensing these costs as incurred, rather than capitalizing and
subsequently amortizing such costs. Triad believes the new method is preferable
due to certain changes in business strategy and reviews of emerging accounting
guidance on accounting for similar (i.e., start-up, software system training and
process reengineering) costs.
The change in accounting principle resulted in the write-off of the costs
capitalized as of January 1, 1997. The cumulative effect of the write-off, which
totals $2.8 million (net of tax benefit), has been expensed and reflected in the
statements of operations for the year ended December 31, 1997. The pro forma
effect on the year ended December 31, 1997 follows (dollars in millions):
<TABLE>
<CAPTION>
1997
-----------------------
As Pro
Reported Forma
---------- -----------
<S> <C> <C>
Loss from continuing operations.................... $ (19.0) $ (19.0)
Net loss........................................... $ (19.8) $ (17.0)
</TABLE>
NOTE 8--LONG-TERM DEBT
Components of long term debt at December 31 (in millions)
<TABLE>
<CAPTION>
Carrying Amount Fair Value
------------------------ -----------------------
1999 1998 1999 1998
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Tranche A term loan....................................... $ 35.4 $ -- $ 35.4 $ --
Tranche B term loan....................................... 196.6 -- 196.6 --
Senior Subordinated Debt.................................. 315.9 -- 339.6 --
Other..................................................... 7.5 14.3 7.5 13.4
------ ----- ------ -----
555.4 14.3 $579.1 $13.4
====== =====
Less current portion...................................... (18.3) (0.9)
------ -----
$537.1 $13.4
====== =====
</TABLE>
In connection with the Spin-off, Triad assumed principal balances totaling
$673.8 million of debt financing from Columbia/HCA. The debt consisted
originally of a $75.0 million asset sale bridge loan bearing interest at LIBOR
plus 3.25% due May 11, 2000, which Triad has repaid with proceeds received from
the sale of assets (see NOTE 3), a $65.0 million Tranche A term loan bearing
interest at LIBOR plus 3.25% (9.22% per annum at December 31, 1999) with
principal amounts due beginning in 1999 through 2004, a $200.0 million Tranche B
term loan bearing interest at LIBOR plus 4% (10.47% per annum at December 31,
1999) with principal amounts due beginning in 1999 through 2005, and $315.2
million senior subordinated notes with a face value of $325.0 million bearing
interest at 11% due in 2009 with interest payments due semi-annually. The
accretion of the discount relating to the senior subordinated notes was $0.7
million for the year ended December 31, 1999. Triad also assumed various
indebtedness of Columbia/HCA related to specific hospitals in the aggregate
amount of $8.8 million with interest rates averaging 5.7% per annum maturing
over five years.
F-15
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--LONG-TERM DEBT (continued)
Triad's bank debt is collateralized by a pledge of substantially all of its
assets. The debt agreements require that Triad comply with various financial
ratios and tests and have restrictions on new indebtedness, asset sales and use
of proceeds therefrom, capital expenditures and dividends.
Triad also assumed a $125.0 million revolving line of credit bearing interest
at LIBOR plus 3.25% due in 2004. No amounts were outstanding as of December 31,
1999.
A five-year maturity schedule is as follows (in millions):
<TABLE>
<S> <C>
2000....................................................... $ 18.3
2001....................................................... 13.4
2002....................................................... 13.9
2003....................................................... 4.1
2004....................................................... 95.8
Thereafter................................................. 419.0
------
564.5
Less unamortized debt discount-Senior Subordinated Notes (9.1)
------
$555.4
======
</TABLE>
As part of the assumption of the above referenced debt financing, Triad also
recorded approximately $6.2 million in related debt issue costs, which are being
amortized using the effective interest method over the lives of the related
debt. Accumulated amortization of the debt issue costs was $2.0 million at
December 31, 1999.
Triad's senior subordinated notes are guaranteed by all operating
subsidiaries of Triad (the "Subsidiary Guarantors"). The guarantee obligations
of the Subsidiary Guarantors are full, unconditional and joint and several. The
aggregate assets, liabilities, equity and earnings of the Subsidiary Guarantors
are substantially equivalent to the total assets, liabilities, equity and
earnings of Triad and its subsidiaries on a consolidated basis. Separate
financial statements of the Subsidiary Guarantors are not included in the
accompanying financial statements because management of Triad has determined
that separate financial statements would not be material to investors.
Triad does not wholly own certain Subsidiary Guarantors, although all assets,
liabilities, equity and earnings of these entities fully and unconditionally
jointly and severally guarantee the senior subordinated notes. The ownership
percentages of Triad and its subsidiaries in these controlled entities range
from 51% to 95%.
Separate financial statements of the non-wholly owned Subsidiary Guarantors
have not been presented because management has determined that they would not be
material to investors. However, summarized combined financial information for
the non-wholly owned Subsidiary Guarantors are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
Summarized Balance Sheets 1999 1998
------------------------- ------------- ---------------
<S> <C> <C>
Current assets................................................................. $10.7 $ 9.7
Non-current assets............................................................. 57.9 57.6
----- -----
Total assets................................................................... $68.6 $67.3
===== =====
Current liabilities............................................................ $ 3.7 $ 2.8
Non-current liabilities........................................................ 2.6 0.2
Equity......................................................................... 62.3 64.3
----- -----
Total liabilities and equity................................................... $68.6 $67.3
===== =====
</TABLE>
F-16
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--LONG-TERM DEBT (continued)
<TABLE>
<CAPTION>
For the year ended
---------------------------------------------------
December 31, December 31, December 31,
Summarized Statement of Income 1999 1998 1997
------------------------------ --------------- --------------- ----------------
<S> <C> <C> <C>
Revenues.......................................................... $65.0 $63.5 $64.0
Income from continuing operations................................. $13.6 $20.9 $17.0
Net income........................................................ $13.6 $20.9 $17.0
</TABLE>
Non-current assets shown above include intercompany receivables of $22.4
million and $21.6 million as of December 31, 1999 and 1998, respectively.
NOTE 9 - LEASES
Triad leases real estate properties, equipment and vehicles under cancelable
and non-cancelable leases. Rental expense for the years ended December 31, 1999,
1998 and 1997 was $33.6 million, $40.6 million and $41.2 million, respectively.
Future minimum operating and capital lease payments are as follows at December
31, 1999:
<TABLE>
<CAPTION>
Operating Capital
--------- -------
<S> <C> <C>
2000................................................ $ 20.5 $ 0.1
2001................................................ 16.8 0.1
2002................................................ 14.3 0.1
2003................................................ 11.9 --
2004................................................ 10.6 --
Thereafter.......................................... 28.8 --
------ -----
Total minimum payments.............................. $102.9 0.3
======
Less amounts representing interest.................. (0.1)
-----
Present value of minimum lease payments............. $ 0.2
=====
</TABLE>
The following summarizes amounts related to equipment leased by the Company
under capital leases at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Equipment............................................. $ 0.4 $ 0.3
Accumulated amortization.............................. (0.1) (0.1)
----- -----
Net book value........................................ $ 0.3 $ 0.2
===== =====
</TABLE>
On January 1, 1999, Triad transferred two acute care hospitals and three
ambulatory surgery centers to an unaffiliated third party pursuant to a long-
term lease. Lease income of $16.7 million was recorded in the year ended
December 31, 1999. The following summarizes the assets leased at December 31,
1999 (dollars in million):
<TABLE>
1999
----
<S> <C>
Land.......................................................... $ 7.7
Buildings..................................................... 53.3
Equipment..................................................... 70.3
------
131.3
Accumulated depreciation...................................... (74.0)
------
$ 57.3
======
</TABLE>
F-17
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9--LEASES (continued)
The following is a schedule of minimum future lease income on these leases as
of December 31, 1999 (dollars in millions):
<TABLE>
<S> <C>
2000................................................. $ 17.0
2001................................................. 17.2
2002................................................. 17.5
2003................................................. 17.7
2004................................................. 18.0
Thereafter........................................... 174.6
------
Total minimum payments............................... $262.0
======
</TABLE>
NOTE 10--STOCK BENEFIT PLANS
In connection with the Spin-off, Triad adopted the 1999 Long-Term Incentive
Plan, for which 5,350,000 shares of Triad's common stock have been reserved for
issuance. The 1999 Long-Term Incentive Plan authorizes the grant of stock
options, stock appreciation rights and other stock based awards to officers and
employees of Triad. On the Spin-off date, 574,804 stock options were granted
under this plan, relating to pre-existing vested Columbia/HCA options. The
vested Columbia/HCA stock options were converted into a combination of Triad
stock options, Columbia/HCA stock options and LifePoint stock options in a
manner that preserves the pre-spin-off intrinsic value and the pre-spin-off
ratio of the exercise prices to the underlying market value of the related
common stock. On June 10, 1999, 2,867,049 stock options were granted under this
plan with an exercise price equal to the market price on the date of the grant.
These options are exercisable beginning in part from date of grant to four years
after the grant. All options granted under this plan expire in 10 years from
date of grant.
Triad has also adopted the Executive Stock Purchase Plan, for which 1,000,000
shares of Triad's common stock were reserved for issuance. The Executive Stock
Purchase Plan granted to specified executives of Triad a right to purchase
shares of common stock from Triad. Triad loaned each participant in the plan
approximately 100% of the purchase price of Triad's common stock bearing
interest at 5.15% per annum, on a full recourse basis. The principal and
interest of the loans will mature on the fifth anniversary following the
purchase of the shares, termination of the participants' employment or
bankruptcy of the participant. In addition, Triad has granted to such executives
stock options equal to three-quarters of a share for each share purchased. The
exercise price of these stock options is to equal the purchase price of the
shares and the options expire in 10 years. 970,000 shares were purchased by
participants in the plan and options to purchase an additional 727,500 shares
were issued in connection with such purchased shares. The options are
exercisable 50% on the grant date and 50% two years from grant date. The total
amount, which has been loaned to participants to purchase shares under the plan,
is $9.1 million which was recorded as a reduction to equity.
Triad adopted various other plans for which 500,000 shares of Triad's common
stock have been reserved for issuance. On June 10, 1999, Triad granted under
such plans 120,000 options to non-employee directors, with the exercise price
equal to the market price at the date of grant and which are exercisable over a
four year period. Triad also granted 340,000 options to Columbia/HCA executives
with the exercise price equal to market price on the date of grant and which
were exercisable on the date of grant. Columbia/HCA paid Triad $1.5 million in
exchange for the issuance of these options. All of these options expire 10 years
after grant. On November 18, 1999, Triad granted 24,750 options to certain non-
employees with an exercise price equal to the market price on the date of grant.
These options are exercisable over a four year period and expire 10 years after
grant.
F-18
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10--STOCK BENEFIT PLANS (continued)
Information regarding these options for 1999 is summarized below:
<TABLE>
<CAPTION>
Stock Option Price Weighted Average
Options Per Share Exercise Price
--------------------- ------------------ ---------------------
<S> <C> <C> <C>
Balances, December 31, 1998...................... - - -
Granted....................................... 4,654,103 $0.07 - $18.84 $11.29
Exercised..................................... (8,667) $0.07 - $12.64 $ 8.30
Cancelled..................................... (194,828) $0.19 - $18.84 $12.08
---------
Balances, December 31, 1999...................... 4,450,608 $0.07 - $18.84 $11.26
=========
</TABLE>
The weighted-average fair value of stock options granted to Triad employees
during the year ended December 31, 1999, was $4.22 per option. There were
2,118,225 stock options available for grant at December 31, 1999.
The following table summarizes information regarding the options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
at 12/31/99 Life Price at 12/31/99 Price
------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Range of Exercise Prices
$0.07 to $5.95.................................. 101,502 10 years $ 4.20 101,502 $ 4.20
$6.07 to $9.44.................................. 733,286 10 years $ 9.32 377,036 $ 9.26
$10.19 to $15.65................................ 3,471,231 10 years $11.59 778,523 $11.92
$16.02 to $18.84................................ 144,589 10 years $18.08 144,589 $18.08
</TABLE>
Triad has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, but continues to measure stock-based compensation cost in
accordance with Accounting Principles Board Opinion No. 25 and its related
interpretations. If Triad had measured compensation cost for the stock options
granted to its employees under the fair value based method prescribed by SFAS
123, the net loss would have been changed to the pro forma amounts set forth
below (dollars in millions):
<TABLE>
<CAPTION>
For the year ended
December 31, 1999
-----------------
<S> <C>
Net loss
As reported................................... $ (95.6)
Pro forma..................................... $ (100.5)
Basic loss per share:
As reported................................... $ (3.12)
Pro forma..................................... $ (3.28)
</TABLE>
The fair values of stock options granted to Triad's employees used to compute
pro forma net loss disclosures were estimated on the date of grant using the
Black-Scholes option-pricing model based on the following weighted average
assumptions:
<TABLE>
<S> <C>
Risk free interest rate........................................ 5.85%
Expected life.................................................. 5 years
Expected volatility............................................ 31.72%
Expected dividend yield........................................ --
</TABLE>
F-19
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10--STOCK BENEFIT PLANS (continued)
Triad has an Employee Stock Purchase Plan ("ESPP") which provides an
opportunity to purchase shares of its common stock at a discount (through
payroll deductions over six month intervals) to substantially all employees.
Shares of common stock issued to employees through the ESPP were 65,982 during
the year ended December 31, 1999.
Triad has a Management Stock Purchase Plan ("MSPP") which provides certain
members of management an opportunity to purchase shares of common stock at a
discount through payroll deductions over six month intervals. 43,205 shares were
issued through the MSPP subsequent to December 31, 1999.
NOTE 11 - RETIREMENT PLANS
In connection with the Spin-off, Triad established an Employee Stock
Ownership Plan ("ESOP") for substantially all of its employees. The ESOP
purchased from Triad, at fair market value, 3,000,000 shares of Triad's common
stock. The purchase was primarily financed by the ESOP issuing a promissory note
to Triad, which will be repaid annually in equal installments over a 10-year
period beginning December 31, 1999. Triad will make contributions to the ESOP
which the ESOP will use to repay the loan. Triad's stock acquired by the ESOP is
held in a suspense account and will be allocated to participants at market value
from the suspense account as the loan is repaid.
The loan to the ESOP is recorded in unearned ESOP compensation and
stockholder notes receivable in the consolidated balance sheets. Reductions are
made to unearned ESOP compensation as shares are committed to be released to
participants at cost. Recognition of ESOP expense is based on the average market
price of shares committed to be released to participants. Shares are deemed to
be committed to be released ratably during each period as the employees perform
services. The difference between average market price and cost of the shares are
shown as a change in additional paid-in capital. As the shares are committed to
be released, the shares become outstanding for earnings per share calculations.
Triad recognized ESOP expense of $3.7 million during the year ended December 31,
1999 and the unearned ESOP compensation was $31.0 million at December 31, 1999.
The ESOP shares as of December 31, 1999 were as follows:
<TABLE>
<S> <C>
Shares committed to be released........................... 300,000
Unreleased shares......................................... 2,700,000
----------
Total ESOP shares......................................... 3,000,000
==========
Fair value of unreleased shares........................... $40.8 million
</TABLE>
Triad has instituted a defined contribution retirement plan which covers
substantially all employees. Benefits are determined primarily as a percentage
of a participant's annual income, less contributions to the ESOP. These benefits
are vested over specific periods of employee service. Retirement plan expense
under this plan was $7.9 million for the year ended December 31, 1999. Prior to
the Spin-off, Triad participated in Columbia/HCA's defined contribution
retirement plans, which covered substantially all employees. Benefits were
determined primarily as a percentage of a participant's earned income and are
vested over specific periods of employee service. Retirement plan expense under
this plan was $16.2 million and $18.6 million for the years ended December 31,
1998 and 1997, respectively. Amounts approximately equal to retirement plan
expense are funded annually.
After the Spin-off, Triad instituted a contributory benefit plan which is
available to employees who meet certain minimum requirements. The plan requires
that Triad match 50% of a participant's contribution up to certain maximum
levels. The cost of these plans totaled $0.4 million for the year ended December
31, 1999. Triad contributions are funded periodically during each year.
F-20
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12--LOSS PER SHARE
Loss per common share is based on the weighted average number of shares
outstanding assuming the shares issued at the Spin-off were outstanding at the
beginning of 1999, adjusted for the shares issued to the ESOP (see NOTE 11).
Weighted average shares for the year ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
For the year ended
December 31, 1999
------------------
<S> <C>
Weighted average shares exclusive of ESOP............... 30,484,778
Average of ESOP shares committed to be released......... 150,000
----------
Weighted average shares outstanding..................... 30,634,778
==========
</TABLE>
Loss per common share for the year ended December 31, 1998 and 1997 is
presented as if the weighted average shares referenced above had been
outstanding for each period.
Stock options outstanding of 4,385,100 at December 31, 1999 were not included
for diluted loss per share calculations since the impact is antidilutive.
NOTE 13--AGREEMENTS WITH COLUMBIA/HCA
As described below, Triad has entered into several agreements with
Columbia/HCA to facilitate an orderly change after the Spin-off.
Columbia/HCA, Triad and LifePoint have entered into a distribution agreement
providing for certain arrangements among Columbia/HCA, Triad and LifePoint
subsequent to the date of the Spin-off. The distribution agreement generally
provides that Triad will be financially responsible for liabilities arising out
of or in connection with the assets and entities that constitute Triad. The
distribution agreement provides, however, that Columbia/HCA will indemnify Triad
for any losses, which it incurs arising from the pending governmental
investigations of certain of Columbia/HCA's business practices. The distribution
agreement further provides that Columbia/HCA will indemnify Triad for any losses
which it may incur arising from stockholder actions and other legal proceedings
related to the governmental investigations which are currently pending against
Columbia/HCA, and from proceedings which may be commenced by governmental
authorities or by private parties in the future that arise from acts, practices
or omissions engaged in prior to the date of the Spin-off and related to such
proceedings. Columbia/HCA has also agreed that, in the event that any hospital
owned by Triad as of the date of the Spin-off is permanently excluded from
participation in the Medicare and Medicaid programs as a result of the
proceedings described above, then Columbia/HCA will make a cash payment to Triad
in an amount (if positive) equal to five times the excluded hospital's 1998
income from continuing operations before depreciation and amortization, interest
expense, management fees, impairment of long-lived assets, minority interests
and income taxes less the net proceeds of the sale or other disposition of the
excluded hospital. Columbia/HCA will not indemnify Triad for losses relating to
any acts, practices and omissions engaged in by Triad after the date of the
Spin-off, whether or not Triad is indemnified for similar acts, practices and
omissions occurring prior to the date of the Spin-off.
Columbia/HCA is negotiating one or more compliance agreements setting forth
certain agreements to comply with applicable laws and regulations. Triad is
obligated to participate with Columbia/HCA in these negotiations.
In connection with the Spin-off, Columbia/HCA also agreed to indemnify Triad
for any payments which it is required to make in respect to Medicare, Medicaid
and Blue Cross cost reports relating to the cost report periods ending on or
prior to the date of the Spin-off, and Triad agreed to indemnify Columbia/HCA
for and pay to Columbia/HCA any payments received by it relating to such cost
reports. Triad will be responsible for the filing of these cost reports and any
terminating cost reports.
F-21
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13--AGREEMENTS WITH COLUMBIA/HCA (continued)
Columbia/HCA, Triad and LifePoint entered into a tax sharing and
indemnification agreement, which allocates tax liabilities among Columbia/HCA,
Triad and LifePoint, and addresses certain other tax matters such as
responsibility for filing tax returns, control of and cooperation in tax
litigation and qualification of the Spin-off as a tax-free transaction.
Generally, Columbia/HCA will be responsible for taxes that are allocable to
periods prior to the Spin-off, and Columbia/HCA, Triad and LifePoint will each
be responsible for its own tax liabilities (including its allocable share of
taxes shown on any consolidated, combined or other tax return filed by
Columbia/HCA) for periods after the Spin-off. The tax sharing and
indemnification agreement prohibits Triad from taking actions that could
jeopardize the tax treatment of either the Spin-off or the internal
restructuring of Columbia/HCA that preceded the Spin-off, and requires Triad to
indemnify Columbia/HCA for any taxes or other losses that result from any such
actions.
Prior to the date of the Spin-off, Columbia/HCA maintained various insurance
policies for the benefit of Triad and LifePoint. In connection with the Spin-
off, Columbia/HCA, Triad and LifePoint entered into an agreement relating to
insurance matters which provides that any claims against insurers outstanding at
the Spin-off will be for the benefit of the party who will own the asset which
is the basis for the claim, or, in the case of liability claim, which is the
owner of the facility at which the activity which is the subject of the claim
occurred. Columbia/HCA will pay Triad any portion of such a claim that is unpaid
by an insurer to satisfy deductible, co-insurance or self-insurance amounts
(unless such amounts were paid to or accounted for by the affected entity prior
to the Spin-off). Columbia/HCA and Triad have ensured that all of the insurance
policies in effect after the Spin-off provided the same coverage to Triad that
were available prior to the Spin-off. Triad has purchased continuous coverage
under extensions or renewals of existing, or new, policies issued by Health Care
Indemnity, Inc., a subsidiary of Columbia/HCA. Any retroactive rate adjustments
for periods ending on or before the Spin-off, in respect of such insurance
policies, will be paid or received by Columbia/HCA.
Columbia/HCA's wholly owned subsidiary Columbia Information Services, Inc.
("CIS"), entered into a computer and data processing services agreement with
Triad. Pursuant to this agreement, CIS will provide computer installation,
support, training, maintenance, data processing and other related services to
the Company. The initial term of the agreement is seven years, which will be
followed by a wind-down period of up to one year. CIS charges the Company
approximately $19.0 million per year for services provided under this agreement.
In the event the agreement is terminated by Triad, it will be required to pay a
termination fee equal to the first month's billed fees, multiplied by the
remaining number of months in the agreement. CIS did not warrant that the
software and hardware used by CIS in providing services to Triad would be Year
2000 ready, although Triad has not experienced any significant Year 2000
problems in respect of such software . Pursuant to a Year 2000 professional
services agreement, Columbia/HCA continued its ongoing program of inspecting
medical equipment at Triad's hospitals to assure Year 2000 compliance. Under
such agreement, Triad remains solely responsible for any lack of Year 2000
compliance. No Year 2000 problems occurred relating to any medical equipment.
The agreement terminates April 30, 2000.
Columbia/HCA, Triad and LifePoint entered into an agreement relating to
benefit and employment matters which allocates responsibilities for employment
compensation, benefits, labor, benefit plan administration and certain other
employment matters on and after the date of the Spin-off. The agreement
generally provides that Triad assumed responsibility for its employees from and
after the date of the Spin-off, and that Columbia/HCA retains the liabilities
with respect to former employees associated with the facilities and operations
of Triad who terminated employment on or prior to the date of the Spin-off.
Benefit plans established by Triad generally recognize past service with
Columbia/HCA.
Columbia/HCA also entered into an agreement with Triad, pursuant to which
Triad sub-leases from Columbia/HCA its principal executive offices (at the same
price per square foot as is payable under the existing Columbia/HCA lease).
Triad's sub-lease will terminate on January 31, 2003.
F-22
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13--AGREEMENTS WITH COLUMBIA/HCA (continued)
Columbia/HCA also entered into a transitional service agreement with Triad
pursuant to which Columbia/HCA will continue to furnish various administrative
services to Triad. These services include support in various aspects of payroll
processing and tax reporting for employees of Triad, real estate design and
construction management, legal, human resources, insurance and accounting
matters on an as needed basis. Each agreement will terminate on December 31,
2000, but may be terminated by Triad as to specific services before December 31,
2000.
The agreements provide that Triad's fees to Columbia/HCA for services
provided are based on Columbia/HCA's costs incurred in providing such services.
Triad is a partner along with Columbia/HCA and LifePoint, in a group
purchasing organization which makes certain national supply and equipment
contracts available to their respective facilities.
Columbia/HCA entered into agreements with Triad whereby Columbia/HCA will
share telecommunications services with the Company under Columbia/HCA's
agreements with its telecommunications services provider and whereby
Columbia/HCA will make certain account collection services available to Triad.
NOTE 14--SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Investing activities:
Swap of Laredo/Victoria facilities
Transfer of Laredo facility....................................................... (38.1) -- --
Recording of Victoria facility................................................... 33.9 -- --
Construction-in-process transfer to non-consolidated joint venture.................. 27.1 -- --
Escrow established in connection with the sale of Phoenix Medical Center............ 4.4 -- --
Sale of facilities prior to Spin-off................................................ 3.3 -- --
Financing activities:
Assumption of debt financing in conjuction with Spin-off............................ 673.8 -- --
Issuance of note receivable related to establishment of ESOP........................ 34.5 -- --
</TABLE>
NOTE 15--CONTINGENCIES
Columbia/HCA Investigations
Columbia/HCA is currently the subject of several federal investigations into
certain of its business practices, as well as governmental investigations by
various states. Columbia/HCA is cooperating in these investigations and
understands that it is a target in these investigations. Given the breadth of
the ongoing investigations, Columbia/HCA expects additional subpoenas and other
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future. Columbia/HCA is a defendant in several qui tam
actions brought by private parties on behalf of the United States of America,
which have been unsealed and served on Columbia/HCA. The actions allege, in
general, that Columbia/HCA and certain subsidiaries and/or affiliated
partnerships violated the False Claims Act for improper claims submitted to the
government for reimbursement. The lawsuits seek damages of three times the
amount of all Medicare or Medicaid claims (involving false claims) presented by
the defendants to the federal government, civil penalties of not less than
$5,000 nor more than $10,000 for each such Medicare or Medicaid claim,
attorneys' fees and costs. To Triad's knowledge, the government has intervened
in at least seven qui tam actions against Columbia/HCA. Columbia/HCA is aware of
additional qui tam actions that remain under seal and believes that there are
other sealed qui tam cases of which it is unaware.
According to published reports, on July 2, 1999, a federal jury in Tampa,
Florida found two Columbia/HCA employees guilty of conspiracy and making false
statements on Medicare and CHAMPUS cost reports for years 1992 and 1993 and a
Medicaid cost report for 1993. Both were found not guilty of obstructing a
federal auditor. One other employee was acquitted of all counts for which he had
been charged and the jury was unable to reach a verdict with respect to another
employee who subsequently agreed to a settlement of charges. According to
published reports, the two employees found guilty have appealed their
convictions.
Columbia/HCA is a defendant in a number of other suits, which allege, in
general, improper and fraudulent billing, overcharging, coding and physician
referrals, as well as other violations of law. Certain of the suits have been
conditionally certified as class actions.
It is too early to predict the effect of outcome of any of the ongoing
investigations or qui tam and other actions, or whether any additional
investigations or litigations will be commenced. If Columbia/HCA is found to
have violated federal or state laws relating to Medicare, Medicaid or similar
programs, Columbia/HCA could be subject to substantial monetary fines, civil and
criminal penalties, and exclusion from participation in the Medicare and
F-23
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15--CONTINGENCIES (continued)
Medicaid programs. Similarly, the amounts claimed in the qui tam and other
actions may be substantial, and Columbia/HCA could be subject to substantial
costs resulting from an adverse outcome of one or more of such actions.
In connection with the Spin-off, Columbia/HCA has agreed to indemnify Triad
in respect of any losses which it may incur as a result of the proceedings
described above (see the description of the distribution agreement in NOTE 13
for a description of such indemnification arrangement). If any of such
indemnified matters were successfully asserted against Triad, or any of its
facilities, and Columbia/HCA failed to meet its indemnification obligations then
such losses could have a material adverse effect on the business, financial
position, results of operations or prospects of Triad. Columbia/HCA will not
indemnify Triad for losses relating to any acts, practices and omissions engaged
in by Triad after the date of the Spin-off, whether or not Triad is indemnified
for similar acts, practices and omissions occurring prior to the date of the
Spin-off.
General Liability Claims
Triad is, from time to time, subject to claims and suits arising in the
ordinary course of business, including claims for damages for personal injuries,
breach of management contract or for wrongful restriction of a interference with
physician's staff privileges. In certain of these actions, claimants have asked
for punitive or other damages against Triad that may not be covered by
insurance. Triad is currently not a party to any such proceeding which, in
management's opinion, would have a material adverse effect on Triad's business,
financial condition or results of operations.
It is management's opinion that the ultimate resolution of these pending
claims and legal proceedings will not have a material adverse effect on Triad's
results of operations, financial position or cash flows.
NOTE 16 - SEGMENT AND GEOGRAPHIC INFORMATION
Triad operates in one line of business which is operating hospitals and
related health care entities. During the years ended December 31, 1999, 1998 and
1997, approximately 31.9%, 35.2% and 36.5%, respectively, of Triad's revenues
related to patients participating in the Medicare program.
Triad has structured its operations into five divisions. Included in these
five divisions are the East Division, West Division and Central Division, which
are comprised of eleven, seven and eight general acute care hospitals. The
Ambulatory Surgery Center group include Triad's free standing ambulatory surgery
centers. These divisions are segregated for operating performance review by
management. The Sold and Held for Sale group includes thirteen general acute
care hospitals that have either been sold during 1999 or are currently held for
sale (See NOTE 3). All of Triad's facilities are located in the southern,
western and southcentral United States.
F-24
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SEGMENT AND GEOGRAPHIC INFORMATION (continued)
The distribution of Triad's revenues, EBITDA (which is used by management for
operating performance review, see (a)) and assets are summarized in the
following table (dollars in millions):
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
East Division.......................................................... $ 443.6 $ 406.6 $ 406.4
West Division.......................................................... 277.1 266.5 294.0
Central Division....................................................... 305.3 285.9 260.8
Ambulatory Surgery Centers............................................. 49.1 48.4 47.6
Sold and Held for Sale................................................. 239.9 370.8 404.0
Corporate and other.................................................... 14.1 210.5 196.5
-------- -------- --------
$1,329.1 $1,588.7 $1,609.3
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ----------- --------------
EBITDA (a):
<S> <C> <C> <C>
East Division.......................................................... $ 76.2 $ 61.7 $ 75.4
West Division.......................................................... 39.1 24.7 44.3
Central Division....................................................... 31.2 29.8 39.5
Ambulatory Surgery Centers............................................. 15.7 15.0 17.7
Sold and Held for Sale................................................. (21.5) 10.0 21.6
Corporate and other.................................................... (16.2) 7.8 (10.7)
------ ------ ------
$124.5 $149.0 $187.8
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- -----------
<S> <C> <C>
Assets:
East Division.......................................................... $ 503.9 $ 405.2
West Division.......................................................... 267.2 235.3
Central Division....................................................... 349.3 245.2
Ambulatory Surgery Centers............................................. 84.1 97.4
Sold and Held for Sale................................................. 15.3 219.3
Corporate and other.................................................... 121.3 168.9
-------- --------
$1,341.1 $1,371.3
======== ========
</TABLE>
(a) EBITDA is defined as income from continuing operations before
depreciation and amortization, interest expense, interest income,
management fees, gain on sale of assets, impairment of long-lived
assets, minority interest and income taxes. EBITDA is commonly used as
an analytical indicator within the health care industry, and also
serves as a measure of leverage capacity and debt service ability.
EBITDA should not be considered as a measure of financial performance
under generally accepted accounting principles, and the items excluded
from EBITDA should not be considered in isolation or as an alternative
to net income, cash flows generated by operating, investing or
financing activities or other financial statement data presented in
the consolidated financial statements as an indicator of financial
performance or liquidity. Because EBITDA is not a measurement
determined in accordance with generally accepted accounting principles
and is thus susceptible to varying calculations, EBITDA as presented
may not be comparable to other similarly titled measures of other
companies.
F-25
<PAGE>
TRIAD HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17--OTHER CURRENT LIABILITIES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS
A summary of other current liabilities as of December 31 follows (in
millions):
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Due to Columbia/HCA................................... $19.5 $ --
Employee benefit plans................................ 10.6 20.7
Taxes, other than income.............................. 9.1 9.3
Accrued interest...................................... 6.0 0.2
Self insured employee benefit programs................ 6.9 --
Other................................................. 5.6 7.6
----- -----
$57.7 $37.8
===== =====
</TABLE>
A summary of activity in Triad's allowances for doubtful accounts follows (in
millions):
<TABLE>
<CAPTION>
Accounts
Balances at Additions Written off, Balances at
Beginning of Charged to Net of End of
Period Expense Recoveries Period
-------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Allowances for doubtful accounts:
Year ended December 31, 1997................................. $ 103.1 $ 138.5 $ (104.7) $ 136.9
Year ended December 31, 1998................................. $ 136.9 $ 138.4 $ (119.4) $ 155.9
Year ended December 31, 1999................................. $ 155.9 $ 129.0 $ (128.2) $ 156.7
</TABLE>
NOTE 18--UNAUDITED QUARTERLY FINANCIAL INFORMATION
The quarterly interim financial information shown below has been prepared by
Triad's management and is unaudited. It should be read in conjunction with the
audited consolidated financial statements appearing herein (dollars in millions,
except per share amounts).
<TABLE>
<CAPTION>
1999
First Second Third Fourth
---------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Revenues................................................ $ 367.6 $ 340.1 $321.3 $ 300.1
Net loss................................................ $ (35.9)(a) $ (9.5) $ 1.8(b) $ (52.0)(c)
Basic and diluted loss per share........................ $ (1.20)(a) $(0.31) $ 0.06(b) $ (1.68)(c)
</TABLE>
<TABLE>
<CAPTION>
1998
First Second Third Fourth
------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Revenues................................................ $ 414.0 $ 399.8 $389.6 $ 385.3
Net loss................................................ $ (4.5) $ (10.1) $(22.1)(d) $ (50.4)(e)
Basic and diluted loss per share........................ $ (0.15) $ (0.34) $(0.73)(d) $ (1.68)(e)
</TABLE>
----------------
(a) During the first quarter of 1999, Triad recorded a $33.9 million pretax
charge related to the impairment of certain long-lived assets
(b) During the third quarter of 1999, Triad recorded a $16.8 million gain on
sale of assets and a $4.5 million pretax charge related to the impairment
of certain long-lived assets.
(c) During the fourth quarter of 1999, Triad recorded a $8.2 million loss on
sale of assets and a $30.8 million pretax charge related to the impairment
of certain long-lived assets.
(d) During the third quarter of 1998, Triad recorded a $19.3 million pretax
charge related to the impairment of certain long-lived assets.
(e) During the fourth quarter of 1998, Triad recorded a $35.8 million pretax
charge related to the impairment of certain long-lived assets.
F-26
<PAGE>
NOTE 19 - SUBSEQUENT EVENTS
On September 30, 2000, Triad's bank credit facility was amended to include
a new $200 million delayed draw term loan which can be drawn upon in up to ten
advances from the date of the amendment until one year after the amendment.
Principal payments on amounts outstanding at the end of the delay draw term loan
bear interest at LIBOR plus 3.0%. The amendment also modifies the requirements
under certain financial ratios and tests and the restrictions on assets sales
and capital expenditures. Triad paid $1.5 million in debt issue costs, which
will be amortized over the life of the loan. The balance of the delay draw term
loan was $51.0 million at December 31, 2000.
On October 19, 2000, Triad announced that it entered into an agreement to
acquire Quorum Health Group, Inc. ("Quorum") for approximately $2.4 billion in
cash, stock and assumption of debt. Under the terms of the agreement, Quorum
shareholders will receive $3.50 in cash and 0.4107 shares of Triad common stock
for each outstanding share of Quorum stock.
The transaction is subject to approval of each company's shareholders,
antitrust clearance and various other conditions generally customary for
transactions of this type. The transaction is also conditioned upon receipt by
each of Triad and HCA--The HealthcareCompany, formerly Columbia/HCA ("HCA") of
an acceptable private letter ruling from the Internal Revenue Service that the
merger with Quorum and related transactions will not cause the Spin-off of Triad
or LifePoint from HCA, on May 11, 1999 or the internal restructuring
transactions that preceded the Spin-off to fail to qualify for the tax treatment
specified in private letter rulings previously issued to HCA. Triad has received
a financing commitment of $1.7 billion from its investment banker to fund the
cash purchase price and to refinance certain debt of both companies.
Upon consummation of the transaction, Triad's board of directors will be
increased by two members of Quorum's current board. Triad expects that the
transaction will be completed in the first half of 2001.
On October 20, 2000, a class action lawsuit was filed against Triad and
members of the Board of Directors of Quorum in the Circuit Court of Davidson
County, Tennessee, on behalf of all public stockholders of Quorum. The complaint
alleges that Quorum's directors breached their fiduciary duties of loyalty and
due care by failing to implement reasonable procedures designed to maximize
shareholder value and to obtain the highest price reasonably available for
Quorum's shareholders. The complaint alleges that Triad aided and abetted
Quorum's directors' breach of their fiduciary duties. The complaint seeks an
injunction preventing consummation of the merger of Quorum into Triad, or
Quorum's acquisition by or business combination with any third party, until
Quorum adopts and implements a procedure or process, such as an auction, to
obtain the highest possible price for Quorum. Alternatively, the complaint seeks
compensatory damages in the event the merger of Quorum into Triad is
consummated. The complaint also seeks an award of costs and attorney's fees.
Triad believes the claims are without merit and will vigorously defend the
actions.
F-27
