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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 June 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
Class of Common Stock Outstanding at July 31, 1999
--------------------- ----------------------------
Common stock, $ .01 par value 30,985,572 shares
===============================================================================
<PAGE>
LIFEPOINT HOSPITALS, INC.
FORM 10-Q
June 30, 1999
<TABLE>
<CAPTION>
Page of
Form 10-Q
---------
<S> <C>
Part I: Financial Information
- -----------------------------
Item 1. Financial Statements
Condensed Consolidated Statements of Income - for the three
months and six months ended June 30, 1999 and 1998........ 3
Condensed Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998......................................... 4
Condensed Consolidated Statements of Cash Flows - for the
six months ended June 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................................. 13
Part II: Other Information
- --------------------------
Item 5: Other Information........................................... 31
Item 6: Exhibits and Reports on Form 8-K............................ 36
</TABLE>
2
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Part I: Financial Information
Item 1: Financial Statements
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------
1999 1998 1999 1998
------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues .......................................................... $ 128.2 $ 124.4 $ 262.4 $ 254.4
Salaries and benefits ............................................. 55.8 54.7 112.9 109.7
Supplies .......................................................... 15.6 14.6 32.0 30.6
Other operating expenses .......................................... 30.1 28.6 58.6 57.9
Provision for doubtful accounts ................................... 9.1 9.4 19.4 19.3
Depreciation and amortization ..................................... 7.9 6.4 15.4 13.0
Interest expense .................................................. 6.0 4.8 10.7 9.4
Management fees allocated from Columbia/HCA ....................... 0.8 2.2 3.2 4.5
ESOP expense ...................................................... 0.5 - 0.5 -
-------- -------- ------- ---------
125.8 120.7 252.7 244.4
-------- -------- ------- ---------
Income from continuing operations before minority
interests and income taxes...................................... 2.4 3.7 9.7 10.0
Minority interests in earnings of consolidated entities............ 0.6 0.3 1.0 0.9
-------- -------- ------- ---------
Income from continuing operations before income taxes.............. 1.8 3.4 8.7 9.1
Provision for income taxes......................................... 0.8 1.4 3.7 3.7
-------- -------- ------- ---------
Income from continuing operations.................................. 1.0 2.0 5.0 5.4
Loss from discontinued operations, net of tax benefit of
($0.3) for the three months and ($1.5) for the six months
ended June 30, 1998............................................. - (0.5) - (2.3)
-------- -------- ------- ---------
Net income ..................................................... $ 1.0 $ 1.5 $ 5.0 $ 3.1
======== ======== ======= =========
Basic and diluted earnings per share:
Income from continuing operations .............................. $ 0.04 $ 0.07 $ 0.17 $ 0.18
Loss from discontinued operations .............................. - (0.02) - (0.08)
-------- -------- ------- ---------
Net income..................................................... $ 0.04 $ 0.05 $ 0.17 $ 0.10
======== ======== ======= =========
Shares used in earnings per share calculations (000s):
Basic........................................................... 30,198 29,899 30,049 29,899
Dilutive securities - stock options........................... 250 150 259 150
-------- -------- ------- ---------
Diluted......................................................... 30,448 30,049 30,308 30,049
======== ======== ======= =========
</TABLE>
See accompanying notes.
3
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LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
------ -------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 15.5 $ -
Accounts receivable, less allowance for doubtful accounts of $50.2
and $48.3 at June 30, 1999 and December 31, 1998....................... 58.9 36.4
Inventories............................................................. 14.0 14.0
Deferred taxes and other current assets ................................ 28.0 18.6
------- -------
116.4 69.0
Property and equipment, at cost:
Land.................................................................... 7.2 7.2
Buildings............................................................... 205.8 203.1
Equipment............................................................... 232.1 221.9
Construction in progress (estimated cost to complete and equip
after June 30, 1999 - $45.5)........................................... 22.3 10.4
------- -------
467.4 442.6
Accumulated depreciation .................................................. (183.1) (176.2)
------- -------
284.3 266.4
Intangible assets, net of accumulated amortization of $7.3 and $6.9
at June 30, 1999 and December 31, 1998 ................................ 23.7 15.2
Other ..................................................................... 4.2 4.4
------- -------
$ 428.6 $ 355.0
======= =======
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable........................................................ $ 14.7 $ 15.5
Accrued salaries........................................................ 15.5 11.7
Other current liabilities............................................... 21.5 14.6
Current maturities of long-term debt ................................... 1.3 0.3
------- -------
53.0 42.1
Intercompany balances payable to Columbia/HCA ............................. - 167.6
Long-term debt ............................................................ 258.8 0.3
Deferred taxes ............................................................ 21.6 21.3
Professional liability risks and other liabilities ........................ 1.6 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;
30,939,886 shares issued and outstanding at June 30, 1999.............. 0.3 -
Capital in excess of par value.......................................... 132.3 -
Unearned ESOP compensation.............................................. (31.7) -
Notes receivable for shares sold to employees........................... (10.2) -
Retained earnings (deficit)............................................. (0.9) -
Equity, investments by Columbia/HCA .................................... - 118.7
------- -------
89.8 118.7
------- -------
$ 428.6 $ 355.0
======= =======
</TABLE>
See accompanying notes.
4
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LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from continuing operating activities:
Net Income........................................................................................ $ 5.0 $ 3.1
Adjustments to reconcile net income to net cash provided by continuing
operating activities:
ESOP expense.................................................................................. 0.5 -
Provision for doubtful accounts .............................................................. 19.4 19.3
Depreciation and amortization ................................................................ 15.4 13.0
Deferred income tax benefit .................................................................. (3.5) (0.3)
Loss from discontinued operations ............................................................ - 2.3
Increase (decrease) in cash from operating assets and liabilities:
Accounts receivable........................................................................ (22.1) (13.7)
Inventories and other assets............................................................... (4.6) (1.3)
Accounts payable and accrued expenses...................................................... 11.4 (0.2)
Other......................................................................................... (1.1) (1.0)
--------- ----------
Net cash provided by operating activities .............................................. 20.4 21.2
Cash flows from investing activities:
Purchase of property and equipment, net .......................................................... (28.8) (15.4)
Other............................................................................................. 0.2 (6.8)
--------- ----------
Net cash used in investing activities................................................... (28.6) (22.2)
Cash flows from financing activities:
Decrease in long-term debt, net................................................................... (0.5) (1.1)
Increase in intercompany balances with Columbia/HCA, net.......................................... 24.2 2.1
--------- ----------
Net cash provided by financing activities............................................... 23.7 1.0
Change in cash and cash equivalents ................................................................. 15.5 -
Cash and cash equivalents at beginning of period .................................................... - -
--------- ----------
Cash and cash equivalents at end of period .......................................................... $ 15.5 $ -
========= ==========
Interest payments ................................................................................... $ 7.0 $ 9.4
Income tax payments, net ............................................................................ $ 4.7 $ 2.2
Supplemental financing non-cash activities:
Assumption of debt from Columbia/HCA.............................................................. $ 260.0 $ -
Elimination of intercompany amounts payable to Columbia/HCA....................................... $ 224.2 $ -
</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.
The accompanying unaudited condensed consolidated financial statements
include the operations of the Company for periods subsequent to May 11, 1999,
and the accompanying unaudited condensed combined financial statements include
the operations comprising the America's Group of Columbia/HCA Healthcare
Corporation for periods through May 11, 1999 and are based on historical amounts
included in the consolidated financial statements of Columbia/HCA.
At June 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 pushed 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 six months ended June 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 such financial statements. Therefore such
financial statements may not necessarily be indicative of the results of
6
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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.
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, 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.
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 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.
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
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
these matters could have a material adverse effect on the financial condition or
results of operations of the Company in future periods.
7
<PAGE>
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 that, in connection with the pending governmental
investigations, it will participate with Columbia/HCA in negotiating with the
government one or more compliance agreements setting forth each of their
respective agreements 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 $16.7 million at June 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
8
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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 $14.0 million for the six months ended June 30, 1998.
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, a $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
At the time of the Distribution, $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. 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 as of July 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, LIBOR plus 3.00% for the $25 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 8.4% at June 30, 1999. The Company also
pays a commitment fee on the unused portion of the revolving credit facility
equal to 0.5% of the average daily amount available under the revolving credit
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
9
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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. Substantially all of the Subsidiary Guarantors are wholly-owned and
fully and unconditionally guarantee 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.
Two of the Company's consolidating subsidiaries are non-wholly owned
limited partnerships, the guarantees of which are currently limited. These
limitations will no longer be applicable once the relevant partnership agreement
of these guarantors have been modified to eliminate such limitations. Until such
time, Columbia/HCA has guaranteed the Notes in an amount equal to the difference
between the amount that would have been recovered under the note guarantees of
all the guarantors without giving effect to these limitations and the amount
recovered under the note guarantees of all guarantors after giving effect to
these limitations. The Columbia/HCA guarantee will be released with respect to
each such guarantor when the relevant limitation is eliminated or the
guarantor's guarantee is released. Columbia/HCA is required to periodically file
separate financial statements with the Securities and Exchange Commission.
Separate financial statements of the non-wholly owned Subsidiary Guarantors
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 Guarantors (dollars in millions):
As of and for
the six months ended
June 30, 1999
<TABLE>
<S> <C>
Summarized Balance Sheet:
Current assets..................................... $ 9.5
Non-current assets................................. 15.4
-----
Total assets.................................. $24.9
=====
Current liabilities................................ $ 5.0
Non Current liabilities............................ 24.5
Equity (deficit)................................... (4.6)
-----
Total liabilities and equity.................. $24.9
=====
Summarized Statement of Income:
Net revenues....................................... $26.0
Income from continuing operations.................. $ 0.9
Net income......................................... $ 0.9
</TABLE>
Non-current liabilities shown above include intercompany payables of $20.6
million and minority interests of $3.9 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.
10
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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 options, stock appreciation rights and other stock based awards
to officers and employees of the Company. As of June 30, 1999, 549,854 stock
options have been granted under this plan, at varying prices, in respect of pre-
existing Columbia/HCA options. In addition, 3,027,000 stock options were granted
under this plan, with the exercise price of such options based on the closing
price of the Company's stock on the day preceding the date of grant. Also,
750,000 options have been granted under this plan to participants in the
Executive Stock Purchase Plan, as described below.
The Executive Stock Purchase Plan, for which 1,000,000 shares of the
Company's common stock were reserved for issuance, grants a right to purchase
shares of common stock from the Company to specified executives. The Company
will loan each participant in the plan 100% of the purchase price of the
Company's common stock, on a full recourse basis, to the extent the participant
does not elect to pay the purchase price in cash. The principal and interest of
the loans will mature on the earlier of the fifth anniversary following the
purchase of the shares, termination of the participants' employment or
bankruptcy of the participant. As of June 30, 1999, $10.2 million had been
loaned to participants for the purchase of 1,000,000 shares. The loans bear
interest at a rate ranging from 5.15% to 5.30% and are included 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 under the Executive Stock Purchase Plan. As of
June 30, 1999, options to purchase 750,000 shares had been issued at an exercise
price equal to the purchase price of the shares which ranged from $9.75 to
$10.8125.
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).
11
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Shares will be allocated ratably to employee accounts over the next 10 years
beginning December 31, 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. Compensation 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.
In addition, the Company adopted various other plans for which 425,000
shares of the Company's common stock have been reserved for issuance. As of June
30, 1999, 19,976 options have been granted under such plans to non-employee
directors, with the exercise price of such options based on the closing price of
the Company's stock on the day preceding the date of grant.
12
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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.
At June 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
13
<PAGE>
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".
Results of Operations
Revenue/Volume Trends
The Company has experienced an increase in revenues and volume growth for
the six months ended June 30, 1999. However, the Company's revenues per
equivalent admission decreased for the six months ended June 30, 1999 compared
to 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 six
months ended June 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
89.1% and 87.7% of total admissions for the six months ended June 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 will 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 the second quarter of
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. The Company's net outpatient
revenues as a percentage of net patient revenues remained constant at 45.8% for
the six months ended June 30, 1999 and 1998.
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<PAGE>
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.
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 and to decrease the level of
discount arrangements in which the Company participates.
15
<PAGE>
Operating Results Summary
The following is a summary of results from continuing operations for the
three months and six months ended June 30, 1999 and 1998 (dollars in millions):
<TABLE>
<CAPTION>
Three Months ended June 30,
---------------------------
1999 1998
---- ----
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Revenues........................................................... $ 128.2 100.0% $ 124.4 100.0%
Salaries & Benefits................................................ 55.8 43.5 54.7 43.9
Supplies........................................................... 15.6 12.2 14.6 11.7
Other operating expenses........................................... 30.1 23.5 28.6 23.0
Provision for doubtful accounts.................................... 9.1 7.1 9.4 7.6
Depreciation & amortization........................................ 7.9 6.1 6.4 5.1
Interest expense................................................... 6.0 4.7 4.8 3.9
Management fees allocated from Columbia/HCA........................ 0.8 0.6 2.2 1.8
ESOP expense....................................................... 0.5 0.4 - -
------- ----- ------- -----
125.8 98.1 120.7 97.0
Income from continuing operations before minority interests
and income taxes................................................. 2.4 1.9 3.7 3.0
Minority interests in earnings of consolidated entities............ 0.6 0.5 0.3 0.3
------- ----- ------- -----
Income from continuing operations before income taxes.............. 1.8 1.4 3.4 2.7
Provision for income taxes......................................... 0.8 0.6 1.4 1.1
------- ----- ------- -----
Income from continuing operations.................................. $ 1.0 0.8 $ 2.0 1.6
======= ===== ======= =====
% changes from prior year:
Revenues........................................................... 3.0%
Income from continuing operations before income taxes.............. (44.9)
Income from continuing operations.................................. (46.7)
Admissions (a)..................................................... 2.6
Equivalent admissions (b).......................................... 1.8
Revenues par equivalent admission.................................. 1.2
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Six Months ended June 30,
---------------------------
1999 1998
---- ----
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Revenues........................................................... $ 262.4 100.0% $ 254.4 100.0%
Salaries & Benefits................................................ 112.9 43.0 109.7 43.1
Supplies........................................................... 32.0 12.2 30.6 12.0
Other operating expenses........................................... 58.6 22.3 57.9 22.8
Provision for doubtful accounts.................................... 19.4 7.4 19.3 7.6
Depreciation & amortization........................................ 15.4 5.9 13.0 5.1
Interest expense................................................... 10.7 4.1 9.4 3.7
Management fees allocated from Columbia/HCA........................ 3.2 1.2 4.5 1.8
ESOP expense....................................................... 0.5 0.2 - -
------- ----- ------- -----
252.7 96.3 244.4 96.1
------- ----- ------- -----
Income from continuing operations before minority interests
and income taxes................................................ 9.7 3.7 10.0 3.9
Minority interests in earnings of consolidated entities............ 1.0 0.4 0.9 0.3
------- ----- ------- -----
Income from continuing operations before income taxes.............. 8.7 3.3 9.1 3.6
Provision for income taxes......................................... 3.7 1.4 3.7 1.5
------- ----- ------- -----
Income from continuing operations.................................. $ 5.0 1.9 $ 5.4 2.1
======= ===== ======= =====
% changes from prior year:
Revenues........................................................... 3.1%
Income from continuing operations before income taxes.............. (4.3)
Income from continuing operations.................................. (7.5)
Admissions (a)..................................................... 5.0
Equivalent admissions (b).......................................... 5.0
Revenues per equivalent admission.................................. (1.8)
</TABLE>
(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 June 30, 1999 and 1998
Revenues increased 3.0% to $128.2 million for the three months ended June
30, 1999 compared to $124.4 million for the three months ended June 30, 1998
primarily resulting from increases in volumes and revenues per equivalent
17
<PAGE>
admission. Inpatient admissions increased 2.6%, equivalent admissions (adjusted
to reflect combined inpatient and outpatient volume) increased 1.8% and revenues
per equivalent admission increased 1.2% for the three months ended June 30, 1999
compared to the three months ended June 30, 1998. The increase in revenues per
equivalent admission was due to several factors, including increases in
procedures that require higher intensity of service (surgical procedures
increased approximately 3.0% over the same period in the prior year) which
typically result in higher revenues per procedure. The increase was partially
offset by 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 June 30, 1999 compared
to the three months ended June 30, 1998). In addition, the increase in revenues
per equivalent admission was partially offset by favorable cost report
adjustments of $0.4 million recorded during the three months ended June 30,
1998.
Salaries and benefits, as a percentage of revenues, decreased to 43.5% for
the three months ended June 30, 1999 from 43.9% for the three months ended June
30, 1998. The decrease was primarily due to improvements in productivity (man-
hours per equivalent admission decreased 6.5% over the same period in the prior
year) as well as an increase in revenues per equivalent admission.
Supply costs increased to 12.2% as a percentage of revenues for the three
months ended June 30, 1999 from 11.7% for the three months ended June 30, 1998
primarily due to an increase in the cost of supplies per equivalent admission.
Other operating expenses increased as a percentage of revenues to 23.5% for
the three months ended June 30, 1999 from 23.0% for the three months ended June
30, 1998. Other operating expenses consist primarily of contract services,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance, marketing and non-income taxes. The increase was primarily due to an
increase in corporate and miscellaneous other operating expenses related to the
establishment of the Company's corporate office.
Provision for doubtful accounts, as a percentage of revenues, decreased to
7.1% for the three months ended June 30, 1999 from 7.6% for the three months
ended June 30, 1998. 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. For the three months ended June 30, 1999, the Company began to
recover from the conversions and collect on the accounts that were not billed
timely.
Depreciation and amortization expense increased to $7.9 million for the
three months ended June 30, 1999 from $6.4 million for the three months ended
June 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 $6.0 million for the three months ended June
30, 1999 from $4.8 million for the three months ended June 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 June 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 $0.8 million for the three
months ended June 30, 1999 and $2.2 million for the three months ended June 30,
1998. These amounts represent allocations, using revenues as the allocation
18
<PAGE>
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.
Minority interests increased as a percentage of revenues to 0.5% for the
three months ended June 30, 1999 from 0.3% for the three months ended June 30,
1998 primarily due to increased profitability from the Company's joint venture
partnerships.
Income from continuing operations before income taxes decreased 44.9% to
$1.8 million for the three months ended June 30, 1999 from $3.4 million for the
three months ended June 30, 1998 primarily due to increases in certain expenses
as described above, and expense related to the newly established Employee Stock
Ownership Plan ("ESOP") as discussed in Note 5 of the Notes to the Condensed
Consolidated Financial Statements.
Net income decreased to $1.0 million for the three months ended June 30,
1999 compared to $1.5 million for the three months ended June 30, 1998. For the
three months ended June 30, 1998, the Company incurred a $0.5 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 Six Months Ended June 30, 1999 and 1998
Revenues increased 3.1% to $262.4 million for the six months ended June 30,
1999 compared to $254.4 million for the six months ended June 30, 1998 primarily
resulting from an increase in volume. Inpatient admissions and equivalent
admissions (adjusted to reflect combined inpatient and outpatient volume)
increased 5.0% for the six months ended June 30, 1999 compared to the six months
ended June 30, 1998. Revenues per equivalent admission decreased 1.8% for the
six months ended June 30, 1999 compared to the six months ended June 30, 1998.
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 $3.4 million for the six months ended June 30, 1999 compared to
the six months ended June 30, 1998), increases in discounts from the growing
number of managed care payers (managed care as a percentage of total admissions
increased to 19.2% for the six months ended June 30, 1999 compared to 18.6% for
the six months ended June 30, 1998) and delays experienced in obtaining Medicare
cost report settlements (cost report filings and settlements resulted in
favorable revenue adjustments of $0.4 million for the six months ended June 30,
1999 compared to favorable adjustments of $1.3 million for the six months ended
June 30, 1998).
Salaries and benefits remained relatively unchanged as a percentage of
revenues from the prior year.
Supply costs increased slightly to 12.2% as a percentage of revenues for
the six months ended June 30, 1999 from 12.0% for the six months ended June 30,
1998.
Other operating expenses decreased as a percentage of revenues to 22.3% for
the six months ended June 30, 1999 from 22.8% for the six months ended June 30,
1998. Other operating expenses consist primarily of contract services,
professional fees, repairs and maintenance, rents and leases, utilities,
19
<PAGE>
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
7.4% for the six months ended June 30, 1999 from 7.6% for the six months ended
June 30, 1998. 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. For the six months ended June 30, 1999, the Company began to recover
from the conversions and collect on the accounts that were not billed timely.
Depreciation and amortization expense increased to $15.4 million for the
six months ended June 30, 1999 from $13.0 million for the six months ended June
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 $10.7 million for the six months ended June
30, 1999 from $9.4 million for the six months ended June 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 six months ended June 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 six
months ended June 30, 1999 and $4.5 million for the six months ended June 30,
1998. These amounts represent 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.
Minority interests increased slightly as a percentage of revenues to 0.4%
for the six months ended June 30, 1999 from 0.3% for the six months ended June
30, 1998.
Income from continuing operations before income taxes decreased 4.3% to
$8.7 million for the six months ended June 30, 1999 from $9.1 million for the
six months ended June 30, 1998 primarily due to increases in certain expenses as
described above, and expense related to the newly established ESOP as discussed
in Note 5 of the Notes to the Condensed Consolidated Financial Statements.
Net income increased to $5.0 million for the six months ended June 30, 1999
compared to $3.1 million for the six months ended June 30, 1998. For the six
months ended June 30, 1998, the Company incurred a $2.3 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.
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 has entered into its own bank borrowing arrangements. At
June 30, 1999, the Company had working capital of $63.4 million compared to
$26.9 million at December 31, 1998. The increase in working capital was
primarily due to
20
<PAGE>
a $15.5 million increase in cash from December 31, 1998 resulting from cash
collections since the Distribution. In addition, accounts receivable increased
approximately $22.5 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.
Cash provided by operating activities was $20.4 million for the six months
ended June 30, 1999 compared to $21.2 million for the six months ended June 30,
1998.
Cash used in investing activities was $28.6 million for the six months
ended June 30, 1999 compared to $22.2 million for the six months ended June 30,
1998. The increase was primarily due to capital expenditures of $28.8 million
during the six months ended June 30, 1999 compared to $15.4 million for the six
months ended June 30, 1998. Management believes that its capital expenditure
program is adequate to expand, improve and equip the Company's existing health
care facilities. At June 30, 1999, there were projects under construction which
had an estimated cost to complete and equip over the next nine months of
approximately $45.5 million (including construction costs of a replacement
hospital located in Florida with an estimated project cost of approximately
$33.0 million of which $12.9 million has been spent as of June 30, 1999).
Cash provided by financing activities was $23.7 million for the six months
ended June 30, 1999 compared to $1.0 million for the six months ended June 30,
1998. The increase was primarily due to the elimination of the intercompany
amounts payable by the Company to Columbia/HCA as a result of 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.
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.
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, a $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
At the time of the Distribution, $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. The final
payment under this term loan facility is due November 11, 2004.
21
<PAGE>
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 as of July 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, LIBOR plus 3.00% for the $25 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 8.4% at June 30, 1999. The Company also
pays a commitment fee on the unused portion of the revolving credit facility
equal to 0.5% of the average daily amount available under the revolving credit
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.
22
<PAGE>
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, 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 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.
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 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
23
<PAGE>
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 litigation's 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 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 that, in connection with the pending governmental
investigations, it will participate with Columbia/HCA in negotiating with the
government one or more compliance agreements setting forth each of their
agreements 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.
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
24
<PAGE>
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 its ongoing program to inspect medical
equipment at the Company's facilities for Year 2000 readiness. 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.
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-
25
<PAGE>
to-day operations) and has developed testing and implementation plans with
separate time lines. Columbia/HCA has completed and placed into production 99%
of software applications. 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. The Company and Columbia/HCA anticipate completion, in all material
respects, of the IT infrastructure portion of the program by September 30,1999.
The IT infrastructure portion of Columbia/HCA's Year 2000 project is currently
on schedule in all material respects.
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 by September 30, 1999. The non-IT infrastructure portion
of Columbia/HCA's Year 2000 project is currently on schedule in all material
respects.
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.
26
<PAGE>
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
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
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. 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 possible payment delays from the Company's payers.
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 $0.4 million of expenses in
the first six 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.
27
<PAGE>
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 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.
28
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Operating Data
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Number of hospitals in operations at:
March 31 .................................................................................... 23 23
June 30 ..................................................................................... 23 23
September 30 ................................................................................ 23
December 31 ................................................................................. 23
Licensed hospitals beds at (a):
March 31 .................................................................................... 2,169 2,136
June 30 ..................................................................................... 2,169 2,113
September 30 ................................................................................ 2,112
December 31 ................................................................................. 2,169
Weighted average licensed beds (b):
Quarter:
First........................................................................................ 2,169 2,136
Second....................................................................................... 2,169 2,128
Third........................................................................................ 2,113
Fourth....................................................................................... 2,131
Year........................................................................................... 2,127
Average daily census (c):
Quarter:
First........................................................................................ 863 853
Second....................................................................................... 714 695
Third........................................................................................ 699
Fourth....................................................................................... 725
Year........................................................................................... 742
Admissions (d):
Quarter:
First....................................................................................... 18,051 16,842
Second...................................................................................... 15,335 14,940
Third....................................................................................... 14,832
Fourth...................................................................................... 15,655
Year........................................................................................... 62,269
Equivalent Admissions (e):
Quarter:
First....................................................................................... 30,741 28,412
Second...................................................................................... 27,651 27,175
Third....................................................................................... 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....................................................................................... 4.3
Fourth...................................................................................... 4.3
Year........................................................................................... 4.4
</TABLE>
29
<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.
30
<PAGE>
Part II. Other Information
- ---------------------------
Item 5: Other Information
(a) Unaudited Pro Forma Financial Statements as of and for the three
months and six months ended June 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 six months ended June 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 June 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.
31
<PAGE>
<TABLE>
<CAPTION>
LIFEPOINT HOSPITALS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(Dollars in millions, except per share amounts)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues........................................................ $ 128.2 $ (11.2) (a) $ 117.0
Salaries and benefits........................................... 55.8 (5.4) (a) 49.3
0.2 (c)
(1.3) (b)
Supplies........................................................ 15.6 (1.6) (a) 14.0
Other operating expenses........................................ 30.1 (3.0) (a) 27.2
0.1 (c)
Provision for doubtful accounts................................. 9.1 (0.8) (a) 8.3
Depreciation and amortization................................... 7.9 (1.0) (a) 6.9
Interest expense................................................ 6.0 (0.7) (a) 6.7
1.4 (d)
Management fees allocated from Columbia/HCA..................... 0.8 (0.8) (a) -
ESOP expense.................................................... 0.5 0.3 (b) 0.8
---------- ----------- ---------
125.8 (12.6) 113.2
---------- ----------- ---------
Income from continuing operations before minority interests
and income taxes............................................. 2.4 1.4 3.8
Minority interests in earnings of consolidated entities......... 0.6 - 0.6
---------- ----------- ---------
Income from continuing operations before income taxes........... 1.8 1.4 3.2
Provision for income taxes...................................... 0.8 0.5 (e) 1.3
---------- ----------- ---------
Income from continuing operations............................... $ 1.0 $ 0.9 $ 1.9
========== =========== =========
Basic and diluted earnings per share............................ $ 0.04 $ 0.02 $ 0.06
========== =========== =========
Shares used in earnings per share calculations (000s):
Basic........................................................ 30,198 30,198 30,198
Dilutive securities - stock options..................... 250 250 250
---------- ----------- ---------
Diluted...................................................... 30,448 30,448 30,448
========== =========== =========
</TABLE>
See accompanying notes
32
<PAGE>
<TABLE>
<CAPTION>
LIFEPOINT HOSPITALS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Dollars in millions, except per share amounts)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues ................................................... $ 262.4 $ (24.1) (a) $ 238.3
Salaries and benefits ...................................... 112.9 (11.2) (a) 99.9
0.9 (c)
(2.7) (b)
Supplies ................................................... 32.0 (3.3) (a) 28.8
0.1 (c)
Other operating expenses ................................... 58.6 (5.8) (a) 54.1
1.3 (c)
Provision for doubtful accounts ........................... 19.4 (2.8) (a) 16.6
Depreciation and amortization ............................. 15.4 (1.8) (a) 13.6
Interest expense .......................................... 10.7 (2.3) (a) 13.3
4.9 (d)
Management fees allocated from Columbia/HCA ............... 3.2 (1.6) (a) -
(1.6) (c)
ESOP expense .............................................. 0.5 1.0 (b) 1.5
------- -------- -------
252.7 (24.9) 227.8
------- -------- -------
Income from continuing operations before minority interests
and income taxes........................................ 9.7 0.8 10.5
Minority interests in earnings of consolidated entities .... 1.0 - 1.0
------- -------- -------
Income from continuing operations before income taxes ...... 8.7 0.8 9.5
Provision for income taxes ................................. 3.7 0.3 (e) 4.0
------- -------- -------
Income from continuing operations .......................... $ 5.0 $ 0.5 $ 5.5
======= ======== =======
Basic and diluted earnings per share ....................... $ 0.17 $ 0.01 $ 0.18
======= ======== =======
Shares used in earnings per share calculations (000s):
Basic.................................................... 30,049 30,049 30,049
Dilutive securities - stock options................. 259 259 259
------- -------- -------
Diluted.................................................. 30,308 30,308 30,308
======= ======== =======
</TABLE>
See accompanying notes.
33
<PAGE>
<TABLE>
<CAPTION>
LIFEPOINT HOSPITALS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(Dollars in millions, except per share amounts)
Pro Forma
ASSETS Historical Adjustments Pro Forma
------ ---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 15.5 $ (0.2) (a) $ 15.3
Accounts receivable, net ................................................ 58.9 (7.4) (a) 51.5
Inventories............................................................... 14.0 (1.9) (a) 12.1
Deferred taxes and other current assets................................... 28.0 (1.3) (a) 26.7
--------- ------ -------
116.4 (10.8) 105.6
Property and equipment, at cost ............................................. 467.4 (31.0) (a) 436.4
Accumulated depreciation .................................................... (183.1) 12.5 (a) (170.6)
--------- ------ -------
284.3 (18.5) 265.8
Intangible assets, net ...................................................... 23.7 (0.4) (a) 23.3
Other ....................................................................... 4.2 (4.0) (a) 0.2
--------- ------ -------
$ 428.6 $(33.7) $ 394.9
========= ====== =======
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable.......................................................... $ 14.7 $ (1.2) (a) $ 13.5
Accrued salaries.......................................................... 15.5 (1.2) (a) 14.3
Other current liabilities................................................. 21.5 (1.0) (a) 20.5
Current maturities of long-term debt ..................................... 1.3 - 1.3
--------- ------ -------
53.0 (3.4) 49.6
Long-term debt .............................................................. 258.8 - 258.8
Deferred taxes .............................................................. 21.6 6.3 (a) 27.9
Professional liability risks and other liabilities .......................... 1.6 - 1.6
Minority interests in equity of consolidated entities ....................... 3.8 - 3.8
Stockholders' equity:
Preferred stock, par value $0.01 per share;
10,000,000 authorized shares; no shares issued.......................... - - -
Common stock, $0.01 par value; 90,000,000 shares authorized;
30,939,886 shares issued and outstanding at June 30, 1999............... 0.3 - 0.3
Capital in excess of par value............................................ 132.3 (39.4) (a) 92.9
Unearned ESOP shares...................................................... (31.7) - (31.7)
Notes receivable for shares sold to employees............................. (10.2) - (10.2)
Retained earnings (deficit)............................................... (0.9) 2.8 (a) 1.9
--------- ------ -------
89.8 (36.6) 53.2
--------- ------ -------
$ 428.6 $(33.7) $ 394.9
========= ====== =======
</TABLE>
See accompanying notes.
34
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(a) To eliminate the assets and liabilities as of June 30, 1999 and results of
operations for the three months and six months ended June 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 three months and six months
ended June 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 three months and six months ended June 30, 1999.
(d) To adjust interest expense to $6.7 million for the three months ended June
30, 1999 and $13.3 million for the six months ended June 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 9.7% and $0.4 million in amortization of the deferred loan
cost. The historical balance sheet as of June 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.
35
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) List of Exhibits:
Exhibit Number Description
- -------------- -----------
2.1 Distribution Agreement dated May 11, 1999 by and
among Columbia/HCA Healthcare Corporation, the
Company and Triad Hospitals, Inc. Incorporated by
reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.
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.
4.1 Rights Agreement dated as of May 11, 1999 between
the Company and National City Bank as Rights Agent.
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
4.2(a) 10 3/4% Senior Subordinated Notes due 2009
Indenture dated as of May 11, 1999 by and between
Healthtrust, Inc. - The Hospital Company and
Citibank N.A. as Trustee. Incorporated by reference
from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
4.2(b) Form of Senior Subordinated Note due 2009 (filed as
part of Exhibit 4.2(a)).
10.1 Tax Sharing and Indemnification Agreement dated
May 11, 1999 by and among Columbia/HCA Healthcare
Corporation, the Company and Triad Hospitals, Inc.
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
10.2 Benefits and Employment Matters Agreement dated
May 11, 1999 by and among Columbia/HCA Healthcare
Corporation, the Company and Triad Hospitals, Inc.
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
10.3 Insurance Allocation and Administration Agreement
dated May 11, 1999 by and among Columbia/HCA
Healthcare Corporation, the Company and Triad
Hospitals, Inc. Incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
10.4 Transitional Services Agreement dated May 11, 1999
by and between Columbia/HCA Healthcare Corporation
and the Company. Incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
10.5 Computer and Data Processing Services Agreement
dated May 11, 1999 by and between Columbia
Information Systems, Inc. and the Company.
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
36
<PAGE>
10.6 Agreement to Share Telecommunications Services
dated May 11, 1999 by and between Columbia
Information Systems, Inc. and the Company.
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
10.7 Year 2000 Professional Services Agreement dated
May 11, 1999 by and between CHCA Management
Services, L.P. and the Company. Incorporated by
reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.
10.8 Sub-Lease Agreement dated May 11, 1999 by and
between Healthtrust, Inc. - The Hospital Company
and the Company. Incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
10.9* LifePoint Hospitals, Inc. 1998 Long-Term Incentive
Plan. Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
10.10* LifePoint Hospitals, Inc. Executive Stock Purchase
Plan. Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
10.11* LifePoint Hospitals, Inc. Management Stock Purchase
Plan. Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.
10.12* LifePoint Hospitals, Inc. Outside Directors Stock
and Incentive Compensation Plan. Incorporated by
reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.
10.13 Credit Agreement dated as of May 11, 1999, among
Healthtrust, Inc. - The Hospital Company, as
Borrower, the Lenders from time to time parties
thereto, Fleet National Bank as Arranger, Fleet
National Bank, Deutsche Bank Securities, Inc. and
ScotiaBanc. Inc. as Co-Arrangers, ScotiaBanc, Inc.
as Documentation Agent, Deutsche Bank Securities
Inc. as Syndication Agent, SunTrust Bank,
Nashville, N.A. as Co-Agent and Fleet National Bank
as Administrative Agent. Incorporated by reference
from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
10.14 Assumption Agreement dated as of May 11, 1999 by
and between Fleet National Bank and the
Company. Incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
10.15 Assumption Agreement dated as of May 11, 1999 by
and between Fleet National Bank and LifePoint
Hospital Holdings, Inc. 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 June 30, 1999:
None.
- -------------------------------
* Compensatory plan or arrangement
37
<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: August 13, 1999 /s/Kenneth C. Donahey
-------------------------------------
Kenneth C. Donahey
Senior Vice President & Chief
Financial Officer
<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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,500
<SECURITIES> 0
<RECEIVABLES> 109,100
<ALLOWANCES> 50,200
<INVENTORY> 14,000
<CURRENT-ASSETS> 116,400
<PP&E> 467,400
<DEPRECIATION> 183,100
<TOTAL-ASSETS> 428,600
<CURRENT-LIABILITIES> 53,000
<BONDS> 258,800
0
0
<COMMON> 300
<OTHER-SE> 89,500
<TOTAL-LIABILITY-AND-EQUITY> 428,600
<SALES> 0
<TOTAL-REVENUES> 262,400
<CGS> 0
<TOTAL-COSTS> 144,900
<OTHER-EXPENSES> 58,600
<LOSS-PROVISION> 19,400
<INTEREST-EXPENSE> 10,700
<INCOME-PRETAX> 8,700
<INCOME-TAX> 3,700
<INCOME-CONTINUING> 5,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,000
<EPS-BASIC> 0.17<F1>
<EPS-DILUTED> 0.17<F2>
<FN>
<F1>EPS - Basic per SFAS No. 128
<F2>EPS - Diluted per SFAS No. 128
</FN>
</TABLE>
