<PAGE>
==============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
--------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-29818
------------------------------
LifePoint Hospitals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-2165845
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4525 Harding Road 37205
Nashville, Tennessee (Zip Code)
(Address of principal executive offices)
(615) 344-6261
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Commission file number 333-84755
--------------------------------
LifePoint Hospitals Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-2167869
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4525 Harding Road
Nashville, Tennessee 37205
(Address of principal executive offices) (Zip Code)
(615) 344-6261
(Registrant's telephone number, including area code)
Not applicable
(Former name or address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
--- ---
As of October 31, 1999, the number of outstanding shares of Common Stock of
LifePoint Hospitals, Inc. was 31,106,387, and all of the shares of Common Stock
of LifePoint Hospitals Holdings, Inc. were owned by LifePoint Hospitals, Inc.
===============================================================================
<PAGE>
LIFEPOINT HOSPITALS, INC.
FORM 10-Q
September 30, 1999
<TABLE>
<CAPTION>
Page of
Form 10-Q
---------
<S> <C>
<S> <C>
Part I: Financial Information
- -----------------------------
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - for the three
months and nine months ended September 30, 1999 and 1998......... 3
Condensed Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998................................................ 4
Condensed Consolidated Statements of Cash Flows - for the
nine months ended September 30, 1999 and 1998.................... 5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 12
Part II: Other Information
- --------------------------
Item 5: Other Information.................................................. 29
Item 6: Exhibits and Reports on Form 8-K................................... 34
</TABLE>
2
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
<TABLE>
<CAPTION>
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(Dollars in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
1999 1998 1999 1998
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Revenues........................................................... $ 125.4 $ 124.7 $ 387.8 $ 379.1
Salaries and benefits.............................................. 52.2 54.3 165.1 164.0
Supplies........................................................... 15.7 15.7 47.7 46.3
Other operating expenses........................................... 28.8 27.9 87.4 85.8
Provision for doubtful accounts.................................... 10.7 12.0 30.1 31.3
Depreciation and amortization...................................... 7.9 7.4 23.3 20.4
Interest expense................................................... 6.7 4.8 17.4 14.2
Management fees allocated from Columbia/HCA........................ - 2.2 3.2 6.7
ESOP expense....................................................... 1.2 - 1.7 -
Impairment of long-lived assets.................................... - 1.3 - 1.3
---------- ---------- --------- ----------
123.2 125.6 375.9 370.0
---------- ---------- --------- ----------
Income (loss) from continuing operations before minority
interests and income taxes...................................... 2.2 (0.9) 11.9 9.1
Minority interests in earnings of consolidated entities............ 0.4 0.5 1.4 1.4
---------- ---------- --------- ----------
Income (loss) from continuing operations before income taxes....... 1.8 (1.4) 10.5 7.7
Provision (benefit) for income taxes............................... 0.7 (0.6) 4.4 3.1
---------- ---------- --------- ----------
Income (loss) from continuing operations........................... 1.1 (0.8) 6.1 4.6
Loss from discontinued operations, net of tax benefit of ($0.9)
for the three months and ($2.3) for the nine months ended
September 30, 1998.............................................. - (1.4) - (3.7)
---------- ---------- --------- ----------
Net income (loss)............................................... $ 1.1 $ (2.2) $ 6.1 $ 0.9
========== ========== ========= ==========
Basic and diluted earnings (loss) per share:
Income (loss) from continuing operations........................ $ 0.03 $ (0.02) $ 0.20 $ 0.16
Loss from discontinued operations............................... - (0.05) - (0.13)
---------- ---------- --------- ----------
Net income (loss)........................................... $ 0.03 $ (0.07) $ 0.20 $ 0.03
========== ========== ========= ==========
Shares used in earnings per share calculations (000s):
Basic........................................................... 30,951 29,899 30,349 29,899
Dilutive securities - stock options......................... 63 - 194 100
---------- ---------- --------- ----------
Diluted......................................................... 31,014 29,899 30,543 29,999
========== ========== ========= ==========
</TABLE>
See accompanying notes.
3
<PAGE>
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------ ------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 32.7 $ -
Accounts receivable, less allowance for doubtful accounts of $53.4
at September 30, 1999 and $48.3 at December 31, 1998................... 51.9 36.4
Inventories............................................................. 13.8 14.0
Deferred taxes and other current assets ................................ 24.9 18.6
------------- ------------
123.3 69.0
Property and equipment, at cost:
Land.................................................................... 7.2 7.2
Buildings............................................................... 206.2 203.1
Equipment............................................................... 235.1 221.9
Construction in progress (estimated cost to complete and equip
after September 30, 1999 - $ 33.5)..................................... 30.4 10.4
------------- ------------
478.9 442.6
Accumulated depreciation .................................................. (190.7) (176.2)
------------- ------------
288.2 266.4
Intangible assets, net of accumulated amortization of $8.0 at
September 30, 1999 and $6.9 at December 31, 1998 ....................... 23.4 15.2
Other ..................................................................... 4.1 4.4
------------- ------------
$ 439.0 $ 355.0
============= ============
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable ....................................................... $ 17.6 $ 15.5
Accrued salaries........................................................ 13.3 11.7
Other current liabilities............................................... 28.2 14.6
Current maturities of long-term debt ................................... 2.2 0.3
------------- ------------
61.3 42.1
Intercompany balances payable to Columbia/HCA ............................. - 167.6
Long-term debt ............................................................ 258.0 0.3
Deferred taxes ............................................................ 20.3 21.3
Professional liability risks and other liabilities ........................ 2.6 0.1
Minority interests in equity of consolidated entities ..................... 3.8 4.9
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized;
no shares issued....................................................... - -
Common stock, $0.01 par value; 90,000,000 shares authorized;
31,066,289 shares outstanding at September 30, 1999 ................... 0.3 -
Capital in excess of par value.......................................... 133.1 -
Unearned ESOP compensation.............................................. (30.3) -
Notes receivable for shares sold to employees........................... (10.2) -
Retained earnings....................................................... 0.1 -
Equity, investments by Columbia/HCA .................................... - 118.7
------------- ------------
93.0 118.7
------------- ------------
$ 439.0 $ 355.0
============= ============
</TABLE>
See accompanying notes.
4
<PAGE>
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from continuing operating activities:
Net income............................................ $ 6.1 $ 0.9
Adjustments to reconcile net income to
net cash provided by continuing operating
activities:
ESOP expense...................................... 1.7 -
Provision for doubtful accounts................... 30.1 31.3
Depreciation and amortization..................... 23.3 20.4
Deferred income taxes (benefit)................... (7.4) 0.1
Loss from discontinued operations................. - 3.7
Reserve for professional liability risk........... 2.5 -
Increase (decrease) in cash from
operating assets and liabilities:
Accounts receivable............................ (25.8) (30.1)
Inventories and other current assets........... (1.7) (0.5)
Accounts payable and accrued expenses.......... 11.8 0.1
Income taxes payable........................... 10.3 -
Other............................................. (0.7) -
-------- --------
Net cash provided by operating
activities.................................... 50.2 25.9
Cash flows from investing activities:
Purchase of property and equipment, net............... (40.5) (23.6)
Other................................................. 0.3 2.2
-------- --------
Net cash used in investing activities.......... (40.2) (21.4)
Cash flows from financing activities:
Decrease in long-term debt, net....................... (0.4) (1.1)
Increase (decrease) in intercompany balances
with Columbia/HCA, net............................... 23.1 (3.4)
-------- --------
Net cash provided by (used in)
financing activities.......................... 22.7 (4.5)
Change in cash and cash equivalents....................... 32.7 -
Cash and cash equivalents at beginning of period.......... - -
-------- --------
Cash and cash equivalents at end of period................ $ 32.7 $ -
======== ========
Interest payments......................................... $ 10.3 $ 14.2
Income tax payments (refunds), net........................ $ 6.1 $ 0.7
Supplemental financing non-cash activities:
Assumption of debt from Columbia/HCA.................. $ 260.0 $ -
Elimination of intercompany amounts payable
to Columbia/HCA...................................... $ 219.8 $ -
</TABLE>
See accompanying notes.
5
<PAGE>
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
On May 11, 1999, Columbia/HCA Healthcare Corporation ("Columbia/HCA")
completed the spin-off of its operations comprising the America Group to its
shareholders (the "Distribution") as an independent, publicly-traded company
named LifePoint Hospitals, Inc. LifePoint Hospitals, Inc., together with its
subsidiaries, as appropriate, is hereinafter referred to as "the Company".
Owners of Columbia/HCA common stock received one share of the Company's common
stock for every 19 shares of Columbia/HCA common stock which resulted in
approximately 29.9 million shares of the Company's common stock outstanding
immediately after the Distribution.
At September 30, 1999, the Company was comprised of 23 general, acute care
hospitals and related health care entities. The entities are located in non-
urban areas in the states of Alabama, Florida, Georgia, Kansas, Kentucky,
Louisiana, Tennessee, Utah and Wyoming. In connection with the Distribution, all
intercompany amounts payable by the Company to Columbia/HCA were eliminated and
the Company assumed certain indebtedness from Columbia/HCA (see Note 4). In
addition, the Company entered into various agreements with Columbia/HCA which
are intended to facilitate orderly changes for both companies in a way which
would be minimally disruptive to each entity. Information regarding Columbia/HCA
included in this report on Form 10-Q is derived from reports and other
information filed by Columbia/HCA with the Securities and Exchange Commission.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For periods prior to the Distribution, such financial
statements were prepared on the push down basis of historical cost to
Columbia/HCA and represent the combined financial position, results of
operations and cash flows of the net assets contributed to the Company. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months and nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. This Form 10-Q should be read in conjunction with the
audited combined financial statements and notes included in the Company's Form
10 Registration Statement, as amended.
Certain estimates, assumptions and allocations were made in preparing the
unaudited condensed consolidated financial statements included herein. Therefore
such financial statements may not necessarily be indicative of the results of
operations, financial position or cash flows that would have existed had the
Company been a separate, independent company throughout the periods presented.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
6
<PAGE>
On May 11, 1999, Columbia/HCA also completed the spin-off of a separate,
independent company, Triad Hospitals, Inc.
NOTE 2 - 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, through written notice and other means, that it is a target in
these investigations. Given the breadth of the ongoing investigations,
Columbia/HCA expects additional investigative and prosecutorial activity to
occur in these and other jurisdictions in the future. Columbia/HCA is the
subject of a formal order of investigation by the Securities and Exchange
Commission (the "Commission"). Columbia/HCA understands that the Commission
investigation includes the anti-fraud, insider trading, periodic reporting and
internal accounting control provisions of the Federal securities laws. 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 the years 1992 and 1993 and on a Medicaid
cost report for 1993. Both were found not guilty of obstructing a federal
auditor. One other employee was acquitted on all counts for which he had been
charged and the jury was unable to reach a verdict with respect to another
employee. This employee and the government executed an agreement to defer
prosecution for 18 months after which charges will be dismissed.
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 by submitting improper claims to the government for reimbursement. The
lawsuits generally 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
the Company's knowledge, the government has intervened in five unsealed 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.
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. In addition, a number of derivative
actions have been brought by purported stockholders of Columbia/HCA against
certain current and former officers and directors of Columbia/HCA alleging
breach of fiduciary duty and failure to take reasonable steps to ensure that
Columbia/HCA did not engage in illegal practices.
It is too early to predict the effect or 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
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.
Management believes that the ongoing governmental investigations and
related media coverage may have had a negative effect on Columbia/HCA's results
of operations (which include the Company for the periods prior to the date of
the Distribution which are presented herein). The extent to which the Company
may or may not continue to be affected after the Distribution by the ongoing
investigations of Columbia/HCA, the initiation of additional investigations, if
any, and the related media coverage cannot be predicted. It is possible that
7
<PAGE>
these matters could have a material adverse effect on the financial condition or
results of operations of the Company in future periods.
In connection with the Distribution, Columbia/HCA has agreed to indemnify
the Company in respect of any losses which it may incur arising from the
proceedings described above. Columbia/HCA has also agreed to indemnify the
Company in respect of any losses, which it may incur as a result of proceedings
which may be commenced by government authorities or by private parties in the
future that arise from acts, practices or omissions engaged in prior to the date
of the Distribution and relate to the proceedings described above. Columbia/HCA
has also agreed that, in the event that any hospital owned by the Company as of
the date of the Distribution is permanently excluded from participation in the
Medicare and Medicaid programs as a result of the proceedings described above,
then Columbia/HCA will make cash payments to the Company based on amounts as
defined in the Distribution Agreement by and among Columbia/HCA and the Company.
The Company has agreed with Columbia/HCA that, in connection with the pending
governmental investigations, it will negotiate with the government with respect
to a compliance agreement setting forth the Company's agreement to comply with
applicable laws and regulations. If any of such indemnified matters were
successfully asserted against the Company, 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 the Company. Columbia/HCA will not
indemnify the Company for losses relating to any acts, practices and omissions
engaged in by the Company after the Distribution, whether or not the Company is
indemnified for similar acts, practices and omissions occurring prior to the
date of the Distribution.
General Liability Claims
The Company is subject to claims and suits arising in the ordinary course
of business. In certain of these actions claimants may ask for punitive damages
against the Company, which are usually not covered by insurance. It is
management's opinion that the ultimate resolution of pending claims and legal
proceedings will not have a material adverse effect on the Company's results of
operations or financial position.
Physician Commitments
The Company has committed to provide certain financial assistance pursuant
to recruiting agreements with various physicians practicing in the communities
it serves. In consideration for a physician relocating to one of its communities
and agreeing to engage in private practice for the benefit of the respective
community, the Company may loan certain amounts of money to a physician,
normally over a period of one year, to assist in establishing his or her
practice. Amounts committed to be advanced approximated $13.5 million at
September 30, 1999. The actual amount of such commitments to be subsequently
advanced to physicians often depends upon the financial results of a physician's
private practice during the guaranteed period. Generally, amounts advanced under
the recruiting agreements may be forgiven pro rata over a period of 48 months
contingent upon the physician continuing to practice in the respective
community. It is management's opinion that amounts actually advanced and not
repaid will not have a material adverse effect on the Company's results of
operations or financial position.
NOTE 3 - DISCONTINUED OPERATIONS
Discontinued operations represent the Company's home health care business.
The Company implemented plans to dispose of this business during 1997. During
the fourth quarter of 1998, the Company completed the sale of substantially all
of the Company's home health care operations for total proceeds of approximately
$3.8 million. The proceeds were used to repay intercompany balances to
Columbia/HCA. Revenues of the home health care business totaled approximately
$18.0 million for the nine months ended September 30, 1998.
8
<PAGE>
NOTE 4 - LONG - TERM DEBT
Assumption of Certain Indebtedness from Columbia/HCA
In connection with the Distribution, all intercompany amounts payable by
the Company to Columbia/HCA were eliminated, and the Company assumed certain
indebtedness from Columbia/HCA. The indebtedness was comprised of a Bank Credit
Agreement and Senior Subordinated Notes.
Bank Credit Agreement
On May 11, 1999, the Company assumed from Columbia/HCA the obligations
under a Bank Credit Agreement (the "Credit Agreement") with a group of lenders
with commitments aggregating $210 million. The Credit Agreement consists of a
$60 million term loan facility, an $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
As of September 30, 1999, $25 million of the $60 million term loan facility
was drawn, with the remaining $35 million available for limited purposes to be
drawn in one or two subsequent draws within one year after the Distribution. The
final payment under this term loan facility is due November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
Distribution. The final payment under this term loan is due November 11, 2005.
The $65 million revolving credit facility is expected to be available for
working capital and other general corporate purposes, and any outstanding
amounts thereunder will be due and payable on November 11, 2004. No amounts were
outstanding under this facility as of October 31, 1999.
Repayments under the term loan facilities are due in quarterly installments
with quarterly amortization based on annual amounts. Interest on the Bank
Facilities is currently based on LIBOR plus 3.00% for the revolving credit
facility and the $60 million term loan facility, and LIBOR plus 3.50% for the
$85 million term loan facility. The weighted average interest rate on the Bank
Facilities was approximately 8.8% at September 30, 1999. The Company also pays a
commitment fee equal to 0.5% of the average daily amount available under the
revolving credit facility and on the undrawn portion of the $60 million term
loan facility.
The Company's bank debt is guaranteed by its subsidiaries. These guarantees
are secured by a pledge of substantially all of the subsidiaries' assets. The
Credit Agreement requires that the Company comply with various financial ratios
and tests and contains covenants, including but not limited to restrictions on
new indebtedness, the ability to merge or consolidate, asset sales, capital
expenditures and dividends.
Senior Subordinated Notes
On May 11, 1999, the Company assumed from Columbia/HCA $150 million in
Senior Subordinated Notes maturing on May 15, 2009 and bearing interest at
10.75% (the "Notes"). Interest is payable semi-annually. The Notes are unsecured
obligations and are subordinated in right of payment to all existing
and future senior indebtedness.
The Notes are guaranteed jointly and severally by all of the Company's
operating subsidiaries ("Subsidiary Guarantors"). The Company is a holding
company with no operations apart from its ownership of the Subsidiary
Guarantors. At September 30, 1999, substantially all of the Subsidiary
Guarantors were
9
<PAGE>
wholly-owned and fully and unconditionally guaranteed the Notes. Separate
financial statements of the wholly-owned Subsidiary Guarantors are not presented
because management believes that separate financial statements would not provide
additional material information to investors.
As of September 30, 1999, two of the Subsidiary Guarantors were not wholly
owned and the guarantees of such non-wholly owned entities were limited.
Subsequent to September 30, 1999, the Company acquired ownership of the
remaining interest in one such Subsidiary Guarantor, and the limitations on the
guarantee of such Subsidiary Guarantor, as well as the limitations on the
guarantee of the remaining non-wholly owned Subsidiary Guarantor, were
eliminated. Therefore, subsequent to September 30, 1999, only one of the
Company's subsidiaries is not wholly owned, although all assets,
liabilities, equity and earnings of this entity fully and unconditionally,
jointly and severally guarantee the Notes. The Company owns approximately 70% of
the partnership interests in this limited partnership. The aggregate assets,
liabilities, equity and earnings of the Subsidiary Guarantors are equivalent to
the total assets, liabilities, equity and earnings of the Company and its
subsidiaries on a consolidated basis.
Separate financial statements of the non-wholly owned Subsidiary Guarantor
are not presented because management believes that these financial statements
would not provide additional material information to investors. The following is
certain summarized combined financial information for the non-wholly owned
Subsidiary Guarantor (dollars in millions):
As of and for
the nine months ended
September 30, 1999
<TABLE>
<S> <C>
Summarized Balance Sheet:
Current assets..................................... $ 6.3
Non-current assets................................. 12.4
-----
Total assets.................................... $18.7
=====
Current liabilities................................ $ 3.6
Non-current liabilities............................ 15.2
Equity (deficit)................................... (0.1)
-----
Total liabilities and equity.................... $18.7
=====
Summarized Statement of Income:
Net revenues....................................... $24.3
Income from continuing operations.................. $ 2.0
Net income......................................... $ 2.0
</TABLE>
Non-current liabilities shown above include intercompany payables of $11.4
million and minority interests of $3.8 million.
The indenture for the Notes contains certain covenants, including but not
limited to restrictions on new indebtedness, the ability to merge or
consolidate, asset sales, capital expenditures and dividends.
NOTE 5 - STOCK BENEFIT PLANS
In connection with the Distribution, the Company adopted the 1998 Long-Term
Incentive Plan, for which 5,425,000 shares of the Company's common stock have
been reserved for issuance. The 1998 Long-Term Incentive Plan authorizes the
grant of stock
10
<PAGE>
options, stock appreciation rights and other stock based awards to officers and
employees of the Company. On the Distribution date, 549,854 stock options were
granted under this plan, relating to pre-existing vested Columbia/HCA options.
These options were granted at various prices and were exercisable on the date of
grant. In June 1999, 2,687,000 stock options were granted under this plan with
an exercise price of the fair market value on the date of grant. These options
are exercisable beginning in part from the date of grant to five years after the
date of grant. All options granted under this plan expire in 10 years from the
date of grant. The Company also granted 340,000 options to Columbia/HCA
executives with an exercise price of the fair market value on the date of grant.
These options were exercisable on the date of grant. Columbia/HCA paid the
Company $1.5 million in exchange for the issuance of these options.
The Company has also adopted the Executive Stock Purchase Plan, in which
1,000,000 shares of the Company's common stock were reserved and subsequently
issued. The Executive Stock Purchase Plan grants a right to specified
executives of the Company to purchase shares of common stock from the Company.
The Company loaned each participant in the plan 100% of the purchase price of
the Company's common stock (approximately $10.2 million), on a full recourse
basis. The loans are reflected as a reduction to stockholders' equity as "Notes
receivable for shares sold to employees". In addition, such executives have been
granted options equal to three-quarters of a share for each share purchased. As
of September 30, 1999, options to purchase 750,000 shares had been issued. The
exercise price of these stock options is equal to the purchase price of the
shares. The options expire in 10 years and are exercisable 50% on the date of
grant and 50% five years after the Distribution.
In addition, the Company adopted various other plans for which 425,000
shares of the Company's common stock have been reserved for issuance. In June
1999, 19,976 options were granted under such plans to non-employee directors.
These options are exercisable beginning in part from the date of grant to three
years after the date of grant and expire 10 years after grant.
In connection with the Distribution, the Company established the LifePoint
Employee Stock Ownership Plan ("ESOP"). The ESOP purchased from the Company
approximately 8.3% of the Company's common stock at fair market value
(approximately 2.8 million shares at $11.50 per share). Shares will be allocated
ratably to employee accounts over the next 10 years beginning in fiscal year
1999. The shares held by the ESOP which have not yet been allocated to employee
accounts are included in shareholders' equity as "Unearned ESOP compensation".
Unearned ESOP shares are released at historical cost upon being allocated to
employee accounts. ESOP expense is recognized using the average market price of
shares committed to be released during the allocation period with any difference
between the average market price and the cost being charged or credited to
capital in excess of par value. As the shares are committed to be released, the
shares become outstanding for earnings per share calculations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements included herein.
Overview
On May 11, 1999, Columbia/HCA Healthcare Corporation ("Columbia/HCA")
completed the spin-off of its operations comprising the America Group to its
shareholders (the "Distribution") as an independent, publicly-traded company
named LifePoint Hospitals, Inc. (hereinafter referred to as "LifePoint
Hospitals, Inc." or the "Company"). Owners of Columbia/HCA common stock received
one share of the Company's common stock for every 19 shares of Columbia/HCA
common stock which resulted in approximately 29.9 million shares of the
Company's common stock outstanding immediately after the Distribution.
At September 30, 1999, the Company was comprised of 23 general, acute care
hospitals and related health care entities. The entities are located in non-
urban areas in the states of Alabama, Florida, Georgia, Kansas, Kentucky,
Louisiana, Tennessee, Utah and Wyoming. In connection with the Distribution, all
intercompany amounts payable by the Company to Columbia/HCA were eliminated and
the Company assumed certain indebtedness from Columbia/HCA (see Note 4 of the
Notes to the Condensed Consolidated Financial Statements). In addition, the
Company entered into various agreements with Columbia/HCA which are intended to
facilitate orderly changes for both companies in a way, which would be minimally
disruptive to each entity. Information regarding Columbia/HCA included in this
Report on Form 10-Q is derived from reports and other information filed by
Columbia/HCA with the Securities and Exchange Commission.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains disclosures, which are forward-looking
statements. Forward-looking statements include all statements that do not relate
solely to historical or current facts, and can be identified by the use of words
such as "may", "believe", "will", "expect", "project", "estimate", "anticipate",
"plan" or "continue". These forward-looking statements are based on the current
plans and expectations of the Company and are subject to a number of
uncertainties and risks that could significantly affect current plans and
expectations and the Company's future financial condition and results. These
factors include, but are not limited to, (i) the highly competitive nature of
the health care business, (ii) the efforts of insurers, health care providers
and others to contain health care costs, (iii) possible changes in the Medicare
program that may further limit reimbursements to health care providers and
insurers, (iv) changes in Federal, state or local regulation affecting the
health care industry, (v) the possible enactment of Federal or state health care
reform, (vi) the ability to attract and retain qualified management and
personnel, including physicians, (vii) liabilities and other claims asserted
against the Company, (viii) fluctuations in the market value of the Company's
common stock, (ix) changes in accounting practices, (x) changes in general
economic conditions, (xi) the complexity of integrated computer systems and the
success and expense of the remediation efforts of Columbia/HCA, the Company and
relevant third parties in achieving Year 2000 readiness, and (xii) other risk
factors. As a consequence, current plans, anticipated actions and future
financial condition and results may differ from those expressed in any forward-
looking statements made by or on behalf of the Company. You are cautioned not to
unduly rely on such forward-looking statements when evaluating the information
presented in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
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Results of Operations
Revenue/Volume Trends
The Company has experienced an increase in revenues and volume growth for
the nine months ended September 30, 1999 compared to the prior year. However,
the Company's revenues per equivalent admission decreased for the nine months
ended September 30, 1999 compared to the prior year. Management believes the
decline in revenue per equivalent admission is primarily attributable to the
impact of reductions in Medicare payments mandated by the Federal Balanced
Budget Act of 1997 (the "Balanced Budget Act"), the increasing percentage of
patient volume related to patients participating in managed care plans and the
continuing trend toward the conversion of more services to an outpatient basis.
The Company's revenues continue to be affected by an increasing proportion
of revenue being derived from fixed payment, higher discount sources, including
Medicare, Medicaid and managed care plans. In addition, insurance companies,
government programs (other than Medicare) and employers purchasing health care
services for their employees are also negotiating discounted amounts that they
will pay health care providers rather than paying standard prices. The Company
expects patient volumes from Medicare and Medicaid to continue to increase due
to the general aging of the population and the expansion of state Medicaid
programs. However, under the Balanced Budget Act, the Company's reimbursement
from the Medicare and Medicaid programs was reduced in 1998 and for the nine
months ended September 30, 1999 and will be further reduced as some reductions
in reimbursement levels are phased in over the next two to three years. The
Company generally receives lower payments per patient under managed care plans
than under traditional indemnity insurance plans. With an increasing proportion
of services being reimbursed based upon prospective payment amounts regardless
of the cost incurred, revenues, earnings and cash flows are being reduced.
Admissions related to Medicare, Medicaid and managed care plan patients were
89.3% and 87.5% of total admissions for the nine months ended September 30, 1999
and 1998, respectively. Revenues from capitation arrangements (prepaid health
service agreements) are less than 1.0% of revenues.
The Company's revenues also continue to be adversely affected by the trend
toward certain services being performed more frequently on an outpatient basis.
Generally, the payments received for an outpatient procedure are less than for a
similar procedure performed in an inpatient setting. The Company anticipates
that further payment reductions may occur as a result of the implementation of
a prospective payment system for Medicare outpatient services (pursuant to the
Balanced Budget Act and scheduled for implementation in mid-year 2000). Growth
in outpatient services is expected to continue in the health care industry as
procedures performed on an inpatient basis are converted to outpatient
procedures through continuing advances in pharmaceutical and medical
technologies. The redirection of certain procedures to an outpatient basis is
also influenced by pressures from payers to perform certain procedures as
outpatient care rather than inpatient care.
Management also believes that the impact of the ongoing governmental
investigations of certain of Columbia/HCA's business practices and the related
media coverage have created uncertainties with physicians, patients and payers
in certain markets.
Reductions in Medicare and Medicaid reimbursement, the increasing
percentage of the patient volume being related to patients participating in
managed care plans and continuing trends toward more services being performed on
an outpatient basis are expected to present ongoing challenges. The challenges
presented by these trends are magnified by the Company's inability to control
these trends and the associated risks. To maintain and improve its operating
margins in future periods, the Company must increase patient volumes while
controlling the costs of providing services. If the Company is not able to
achieve these improvements and the trend toward declining reimbursements and
payments continues, results of operations and cash flow will deteriorate.
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Management believes that the proper response to these challenges includes
the delivery of a broad range of quality health care services to patients by
assuring that physicians with appropriate specializations practice in the
hospitals, that the appropriate equipment and range of specialized services are
available within the hospitals, and that the hospitals are positioned as
community assets.
As part of Columbia/HCA, the Company's facilities were included in managed
care contracts negotiated by Columbia/HCA on a market-wide basis emphasizing
large urban facilities. The Company's management believes that independence from
Columbia/HCA will help the Company over time to negotiate contract terms that
are generally more favorable for its facilities.
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Operating Results Summary
The following is a summary of results from continuing operations for the
three months and nine months ended September 30, 1999 and 1998 (dollars in
millions):
Three Months ended September 30,
1999 1998
---- ----
Amount Ratio Amount Ratio
------ ----- ------ -----
Revenues.............................. $125.4 100.0% $124.7 100.0%
Salaries & benefits................... 52.2 41.7 54.3 43.6
Supplies.............................. 15.7 12.5 15.7 12.6
Other operating expenses.............. 28.8 23.0 27.9 22.4
Provision for doubtful accounts....... 10.7 8.5 12.0 9.6
Depreciation & amortization........... 7.9 6.4 7.4 5.8
Interest expense...................... 6.7 5.3 4.8 3.8
Management fees allocated from
Columbia/HCA........................ - - 2.2 1.8
ESOP expense.......................... 1.2 0.9 - -
Impairment of long-lived assets....... - - 1.3 1.1
----- ----- ----- -----
123.2 98.3 125.6 100.7
Income (loss) from continuing
operations before minority
interests and income taxes.......... 2.2 1.7 (0.9) (0.7)
Minority interests in earnings of
consolidated entities................ 0.4 0.3 0.5 0.4
---- ----- ----- ----
Income(loss)from continuing
operations before income taxes....... 1.8 1.4 (1.4) (1.1)
Provision (benefit) for income
taxes................................ 0.7 0.6 (0.6) (0.4)
----- ----- ----- -----
Income (loss) from continuing
operations........................... $1.1 0.8 $(0.8) (0.7)
===== ===== ===== =====
% changes from prior year:
Revenues.............................. 0.6%
Income(loss)from continuing
operations before income taxes...... 232.8
Income(loss)from continuing
operations........................... 228.2
Admissions (a)........................ 1.3
Equivalent admissions (b)............. 3.1
Revenues per equivalent admission..... (2.4)
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Nine Months ended September 30,
1999 1998
---- ----
Amount Ratio Amount Ratio
------ ----- ------ -----
Revenues............................. $387.8 100.0% $379.1 100.0%
Salaries & benefits.................. 165.1 42.6 164.0 43.3
Supplies............................. 47.7 12.3 46.3 12.2
Other operating expenses............. 87.4 22.5 85.8 22.7
Provision for doubtful accounts...... 30.1 7.8 31.3 8.2
Depreciation & amortization.......... 23.3 6.0 20.4 5.3
Interest expense..................... 17.4 4.5 14.2 3.7
Management fees allocated from
Columbia/HCA........................ 3.2 0.8 6.7 1.8
ESOP expense......................... 1.7 0.4 - -
Impairment of long-lived assets...... - - 1.3 0.4
----- ----- ----- -----
375.9 96.9 370.0 97.6
Income from continuing operations
before minority interests
and income taxes.................... 11.9 3.1 9.1 2.4
Minority interests in earnings of
consolidated entities............... 1.4 0.4 1.4 0.4
----- ----- ---- -----
Income from continuing operations
before income taxes................. 10.5 2.7 7.7 2.0
Provision for income taxes........... 4.4 1.1 3.1 0.8
----- ----- ----- -----
Income from continuing operations.... $ 6.1 1.6 $ 4.6 1.2
===== ===== ===== =====
% changes from prior year:
Revenues............................. 2.3%
Income from continuing operations
before income taxes................. 35.9
Income from continuing operations.... 31.4
Admissions (a)....................... 3.8
Equivalent admissions (b)............ 4.4
Revenues per equivalent admission.... (2.0)
(a) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(b) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
For the Three Months Ended September 30, 1999 and 1998
Revenues increased 0.6% to $125.4 million for the three months ended
September 30, 1999 compared to $124.7 million for the three months ended
September 30, 1998
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primarily as a result of increases in volumes. Inpatient admissions increased
1.3%, equivalent admissions (adjusted to reflect combined inpatient and
outpatient volume) increased 3.1% and revenues per equivalent admission
decreased 2.4% for the three months ended September 30, 1999 compared to the
three months ended September 30, 1998. The decline in revenues per equivalent
admission was primarily due to decreases in Medicare reimbursement rates
mandated by the Balanced Budget Act which became effective October 1, 1997 (such
rates lowered revenues by approximately $1.7 million for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998), and
continued increases in discounts from the growing number of managed care payers
(managed care as a percentage of total admissions increased to 20.8% for the
three months ended September 30, 1999 compared to 18.5% for the three months
ended September 30, 1998). In addition, favorable cost report adjustments of
$0.3 million were recorded during the three months ended September 30, 1999
compared to $1.0 million recorded during the three months ended September 30,
1998.
Salaries and benefits, as a percentage of revenues, decreased to 41.7% for
the three months ended September 30, 1999 from 43.6% for the three months ended
September 30, 1998. The decrease was primarily due to improvements in labor
productivity (man-hours per equivalent admission decreased 9.0% over the same
period in the prior year).
Supply costs decreased slightly to 12.5% as a percentage of revenues for
the three months ended September 30, 1999 from 12.6% for the three months ended
September 30, 1998.
Other operating expenses increased as a percentage of revenues to 23.0% for
the three months ended September 30, 1999 from 22.4% for the three months ended
September 30, 1998. Other operating expenses consist primarily of contract
services, physician recruitment, professional fees, repairs and maintenance,
rents and leases, utilities, insurance, marketing and non-income taxes. The
increase was primarily due to an increase in physician recruitment costs and
operating expenses related to the establishment of the Company's corporate
office.
Provision for doubtful accounts, as a percentage of revenues, decreased to
8.5% for the three months ended September 30, 1999 from 9.6% for the three
months ended September 30, 1998 primarily due to the Company's focus on
collections of accounts receivable. In addition, in fiscal year 1998, a majority
of the Company's facilities were undergoing computer information system
conversions (including patient accounting) which hampered the business office
billing functions. As a result, accounts were not billed timely and the
Company's allowance for bad debt increased.
Depreciation and amortization expense increased to $7.9 million for the
three months ended September 30, 1999 from $7.4 million for the three months
ended September 30, 1998 primarily due to increased capital expenditures related
to computer information system conversions. The majority of the Company's
facilities began depreciating the systems in the fourth quarter of fiscal 1998.
Interest expense increased to $6.7 million for the three months ended
September 30, 1999 from $4.8 million for the three months ended September 30,
1998. This increase is primarily due to the interest expense incurred on the
debt obligations assumed from Columbia/HCA as discussed in Note 4 of the Notes
to the Condensed Consolidated Financial Statements. For the three months ended
September 30, 1998, interest expense was primarily represented by interest
incurred on the net intercompany balance with Columbia/HCA. However, upon the
Distribution, the intercompany amounts payable by the Company to Columbia/HCA
were eliminated.
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As of the Distribution, Columbia/HCA stopped allocating management fees to
the Company; therefore, there were no management fees allocated by Columbia/HCA
for the three months ended September 30, 1999. For the three months ended
September 30, 1998, Columbia/HCA allocated $2.2 million of management fees to
the Company. The management fee allocation represented allocations, using
revenues as the allocation basis, of the corporate, general and administrative
expenses of Columbia/HCA. The elimination of management fee allocations by
Columbia/HCA were offset by increases in salaries and benefits, supplies and
other operating costs related to the establishment and operation of the
Company's corporate office.
ESOP expense of $1.2 million relates to the newly established ESOP
discussed in Note 5 of the Notes to the Condensed Consolidated Financial
Statements.
For the three months ended September 30, 1998, the Company recorded an
impairment loss of approximately $1.3 million related to the write-off of
intangibles and other long-lived assets of certain physician practices 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.
Minority interests decreased slightly as a percentage of revenues to 0.3%
for the three months ended September 30, 1999 from 0.4% for the three months
ended September 30, 1998.
Income from continuing operations before income taxes increased to
$1.8 million for the three months ended September 30, 1999 compared to a loss of
$1.4 million for the three months ended September 30, 1998 primarily as a result
of the decreases in certain expenses as described above.
Net income increased to $1.1 million for the three months ended September
30, 1999 compared to a loss of $2.2 million for the three months ended September
30, 1998. For the three months ended September 30, 1998, the Company incurred a
$1.4 million after-tax loss from its discontinued home health operations,
primarily due to declines in Medicare rates of reimbursement under the Balanced
Budget Act and declines in home health visits.
For the Nine Months Ended September 30, 1999 and 1998
Revenues increased 2.3% to $387.8 million for the nine months ended
September 30, 1999 compared to $379.1 million for the nine months ended
September 30, 1998 primarily as a result of increases in volumes. Inpatient
admissions increased 3.8% and equivalent admissions (adjusted to reflect
combined inpatient and outpatient volume) increased 4.4% for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 1998.
Revenues per equivalent admission decreased 2.0% for the nine months ended
September 30, 1999 compared to prior year. The decline in revenues per
equivalent admission was due to several factors, including decreases in Medicare
reimbursement rates mandated by the Balanced Budget Act which became effective
October 1, 1997 (such rates lowered revenues by approximately $5.1 million for
the nine months ended September 30, 1999 compared to the prior year), and
continued increases in discounts from the growing number of managed care payers
(managed care as a percentage of total admissions increased to 19.9% for the
nine months ended September 30, 1999 compared to 18.6% for the nine months ended
September 30, 1998). In addition, favorable cost report adjustments of $0.7
million were recorded during the nine months ended September 30, 1999 compared
to $2.3 million recorded during the nine months ended September 30, 1998.
Salaries and benefits decreased as a percentage of revenues to 42.6% for
the nine months ended September 30, 1999 from 43.3% for the nine months ended
September 30, 1998 primarily due to improvements in labor productivity (man-
hours per equivalent admission decreased 10.1% over the same period in the prior
year).
Supply costs increased slightly to 12.3% as a percentage of revenues for
the nine months ended September 30, 1999 from 12.2% for the nine months ended
September 30, 1998.
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Other operating expenses decreased as a percentage of revenues to 22.5% for
the nine months ended September 30, 1999 from 22.7% for the nine months ended
September 30, 1998. Other operating expenses consist primarily of contract
services, physician recruitment, professional fees, repairs and maintenance,
rents and leases, utilities, insurance, marketing and non-income taxes. The
decrease was primarily due to decreases in professional fees and contract
services.
Provision for doubtful accounts, as a percentage of revenues, decreased to
7.8% for the nine months ended September 30, 1999 from 8.2% for the nine months
ended September 30, 1998 primarily due to the Company's focus on collections of
accounts receivable. In addition, in fiscal year 1998, a majority of the
Company's facilities were undergoing computer information system conversions
(including patient accounting) which hampered the business office billing
functions. As a result, accounts were not billed timely and the Company's
allowance for bad debt increased.
Depreciation and amortization expense increased to $23.3 million for the
nine months ended September 30, 1999 from $20.4 million for the nine months
ended September 30, 1998 primarily due to increased capital expenditures related
to computer information system conversions. The majority of the Company's
facilities began depreciating the systems in the fourth quarter of fiscal 1998.
Interest expense increased to $17.4 million for the nine months ended
September 30, 1999 from $14.2 million for the nine months ended September 30,
1998. This increase is primarily due to the interest expense incurred on the
debt obligations assumed from Columbia/HCA as discussed in Note 4 of the Notes
to the Condensed Consolidated Financial Statements. For the nine months ended
September 30, 1998, interest expense was primarily represented by interest
incurred on the net intercompany balance with Columbia/HCA. However, upon the
Distribution, the intercompany amounts payable by the Company to Columbia/HCA
were eliminated.
Management fees allocated by Columbia/HCA were $3.2 million for the nine
months ended September 30, 1999 and $6.7 million for the nine months ended
September 30, 1998. The management fee allocation represented allocations, using
revenues as the allocation basis, of the corporate, general and administrative
expenses of Columbia/HCA. However, as of the Distribution, Columbia/HCA stopped
allocating management fees to the Company. The elimination of management fee
allocations by Columbia/HCA were offset by increases in salaries and benefits,
supplies and other operating costs related to the establishment and operation of
the Company's corporate office.
ESOP expense of $1.7 million relates to the newly established ESOP
discussed in Note 5 of the Notes to the Condensed Consolidated Financial
Statements.
For the nine months ended September 30, 1998, the Company recorded an
impairment loss of approximately $1.3 million related to the write-off of
intangibles and other long-lived assets of certain physician practices 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.
Minority interests remained unchanged as a percentage of revenues at 0.4%
compared to the prior year.
Income from continuing operations before income taxes increased 35.9% to
$10.5 million for the nine months ended September 30, 1999 from $7.7 million for
the nine months ended September 30, 1998 primarily due to decreases in certain
expenses as described above.
Net income increased to $6.1 million for the nine months ended September
30, 1999 compared to $0.9 million for the nine months ended September 30, 1998.
For the nine months ended September 30, 1998, the Company incurred a $3.7
million after-tax loss from its discontinued home health operations, primarily
due to declines in Medicare rates of reimbursement under the Balanced Budget Act
and declines in home health visits.
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Liquidity and Capital Resources
Prior to the Distribution, the Company had relied upon Columbia/HCA for
liquidity and sources of capital to supplement any needs not met by operations.
As an independent, publicly traded company, the Company has direct access to the
capital markets and the ability to enter into its own bank borrowing
arrangements. At September 30, 1999, the Company had working capital of $62.0
million compared to $26.9 million at December 31, 1998. The increase in working
capital was primarily due to a $32.7 million increase in cash from December 31,
1998 resulting from net cash collections since the Distribution. In addition,
accounts receivable increased approximately $15.5 million primarily as a result
of Columbia/HCA's agreement to indemnify the Company with respect to Medicare,
Medicaid, and cost-based Blue Cross receivables and payables relating to cost
reporting periods ending on or prior to the Distribution. The increase in
working capital was partially offset by increases in accrued interest and income
taxes payable as a result of the Distribution.
Cash provided by operating activities was $50.2 million for the nine months
ended September 30, 1999 compared to $25.9 million for the nine months ended
September 30, 1998. This increase was primarily attributable to increases in
accrued interest and income taxes payable since the Distribution for the nine
months ended September 30, 1998.
Cash used in investing activities was $40.2 million for the nine months
ended September 30, 1999 compared to $21.4 million for the nine months ended
September 30, 1998. The increase was primarily due to capital expenditures of
$40.5 million during the nine months ended September 30, 1999 compared to $23.6
million for the nine months ended September 30, 1998. At September 30, 1999,
there were projects under construction which had an estimated cost to complete
and equip over the next six months of approximately $33.5 million (including
construction costs of a replacement hospital located in Florida with an
estimated project cost of approximately $33.0 million of which $17.1 million has
been spent as of September 30, 1999). Management believes that its capital
expenditure program is adequate to expand, improve and equip the Company's
existing health care facilities.
Cash provided by financing activities was $22.7 million for the nine months
ended September 30, 1999 compared to cash used in financing activities of $4.5
million for the nine months ended September 30, 1998. The increase was primarily
due to changes in the intercompany amounts payable by the Company to
Columbia/HCA prior to the Distribution.
Management does not consider the sale of any assets to be necessary to
repay the Company's indebtedness or to provide working capital. However, for
other reasons, certain of the Company's hospitals may be sold in the future from
time to time. Three of the Company's hospitals are currently held for sale.
Although the Company's indebtedness will be more substantial than was
historically the case for its predecessor entities, management expects that
operations and working capital facilities will provide sufficient liquidity for
fiscal 1999 and for the next several years.
The Company does not expect to pay dividends on its common stock in the
foreseeable future.
Long-Term Debt
Assumption of Certain Indebtedness from Columbia/HCA
In connection with the Distribution, all intercompany amounts payable by
the Company to Columbia/HCA were eliminated, and the Company assumed certain
indebtedness from Columbia/HCA. The indebtedness was comprised of a Bank Credit
Agreement and Senior Subordinated Notes.
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Bank Credit Agreement
On May 11, 1999, the Company assumed from Columbia/HCA the obligations
under a Bank Credit Agreement (the "Credit Agreement") with a group of lenders
with commitments aggregating $210 million. The Credit Agreement consists of a
$60 million term loan facility, an $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
As of September 30, 1999, $25 million of the $60 million term loan facility
was drawn, with the remaining $35 million available for limited purposes to be
drawn in one or two subsequent draws within one year after the Distribution. The
final payment under this term loan facility is due November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
Distribution. The final payment under this term loan is due November 11, 2005.
The $65 million revolving credit facility is expected to be available for
working capital and other general corporate purposes, and any outstanding
amounts thereunder will be due and payable on November 11, 2004. No amounts were
outstanding under this facility as of October 31, 1999.
Repayments under the term loan facilities are due in quarterly installments
with quarterly amortization based on annual amounts. Interest on the Bank
Facilities is currently based on LIBOR plus 3.00% for the revolving credit
facility and the $60 million term loan facility, and LIBOR plus 3.50% for the
$85 million term loan facility. The weighted average interest rate on the Bank
Facilities was approximately 8.8% at September 30, 1999. The Company also pays a
commitment fee equal to 0.5% of the average daily amount available under the
revolving credit facility and on the undrawn portion of the $60 million term
loan facility.
The Company's bank debt is guaranteed by its subsidiaries. These guarantees
are secured by a pledge of substantially all of the subsidiaries' assets. The
Credit Agreement requires that the Company comply with various financial ratios
and tests and contains covenants, including but not limited to restrictions on
new indebtedness, the ability to merge or consolidate, asset sales, capital
expenditures and dividends.
Senior Subordinated Notes
On May 11, 1999, the Company assumed from Columbia/HCA $150 million in
Senior Subordinated Notes maturing on May 15, 2009 and bearing interest at
10.75% (the "Notes"). Interest is payable semi-annually. The Notes are unsecured
obligations and are subordinated in right of payment to all existing and future
senior indebtedness.
The indenture for the Notes contains certain covenants, including but not
limited to restrictions on new indebtedness, the ability to merge or
consolidate, asset sales, capital expenditures and dividends.
Contingencies
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, through written notice and other means, that it is a target in
these investigations. Given the breadth of the ongoing investigations,
Columbia/HCA expects additional investigative and prosecutorial activity to
occur in these and other jurisdictions in the future. Columbia/HCA is the
subject of a formal order of investigation by the Securities and Exchange
Commission (the "Commission"). Columbia/HCA understands that the Commission
investigation includes the anti-fraud, insider trading, periodic reporting and
internal accounting control provisions of the Federal securities laws. According
to
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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 the years 1992 and 1993 and on the
Medicaid cost report for 1993. Both were found not guilty of obstructing a
federal auditor. One other employee was acquitted on all counts for which he had
been charged and the jury was unable to reach a verdict with respect to another
employee. This employee and the government executed an agreement to defer
prosecution for 18 months after which charges will be dismissed.
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 by submitting improper claims to the government for reimbursement. The
lawsuits generally 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
the Company's knowledge, the government has intervened in five unsealed 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.
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 or 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
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
addition, a number of derivative actions have been brought by purported
stockholders of Columbia/HCA against certain current and former officers and
directors of Columbia/HCA alleging breach of fiduciary duty and failure to take
reasonable steps to ensure that Columbia/HCA did not engage in illegal
practices.
Management believes that the ongoing governmental investigations and
related media coverage may have had a negative effect on Columbia/HCA's results
of operations (which includes the Company for the periods prior to the date of
Distribution, which are presented herein). The extent to which the Company may
or may not continue to be affected after the Distribution by the ongoing
investigations of Columbia/HCA, the initiation of additional investigations, if
any, and the related media coverage cannot be predicted. It is possible that
these matters could have a material adverse effect on the financial condition or
results of operations of the Company in future periods.
In connection with the Distribution, Columbia/HCA has agreed to indemnify
the Company in respect of any losses, which it may incur arising from the
proceedings described above. Columbia/HCA has also agreed to indemnify the
Company in respect of any losses which it may incur as a result of proceedings
which may be commenced by government authorities or by private parties in the
future that arise from acts, practices or omissions engaged in prior to the date
of the Distribution and relate to the proceedings described above. Columbia/HCA
has also agreed that, in the event that any hospital owned by the Company as of
the date of the Distribution is permanently excluded from participation in the
Medicare and Medicaid programs as a result of the proceedings described above,
then Columbia/HCA will make cash payments to the Company based on amounts as
defined in the Distribution Agreement by and among Columbia/HCA and the Company.
The Company has agreed with Columbia/HCA that, in connection with the pending
governmental investigations, it will negotiate with the government with respect
to a compliance agreement setting forth the Company's agreement to comply with
applicable laws and regulations. If any of such indemnified matters were
successfully asserted
22
<PAGE>
against the Company, 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 the Company. Columbia/HCA will not indemnify the Company for losses relating
to any acts, practices and omissions engaged in by the Company after the
Distribution, whether or not the Company is indemnified for similar acts,
practices and omissions occurring prior to the date of the Distribution.
Impact of Year 2000 Computer Issues
Background and General Information
The Year 2000 problem is the result of two potential malfunctions that
could have an impact on systems and equipment on which the Company relies. The
first problem arises due to computers being programmed to use two rather than
four digits to define the applicable year. The second problem arises in embedded
chips, where microchips and microcontrollers have been designed using two rather
than four digits to define the applicable year. Certain computer programs,
building infrastructure components (e.g., alarm systems and HVAC systems) and
medical devices that are date sensitive, may recognize a date using 00 as the
year 1900 rather than the year 2000. If uncorrected, the problem could result in
computer system and program failures that could result in a disruption of
business operations or equipment and medical device malfunctions that could
affect patient diagnosis and treatment.
In connection with the Distribution, Columbia/HCA's wholly owned
subsidiary, Columbia Information Services, Inc. ("CIS") and the Company entered
into a Computer and Data Processing Services Agreement, pursuant to which the
Company obtains most of its information technology and information technology
infrastructure systems. CIS does not warrant that the software and hardware used
by CIS in providing services to the Company will be Year 2000 ready, but CIS is
currently making efforts in a professional, timely, and workmanlike manner that
it deems reasonable to address Year 2000 issues with respect to the software
licensed to the Company under the Computer and Data Processing Services
Agreement. In connection with its participation in Columbia/HCA's Year 2000
project, the Company has made and will continue to make certain expenditures in
respect of software systems and applications not obtained from CIS and non-
information technology systems (e.g., vendor products, medical equipment and
other related equipment with embedded chips) to ensure that they are Year 2000
ready .
Pursuant to the Computer and Data Processing Services Agreement, the
Company will rely on CIS to provide virtually all of its computer support and
information technology services. In connection with the Distribution,
Columbia/HCA's wholly owned subsidiary CHCA Management Services, L.P. ("CHCA")
and the Company entered into a Year 2000 Professional Services Agreement,
pursuant to which CHCA will continue to provide the services of the CHCA Year
2000 program to the Company. References to "Columbia/HCA" with respect to the
Year 2000 project and the Year 2000 services refer to Columbia HCA/Healthcare
Corporation and its affiliates, principally CHCA. The Company is dependent upon
Columbia/HCA in substantially all respects for the Year 2000 readiness of its
information technology and non-information technology systems and for
contingency planning in respect of Year 2000 related risks. Any failure by
Columbia/HCA to adequately address such matters could have a material adverse
effect on the business, financial condition, and results of operations or
prospects of the Company.
Columbia/HCA is utilizing both internal and external resources to manage
and implement its Year 2000 program. With the assistance of external resources,
Columbia/HCA has undertaken development of contingency plans in the event that
its Year 2000 efforts, or the Year 2000 efforts of third-parties upon which
Columbia/HCA and the Company rely, are not accurately or timely completed. The
Company's management consults regularly with the Columbia/HCA personnel
responsible for development of such contingency plans. The Company, in
conjunction with Columbia/HCA, has developed a contingency planning methodology
and will implement contingency plans throughout 1999.
23
<PAGE>
Information Technology Systems
With respect to the information technology ("IT") systems portions of
Columbia/HCA's Year 2000 project, which address the inventory, assessment,
remediation, testing and implementation of internally developed software,
Columbia/HCA has identified various software applications that were addressed on
separate time lines. Columbia/HCA has completed remediating these software
applications. Columbia/HCA has also completed the assessment of mission critical
third party software (i.e., that software which is essential for day-to-day
operations) and has developed testing and implementation plans with separate
time lines. Remediation, testing and implementation of various
software applications for certain of the Company's subsidiaries will be
completed in the fourth quarter of 1999 and should not have a material effect on
the Company's readiness. The IT systems portion of Columbia/HCA's Year 2000
project is currently on schedule.
The Company, in participation with Columbia/HCA, has undertaken a program
to inventory, assess and correct, replace or otherwise address impacted, vendor-
supplied products (hardware, systems software, business software, and
telecommunication equipment) with respect to Year 2000 compliance. Columbia/HCA
has implemented a program to contact vendors, analyze information provided, and
to remediate, replace or otherwise address IT products that pose a material Year
2000 impact and expects to complete, in all material respects, the IT
infrastructure portion of the program during the fourth quarter of 1999. This
is a revised date from September 30, 1999 due to changes in vendor product
status.
The Company's management presently believes that with modifications to
existing software or the installation of upgraded software under the IT
infrastructure portion, the Year 2000 will not pose material operational
problems for the Company's computer systems. However, if such modifications or
upgrades are not accomplished in a timely manner, Year 2000 related failures may
present a material adverse impact on the operations of the Company.
Non-Information Technology Systems and Equipment
With respect to the non-IT infrastructure project, the Company, in
participation with Columbia/HCA has undertaken a program to inventory, assess
and correct, replace or otherwise address impacted vendor products, medical
equipment and other related equipment with embedded chips. The Company, in
participation with Columbia/HCA, has implemented a program to contact vendors,
analyze information provided, and to remediate, replace or otherwise address
devices or equipment that pose a material Year 2000 impact. The Company
anticipates completion, in all material respects, of the non-IT infrastructure
portion of its program in the fourth quarter of 1999. This is a revised date
from September 30, 1999 due to changes in vendor product status.
The Company is prioritizing its non-IT infrastructure efforts by focusing
on equipment and medical devices that will have a direct impact on patient care.
The Company is directing substantial efforts to repair, replace, upgrade or
otherwise address this equipment and these medical devices in order to minimize
risk to patient safety and health. The Company is relying on information that is
being provided to it by equipment and medical device manufacturers and
Columbia/HCA regarding the Year 2000 status of their products. While the Company
is attempting to evaluate information provided by its previous and current
vendors, there can be no assurance that in all instances accurate information is
being provided. The Company also cannot in all instances guarantee that the
repair, replacement or upgrade of all non-IT infrastructure systems will occur
on a timely basis or that such repairs, replacements or upgrades will avoid all
Year 2000 problems.
Third-Party Payers and Intermediaries, and Suppliers
Columbia/HCA and the Company have initiated communications with the
Company's major third party payers and intermediaries, including government
payers and intermediaries. The Company relies on these entities for accurate and
24
<PAGE>
timely reimbursement of claims, often through the use of electronic data
interfaces. Neither the Company nor Columbia/HCA received assurances that these
interfaces will be converted in a timely manner. Because certain payers have
refused or are not ready to test with the Company's systems, testing with payers
and intermediaries will continue through the end of the year. Failure of these
third party systems could have a material adverse effect on the Company's cash
flow and results of operations.
Columbia/HCA and the Company have also initiated communications with the
Company's mission critical suppliers and vendors (i.e. those suppliers and
vendors whose products and services are essential for day-to-day operations) to
verify their ability to continue to deliver goods and services through the Year
2000. The Company has not received assurances from all mission critical
suppliers and vendors that they will be able to continue to deliver goods and
services through the Year 2000, but the Company is continuing its efforts to
obtain such assurances. Failure of these third parties could have a material
impact on operations and/or the ability of the Company to provide health care
services.
With the assistance of external resources, including Columbia/HCA, the
Company has undertaken the development of contingency plans in the event that
its Year 2000 efforts, or the Year 2000 efforts of third parties upon which
Columbia/HCA and the Company rely, are not accurately or timely completed. The
Company has developed a contingency planning methodology and will implement
contingency plans throughout 1999.
Year 2000 Risks/Contingency Planning
While the Company is developing contingency plans to address possible
failure scenarios, the Company recognizes that there are "worst case" scenarios
which may develop and are largely outside the Company's or Columbia/HCA's
control. The Company recognizes the risks associated with extended
infrastructure (e.g., power, water and telecommunications) failure, the
interruption of insurance and other payments to the Company and the failure of
equipment or software that could impact patient safety or health despite the
assurances of third parties. The Company is addressing these and other failure
scenarios in its contingency planning effort and is engaging third parties in
discussions regarding how to manage common failure scenarios, but neither
Columbia/HCA nor the Company can currently estimate the likelihood or the
potential cost of such failures. Contingency plans have been developed for
mission-critical and high impact patient care and business operations. The
contingency plans developed by the facilities include those in the following
areas: medical equipment, suppliers and service providers, utilities,
information technology and services, facility and physical plant equipment and
business office operations. Currently the Company does not believe that any
reasonably likely worst case scenario will have a material impact on the
Company's revenues or operations. Those reasonably likely worst case scenarios
include continued expenditures for remediation, continued expenditures for
replacement or upgrade of equipment, continued efforts regarding contingency
planning, increased staffing for the periods immediately preceding and after
January 1, and payment delays from the Company's payers.
The Company believes that if (i) any material phase or aspect of its Year
2000 project is not completed successfully and timely, (ii) certain mission
critical suppliers and vendors (particularly medical surgical suppliers and
utilities) are not able to deliver goods or services after December 31, 1999, or
(iii) its contingency plans do not anticipate and effectively address actually
experienced Year 2000 related problems or do not effectively address
unanticipated Year 2000 related problems, then the Company's results of
operations and financial condition, as well as its day-to-day business
operations and its ability to provide health care services (potentially
including patient diagnosis and treatment), could be materially adversely
affected.
Costs and Expenses
The Year 2000 project is currently estimated to have a minimum total cost
of $2.3 million, of which the Company has incurred $0.5 million of expenses in
the first nine months of 1999. The Company currently estimates the cost to be
incurred for the remediation, upgrade and replacement of its impacted non-IT
infrastructure systems, and equipment to be approximately $1.5 million, which is
included in the above estimated minimum total cost of $2.3 million. These
estimates do not include the costs of executing any contingency plans or
potential litigation claims resulting from any Year 2000 failure.
The majority of the costs related to the Year 2000 project (except the cost
of new equipment) will be expensed as incurred and are expected to be funded
through operating cash flows.
The costs of the project and completion dates for the Year 2000
modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantees that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but
25
<PAGE>
are not limited to, the availability and cost of personnel trained in this area
and the ability to locate and correct all relevant computer codes and all
medical equipment.
Inflation
The health care industry is labor intensive. Wages and other expenses
increase during periods of inflation and when shortages in marketplaces occur.
In addition, suppliers pass along rising costs to the Company in the form of
higher prices. The Company's ability to pass on these increased costs is limited
due to increasing regulatory and competitive pressures, as discussed above.
Health Care Reform
In recent years, an increasing number of legislative proposals have been
introduced or proposed to Congress and in some state legislatures that would
significantly affect health care systems in the Company's markets. The cost of
certain proposals would be funded in significant part by reduction in payments
by government programs, including Medicare and Medicaid, to health care
providers or taxes levied on hospitals or other providers. While the Company is
unable to predict which, if any, proposals for health care reform will be
adopted; there can be no assurance that proposals adverse to the business of the
Company will not be adopted.
26
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Operating Data
1999 1998
----------- -----------
Number of hospitals in operations at
March 31................................. 23 23
June 30.................................. 23 23
September 30............................. 23 23
December 31.............................. 23
Licensed hopitals beds at (a):
March 31................................. 2,169 2,136
June 30.................................. 2,169 2,113
September 30............................. 2,169 2,112
December 31.............................. 2,169
Weighted average licensed beds (b):
Quarter:
First.................................... 2,169 2,136
Second................................... 2,169 2,128
Third.................................... 2,169 2,113
Fourth................................... 2,131
Year......................................... 2,127
Average daily census (c):
Quarter:
First.................................... 863 853
Second................................... 714 695
Third.................................... 668 699
Fourth................................... 725
Year......................................... 742
Admissions (d):
Quarter:
First.................................... 18,051 16,842
Second................................... 15,335 14,940
Third.................................... 15,018 14,832
Fourth................................... 15,655
Year......................................... 62,269
Equivalent Admissions (e):
Quarter:
First.................................... 30,741 28,412
Second................................... 27,651 27,175
Third.................................... 27,767 26,920
Fourth................................... 27,522
Year......................................... 110,029
Average length of stay (days) (f):
Quarter:
First.................................... 4.3 4.6
Second................................... 4.2 4.2
Third.................................... 4.1 4.3
Fourth................................... 4.3
Year......................................... 4.4
27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Operating Data (Continued)
_________________
(a) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(b) Represents the average number of licensed beds, weighted based on periods
owned.
(c) Represents the average number of patients in the company's hospital beds
each day.
(d) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(e) Equivalent admissions is used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions is computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general
measure of combined inpatient and outpatient volume.
(f) Represents the average number of days admitted patients stay in the
Company's hospitals. Average length of stay has declined due to the
continuing pressures from managed care and other payers to restrict
admissions and reduce the number of days that are covered by the payers for
certain procedures, and by technological and pharmaceutical improvements.
28
<PAGE>
Part II. Other Information
- ---------------------------
Item 5: Other Information
(a) Unaudited Pro Forma Financial Statements as of and for the three months
and nine months ended September 30, 1999
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements of the Company are based on the historical consolidated financial
statements, which reflect periods during which the businesses that comprise the
Company did not operate as a separate, independent company and certain
estimates, assumptions and allocations were made in preparing such financial
statements. Therefore, such historical consolidated financial statements do not
necessarily reflect the consolidated results of operations or financial position
that would have existed had the Company been a separate, independent company
throughout the periods presented.
The Unaudited Pro Forma Condensed Consolidated Statements of Income for the
three months and nine months ended September 30, 1999 reflect the results of the
Company's operations as if the Distribution and the divestitures of certain
facilities that the Company intends to divest had occurred at the beginning of
1999. The Unaudited Pro Forma Condensed Consolidated Balance Sheet assumes that
the Distribution and such divestitures had occurred on September 30, 1999.
The Unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in conjunction with the historical financial statements of the Company
included elsewhere herein and the notes thereto. The pro forma condensed
consolidated financial information is presented for informational purposes only
and does not purport to reflect the results of operations or financial position
of the Company or the results of operations or financial position that would
have occurred had the Company been operated as a separate, independent company.
29
<PAGE>
LIFEPOINT HOSPITALS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues............................................. $ 125.4 $ (9.4)(a) $ 116.0
Salaries and benefits................................ 52.2 (4.5)(a) 47.7
Supplies............................................. 15.7 (1.4)(a) 14.3
Other operating expenses............................. 28.8 (2.8)(a) 26.0
Provision for doubtful accounts...................... 10.7 (1.5)(a) 9.2
Depreciation and amortization........................ 7.9 (0.8)(a) 7.1
Interest expense..................................... 6.7 - 6.7
ESOP expense......................................... 1.2 - 1.2
---------- ----------- ---------
123.2 (11.0) 112.2
---------- ----------- ---------
Income from continuing operations before minority
interests and income taxes........................ 2.2 1.6 3.8
Minority interests in earnings of consolidated
entities.......................................... 0.4 - 0.4
---------- ----------- ---------
Income from continuing operations before income
taxes............................................. 1.8 1.6 3.4
Provision for income taxes........................... 0.7 0.7 (e) 1.4
---------- ----------- ---------
Income from continuing operations.................... $ 1.1 $ 0.9 $ 2.0
========== =========== =========
Basic and diluted earnings per share................. $ 0.03 $ 0.04 $ 0.07
========== =========== =========
Shares used in earnings per share calculations (000s):
Basic............................................. 30,951 30,951 30,951
Dilutive securities - stock options.......... 63 63 63
---------- ----------- ---------
Diluted........................................... 31,014 31,014 31,014
========== =========== =========
</TABLE>
See accompanying notes.
30
<PAGE>
LIFEPOINT HOSPITALS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues............................................. $ 387.8 $ (33.5)(a) $ 354.3
Salaries and benefits................................ 165.1 (15.7)(a) 147.6
0.9 (c)
(2.7)(b)
Supplies............................................. 47.7 (4.7)(a) 43.1
0.1 (c)
Other operating expenses............................. 87.4 (8.6)(a) 80.1
1.3 (c)
Provision for doubtful accounts...................... 30.1 (4.3)(a) 25.8
Depreciation and amortization........................ 23.3 (2.6)(a) 20.7
Interest expense..................................... 17.4 2.6 (d) 20.0
Management fees allocated from Columbia/HCA.......... 3.2 (3.2)(c) -
ESOP expense......................................... 1.7 1.0 (b) 2.7
---------- ----------- ---------
375.9 (35.9) 340.0
---------- ----------- ---------
Income from continuing operations before minority
interests and income taxes........................ 11.9 2.4 14.3
Minority interests in earnings of consolidated
entities.......................................... 1.4 - 1.4
---------- ----------- ---------
Income from continuing operations before income
taxes............................................. 10.5 2.4 12.9
Provision for income taxes........................... 4.4 1.0 (e) 5.4
---------- ----------- ---------
Income from continuing operations.................... $ 6.1 $ 1.4 $ 7.5
========== =========== =========
Basic and diluted earnings per share................. $ 0.20 $ 0.05 $ 0.25
========== =========== =========
Shares used in earnings per share calculations (000s):
Basic............................................. 30,349 30,349 30,349
Dilutive securities - stock options.......... 194 194 194
---------- ----------- ---------
Diluted........................................... 30,543 30,543 30,543
========== =========== =========
</TABLE>
See accompanying notes.
31
<PAGE>
LIFEPOINT HOSPITALS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
------ ---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 32.7 $ - $ 32.7
Accounts receivable, net........................... 51.9 (6.4)(a) 45.5
Inventories........................................ 13.8 (1.9)(a) 11.9
Deferred taxes and other current assets............ 24.9 (1.4)(a) 23.5
---------- ----------- ---------
123.3 (9.7) 113.6
Property and equipment, at cost...................... 478.9 (30.9)(a) 448.0
Accumulated depreciation............................. (190.7) 13.3 (a) (177.4)
---------- ----------- ---------
288.2 (17.6) 270.6
Intangible assets, net............................... 23.4 (0.4)(a) 23.0
Other................................................ 4.1 (4.1)(a) -
---------- ----------- ---------
$ 439.0 $ (31.8) $ 407.2
========== =========== =========
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable................................... $ 17.6 $ (1.3)(a) $ 16.3
Accrued salaries................................... 13.3 (0.8)(a) 12.5
Other current liabilities.......................... 28.2 (0.8)(a) 27.4
Current maturities of long-term debt............... 2.2 - 2.2
---------- ----------- ---------
61.3 (2.9) 58.4
Long-term debt....................................... 258.0 - 258.0
Deferred taxes....................................... 20.3 6.3 (a) 26.6
Professional liability risks and other liabilities... 2.6 - 2.6
Minority interests in equity of
consolidated entities............................... 3.8 - 3.8
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued....................... - - -
Common stock, $0.01 par value; 90,000,000 shares
authorized; 31,066,289 shares outstanding at
September 30, 1999................................. 0.3 - 0.3
Capital in excess of par value...................... 133.1 (37.8)(a) 95.3
Unearned ESOP compensation.......................... (30.3) - (30.3)
Notes receivable for shares sold to employees....... (10.2) - (10.2)
Retained earnings................................... 0.1 2.6 (a) 2.7
---------- ----------- ---------
93.0 (35.2) 57.8
---------- ----------- ---------
$ 439.0 $ (31.8) $ 407.2
========== =========== =========
</TABLE>
See accompanying notes.
32
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(a) To eliminate the assets and liabilities as of September 30, 1999 and
results of operations for the three months and nine months ended September
30, 1999 for three facilities which are currently held for sale by the
Company.
(b) To adjust historical retirement plan expense recorded as a component of
salaries and wages and record the estimated LifePoint Hospitals, Inc.
Retirement Plan (the "ESOP") expense for the nine months ended September
30, 1999. See Note 5 in the Notes to Condensed Consolidated Financial
Statements.
(c) To adjust for the estimated general and administrative costs that would
have been incurred if the Company had managed comparable general and
administrative functions and to eliminate the management fees allocated
from Columbia/HCA for the nine months ended September 30, 1999.
(d) To adjust interest expense to $20.0 million for the nine months ended
September 30, 1999. The interest expense adjustment is based on the
elimination of all intercompany amounts payable by the Company to
Columbia/HCA and the assumption of certain indebtedness from Columbia/HCA
at an assumed average interest rate of approximately 9.9% and $0.5 million
in amortization of the deferred loan cost. The historical balance sheet as
of September 30, 1999 already reflects the elimination and assumption of
these debt amounts since the transaction occurred on May 11, 1999.
(e) To adjust income tax provision for the estimated impact of the pro forma
adjustments.
33
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) List of Exhibits:
Exhibit Number Description
- -------------- -----------
3.1 Certificate of Incorporation of the Company.
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
3.2 By-Laws of the Company. Incorporated by reference
from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
27 Financial Data Schedule.
(b) Reports on Form 8-K filed during the quarter ended September 30, 1999:
None.
34
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LifePoint Hospitals, Inc.
Date: November 15, 1999 /s/ Kenneth C. Donahey
-------------------------------------
Kenneth C. Donahey
Senior Vice President & Chief
Financial Officer
LifePoint Hospitals Holdings, Inc.
Date: November 15, 1999 /s/ Kenneth C. Donahey
-------------------------------------
Kenneth C. Donahey
Senior Vice President &
Chief Financial Officer
35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF INCOME AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001074772
<NAME> LIFEPOINT HOSPITALS INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 32,700
<SECURITIES> 0
<RECEIVABLES> 105,300
<ALLOWANCES> 53,400
<INVENTORY> 13,800
<CURRENT-ASSETS> 123,300
<PP&E> 478,900
<DEPRECIATION> 190,700
<TOTAL-ASSETS> 439,000
<CURRENT-LIABILITIES> 61,300
<BONDS> 258,000
0
0
<COMMON> 300
<OTHER-SE> 92,700
<TOTAL-LIABILITY-AND-EQUITY> 439,000
<SALES> 0
<TOTAL-REVENUES> 387,800
<CGS> 0
<TOTAL-COSTS> 212,800
<OTHER-EXPENSES> 87,400
<LOSS-PROVISION> 30,100
<INTEREST-EXPENSE> 17,400
<INCOME-PRETAX> 10,500
<INCOME-TAX> 4,400
<INCOME-CONTINUING> 6,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,100
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
