<PAGE> 1
==============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
--------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-29818
------------------------------
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.)
103 Powell Court 37027
Brentwood, Tennessee (Zip Code)
(Address of principal executive offices)
(615) 372-8500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Commission file number 333-84755
--------------------------------
LifePoint Hospitals Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-2167869
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
103 Powell Court
Brentwood, Tennessee 37027
(Address of principal executive offices) (Zip Code)
(615) 372-8500
(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, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of October 31, 2000, the number of outstanding shares of Common
Stock of LifePoint Hospitals, Inc. was 32,253,336, and all of the shares of
Common Stock of LifePoint Hospitals Holdings, Inc. were owned by LifePoint
Hospitals, Inc.
================================================================================
<PAGE> 2
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 NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues ............................................... $ 145.3 $ 125.4 $ 414.6 $ 387.8
Salaries and benefits .................................. 58.1 52.2 168.2 165.1
Supplies ............................................... 17.1 15.7 50.1 47.7
Other operating expenses ............................... 30.6 28.8 88.8 87.4
Provision for doubtful accounts ........................ 12.5 10.7 31.4 30.1
Depreciation and amortization .......................... 8.5 7.9 25.3 23.3
Interest expense ....................................... 8.3 6.7 22.9 17.4
Management fees ........................................ -- -- -- 3.2
Gain on previously impaired assets ..................... (1.4) -- (1.4) --
ESOP expense ........................................... 2.0 1.2 4.4 1.7
------- ------- ------- -------
135.7 123.2 389.7 375.9
------- ------- ------- -------
Income before minority interests and
income taxes .......................................... 9.6 2.2 24.9 11.9
Minority interests in earnings of consolidated entities. 0.5 0.4 1.8 1.4
------- ------- ------- -------
Income before income taxes ............................. 9.1 1.8 23.1 10.5
Provision for income taxes ............................. 4.3 0.7 10.6 4.4
------- ------- ------- -------
Net income .......................................... $ 4.8 $ 1.1 $ 12.5 $ 6.1
======= ======= ======= =======
Earnings per share:
Basic ............................................... $ 0.15 $ 0.03 $ 0.40 $ 0.20
======= ======= ======= =======
Diluted ............................................. $ 0.14 $ 0.03 $ 0.38 $ 0.20
======= ======= ======= =======
Shares used in earnings per share calculations (000s):
Basic ............................................... 31,706 30,951 31,400 30,349
Dilutive securities - stock options ............. 1,624 63 1,231 194
------- ------- ------- -------
Diluted ............................................. 33,330 31,014 32,631 30,543
======= ======= ======= =======
</TABLE>
See accompanying notes.
1
<PAGE> 3
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
---------------------
Current assets:
Cash and cash equivalents ........................................ $ 20.3 $ 12.5
Accounts receivable, less allowance for doubtful accounts of $50.6
at September 30, 2000 and $50.3 at December 31, 1999 ............ 46.7 46.7
Inventories ...................................................... 13.8 14.3
Deferred taxes and other current assets .......................... 35.4 25.9
------- -------
116.2 99.4
Property and equipment, at cost:
Land ............................................................. 8.8 7.9
Buildings ........................................................ 243.1 204.1
Equipment ........................................................ 254.6 260.6
Construction in progress (estimated cost to complete and equip
after September 30, 2000 - $11.3) ............................... 3.2 20.2
------- -------
509.7 492.8
Accumulated depreciation ............................................ (190.1) (198.4)
------- -------
319.6 294.4
Intangible assets, net of accumulated amortization of $10.6 at
September 30, 2000 and $7.5 at December 31, 1999 ................. 54.6 26.4
Other ............................................................... 0.8 0.2
------- -------
$ 491.2 $ 420.4
======= =======
LIABILITIES AND EQUITY
------------------------
Current liabilities:
Accounts payable ................................................. $ 14.1 $ 26.5
Accrued salaries ................................................. 14.0 14.7
Other current liabilities ........................................ 21.4 12.9
Current maturities of long-term debt ............................. 10.2 3.1
------- -------
59.7 57.2
Long-term debt ...................................................... 281.1 257.1
Deferred taxes ...................................................... 25.0 12.5
Professional liability risks and other liabilities .................. 7.8 3.4
Minority interests in equity of consolidated entities ............... 4.1 4.5
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;
32,142,444 shares issued and outstanding at September 30, 2000
and 31,184,160 at December 31, 1999 ............................. 0.3 0.3
Capital in excess of par value ................................... 147.8 137.9
Unearned ESOP compensation ....................................... (26.5) (28.9)
Notes receivable for shares sold to employees .................... (7.2) (10.2)
Accumulated deficit .............................................. (0.9) (13.4)
------- -------
113.5 85.7
------- -------
$ 491.2 $ 420.4
======= =======
</TABLE>
See accompanying notes.
2
<PAGE> 4
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in millions)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 12.5 $ 6.1
Adjustments to reconcile net income to
net cash provided by operating activities:
ESOP expense ................................... 4.4 1.7
Provision for doubtful accounts ................ 31.4 30.1
Depreciation and amortization .................. 25.3 23.3
Amortization of deferred loan costs ............ 1.2 0.5
Deferred income taxes (benefit) ................ 13.3 (7.4)
Reserve for professional liability risk ........ 3.8 2.5
Gain on previously impaired assets ............. (1.4) --
Increase (decrease) in cash from operating
assets and liabilities, net of effects
from acquisitions and divestitures:
Accounts receivable ......................... (27.0) (25.8)
Inventories and other current assets ........ (1.8) (1.7)
Accounts payable and accrued expenses ....... (3.5) 11.8
Income taxes payable ........................ (2.8) 10.3
Other .......................................... 0.3 (1.2)
------- -------
Net cash provided by operating activities.... 55.7 50.2
Cash flows from investing activities:
Purchase of property and equipment, net ............ (23.3) (40.5)
Purchase of facilities ............................. (83.3) --
Proceeds from sale of facilities ................... 24.4 --
Other .............................................. (0.4) 0.3
------- -------
Net cash used in investing activities ....... (82.6) (40.2)
Cash flows from financing activities:
Increase (decrease) in long-term debt, net ......... 30.4 (0.4)
Increase in intercompany balances with HCA, net .... -- 23.1
Proceeds from issuance of common stock ............. 4.3 --
------- -------
Net cash provided by financing activities.... 34.7 22.7
Change in cash and cash equivalents .................... 7.8 32.7
Cash and cash equivalents at beginning of period ....... 12.5 --
------- -------
Cash and cash equivalents at end of period ............. $ 20.3 $ 32.7
======= =======
Interest payments ...................................... $ 17.7 $ 10.3
Income tax payments .................................... $ -- $ 6.1
Supplemental financing non-cash activities:
Assumption of debt from HCA ........................ $ -- $ 260.0
Elimination of intercompany amounts payable to HCA.. $ -- $ 219.8
</TABLE>
See accompanying notes.
3
<PAGE> 5
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
On May 11, 1999, HCA - The Healthcare Company ("HCA"), formerly
Columbia/HCA Healthcare Corporation, completed the spin-off of its operations
comprising the America Group to its shareholders by distributing all outstanding
shares of LifePoint Hospitals, Inc. (the "Distribution"). LifePoint Hospitals,
Inc., together with its subsidiaries, as appropriate, is hereinafter referred to
as the "Company" or "LifePoint". As a result of the Distribution, the Company
became an independent, publicly-traded company. Owners of HCA Common Stock
received one share of the Company's Common Stock for every 19 shares of HCA
Common Stock held which resulted in approximately 29.9 million shares of the
Company's Common Stock outstanding immediately after the Distribution.
At September 30, 2000, the Company was comprised of 21 general, acute
care hospitals and related health care entities. The entities are located in
non-urban areas in the states of Alabama, Florida, Kansas, Kentucky, Louisiana,
Tennessee, Utah and Wyoming.
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. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three months and nine
months ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
Certain estimates, assumptions and allocations were made in preparing
the unaudited condensed consolidated financial statements included herein.
Therefore such financial statements may not necessarily be indicative of the
results of operations, financial position or cash flows that would have existed
had the Company been a separate, independent company throughout all of the
periods presented.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was required to be adopted in years
beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
the effective date of SFAS No. 133 for one year. Management does not anticipate
that the adoption of the new statement will have a material effect on the
financial condition or results of operations of the Company.
NOTE 3 - ACQUISITIONS AND DIVESTITURES
Acquisitions
Effective July 1, 2000, the Company acquired Lander Valley Medical
Center in Lander, Wyoming for approximately $33.0 million; and, effective June
16, 2000, the Company acquired Putnam Community Medical Center in Palatka,
Florida for approximately $50.3 million. These acquisitions were accounted for
using the purchase method of accounting. The allocations of the purchase prices
were
4
<PAGE> 6
determined based on currently available information and are subject to further
refinement pending the final working capital settlements.
Divestitures
In September 2000, the Company signed a definitive agreement to sell
Springhill Medical Center in Springhill, Louisiana for approximately $5.0
million to $6.0 million. The transaction is scheduled to close during the fourth
quarter of 2000, subject to customary conditions.
Effective September 1, 2000, the Company sold Barrow Medical Center in
Winder, Georgia for approximately $2.2 million.
Effective August 1, 2000, the Company sold Riverview Medical Center in
Gonzales, Louisiana for approximately $20.8 million. The proceeds from the
transaction and the Company's available cash were used to pay down existing
borrowings under the Company's revolving credit facility.
Effective April 1, 2000, the Company sold Halstead Hospital in
Halstead, Kansas and effective February 1, 2000, the Company sold Trinity
Hospital in Erin, Tennessee.
Halstead Hospital, Trinity Hospital, and Barrow Medical Center were the
three hospitals previously held for sale by the Company. The Company recorded an
impairment of long-lived assets related to the hospitals held for sale in 1998
and an additional impairment in 1999.
During the three months ended September 30, 2000, the Company recorded
a $1.4 million pre-tax gain related to the favorable settlement on the sale of a
facility that was previously held for sale. The gain is recorded in the
accompanying condensed consolidated statement of income as gain on previously
impaired assets.
The operating results of the acquisitions and divestitures have been
consolidated in the accompanying condensed consolidated statements of income for
the periods subsequent to acquisition and for the periods prior to sale.
The following unaudited pro forma results of operations give effect to
the operations of the hospitals acquired and sold during the nine months ended
September 30, 2000 as if the respective transactions had occurred at the
beginning of the period presented (in millions, except per share data):
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
---------------------
2000 1999
------ ------
<S> <C> <C>
Revenues $424.4 $392.0
Net income $ 13.0 $ 9.0
Earnings per share:
Basic $ 0.41 $ 0.30
Diluted $ 0.40 $ 0.29
</TABLE>
The pro forma results of operations do not purport to represent what
the Company's results of operations would have been had such transactions in
fact occurred at the beginning of the periods presented or to project the
Company's results of operations in any future period.
5
<PAGE> 7
NOTE 4 - CONTINGENCIES
HCA Investigations, Litigation and Indemnification Rights
Based upon its review of public filings and statements made by HCA,
LifePoint's management understands that HCA is the subject of several federal
investigations into certain of its business practices, as well as governmental
investigations by various states. Any discussion contained in this report
regarding such matters is based solely upon such public filings and statements.
Management of LifePoint understands that HCA is cooperating in these
investigations and that HCA understands, through written notice and other means,
that it is a target in these investigations. Given the breadth of the ongoing
investigations, HCA expects subpoenas and investigative and prosecutorial
activity to occur in these and other jurisdictions in the future. HCA is the
subject of a formal order of investigation by the Securities and Exchange
Commission (the "Commission"). HCA understands that the Commission's
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
HCA employees guilty of conspiracy and making false statements on Medicare and
TRICARE cost reports for the years 1992 and 1993 and on a Medicaid cost report
for 1993. Both were found not guilty of obstructing a federal auditor. One other
employee was acquitted on all counts for which he had been charged and the jury
was unable to reach a verdict with respect to another employee. This employee
and the government executed an agreement to defer prosecution for 18 months
after which charges will be dismissed. The two convicted employees were
sentenced in December 1999 and both have appealed to the 11th Circuit.
HCA is a defendant in several qui tam actions, or actions under a state
statute brought by private parties on behalf of the United States of America,
which have been unsealed and served on HCA. The actions allege, in general, that
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 three times the amount of damages caused to the United States
by submission of any Medicare or Medicaid 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. The government has intervened in six qui tam actions against HCA. HCA
is aware of additional qui tam actions that remain under seal and believes that
there may be other sealed qui tam cases of which it is unaware.
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. Several derivative actions have been
filed in state court by certain purported stockholders of HCA against certain of
its current and former officers and directors alleging breach of fiduciary duty,
and failure to take reasonable steps to ensure that HCA did not engage in
illegal practices thereby exposing it to significant damages.
On May 18, 2000, HCA announced that it had reached an understanding
with the Civil Division of the Department of Justice to recommend an agreement
to settle, subject to certain conditions, the civil claims actions against HCA
relating to diagnosis related group coding, outpatient laboratory billing and
home health issues. The understanding with the Department of Justice would
require HCA to pay $745 million in compensation to the government, with interest
accruing immediately at a fixed rate of 6.5% per annum, and would reduce HCA's
existing letter of credit agreement with the government from $1 billion to $250
million at the time of the payment of the settlement. The settlement is subject
to approval by additional officials of the Department of Justice, other federal
agencies as well as state officials; execution of a corporate integrity
agreement; execution of definitive settlement documents; execution of agreements
to resolve all criminal investigations pending against HCA and court approval.
We are unable 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 will be commenced. In connection with the
Distribution, the Company entered into a Distribution Agreement with HCA. The
terms of the
6
<PAGE> 8
Distribution Agreement provide that HCA will indemnify the Company in respect of
any losses which it may incur as a result of the proceedings described above,
all of which the Company believes relate to periods prior to the Distribution.
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. HCA has further 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 HCA will make cash payments to the Company
based on an amount (if positive) equal to five times the excluded hospital's
1998 income from continuing operations before depreciation and amortization,
interest expense, management fees, impairment of long-lived assets, minority
interests and income taxes, as set forth on a schedule to the Distribution
Agreement, less the net proceeds of the sale or other disposition of the
excluded hospital. The Company has agreed with HCA that, in connection with the
pending governmental investigations, the Company will negotiate one or more
compliance agreements with the Office of the Inspector General ("OIG") setting
forth the Company's agreement to comply with applicable laws and regulations.
HCA is expected to enter into its own compliance agreement with the OIG that
will become effective when its settlement is final. If any of such indemnified
matters were successfully asserted against the Company, or any of its
facilities, and 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. HCA has not indemnified the
Company for losses relating to any acts, practices and omissions engaged in by
the Company after the Distribution, regardless of whether the Company is
indemnified for similar acts, practices and omissions occurring prior to the
date of the Distribution.
Management of LifePoint believes that the ongoing governmental
investigations and related media coverage may have had a negative effect on
HCA's results of operations (which include the Company for the periods prior to
the date of the Distribution which are presented herein). The extent to which
the Company may or may not continue to be affected by the ongoing investigations
of 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 Company's business, financial condition,
results of operations or prospects in future periods.
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. The Company has committed to advance amounts of approximately
$11.9 million at September 30, 2000. 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.
7
<PAGE> 9
Risks Associated with Liabilities of Acquired Businesses
The Company has acquired and plans to continue to acquire businesses
with prior operating histories. Acquired companies may have unknown or
contingent liabilities, including liabilities for failure to comply with health
care laws and regulations, such as billing and reimbursement, fraud and abuse
and similar anti-referral laws. The Company has from time to time identified
certain past practices of acquired companies that do not conform to its
standards. Although the Company institutes policies designed to conform such
practices to its standards following completion of acquisitions, there can be no
assurance that the Company will not become liable for past activities that may
later be asserted to be improper by private plaintiffs or government agencies.
Although the Company generally seeks to obtain indemnification from prospective
sellers covering such matters, there can be no assurance that any such matter
will be covered by indemnification, or if covered, that such indemnification
will be adequate to cover potential losses and fines.
NOTE 5 - LONG-TERM DEBT
In June 2000, the Company borrowed the remaining $35 million of its $60
million term loan facility and $30 million under its $65 million revolving
credit facility. The Company utilized this additional debt to fund acquisitions.
In August 2000, the Company paid down the revolving credit facility using the
Company's available cash and proceeds from the sale of Riverview Medical Center
(see Note 3). At September 30, 2000, no amounts were outstanding under the
revolving credit facility.
Senior Subordinated Notes
The Company's senior subordinated notes (the "Notes") are guaranteed
jointly and severally on a full and unconditional basis 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. The aggregate assets, liabilities, equity and earnings of the
Subsidiary Guarantors are substantially equivalent to the total assets,
liabilities, equity and earnings of the Company and its subsidiaries on a
consolidated basis.
Separate financial statements and other disclosures of the wholly owned
Subsidiary Guarantors are not presented because management believes that such
separate financial statements and disclosures would not provide additional
material information to investors.
As of May 11, 1999, two of the Subsidiary Guarantors were not wholly
owned and the guarantees of such non-wholly owned entities were limited. During
the fourth quarter of 1999, the Company acquired ownership of the remaining
interest in one such Subsidiary Guarantor, and the limitations on the guarantee
of such Subsidiary Guarantor, as well as the limitations on the guarantee of the
remaining non-wholly owned Subsidiary Guarantor, were eliminated. Therefore, at
September 30, 2000, only one of the Company's subsidiaries, Dodge City
Healthcare Group, L.P., was not wholly owned, although all assets, liabilities,
equity and earnings of this entity fully and unconditionally, jointly and
severally guarantee the Notes. The Company owns approximately 70% of the
partnership interests in this mostly owned Subsidiary Guarantor.
Presented below is summarized condensed unaudited consolidating
financial information for the Company and its subsidiaries as of and for the
nine months ended September 30, 2000 segregating the parent company, the issuer
of the Notes (LifePoint Hospitals Holdings, Inc.), the combined wholly owned
Subsidiary Guarantors, the mostly owned Subsidiary Guarantor and eliminations.
8
<PAGE> 10
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
WHOLLY MOSTLY
OWNED OWNED
ISSUER OF SUBSIDIARY SUBSIDIARY CONSOLIDATED
PARENT NOTES GUARANTORS GUARANTOR ELIMINATIONS TOTAL
------ ----- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ -- $ -- $390.5 $ 24.1 $ -- $414.6
Salaries and benefits ............. -- -- 160.4 7.8 -- 168.2
Supplies .......................... -- -- 47.0 3.1 -- 50.1
Other operating expenses .......... -- -- 85.3 3.5 -- 88.8
Provision for doubtful accounts ... -- -- 29.5 1.9 -- 31.4
Depreciation and amortization ..... -- -- 24.0 1.3 -- 25.3
Interest expense .................. -- 22.9 (0.3) 0.3 -- 22.9
Management fees ................... -- -- (0.5) 0.5 -- --
Gain on previously impaired assets. -- -- (1.4) -- -- (1.4)
ESOP expense ...................... -- -- 4.2 0.2 -- 4.4
Equity in earnings of affiliates... (12.5) (28.4) -- -- 40.9 --
------ ------ ------ ------ ------ ------
(12.5) (5.5) 348.2 18.6 40.9 389.7
------ ------ ------ ------ ------ ------
Income before minority interests
and income taxes ................ 12.5 5.5 42.3 5.5 (40.9) 24.9
Minority interests in earnings of
consolidated entities ........... -- 1.8 -- -- -- 1.8
------ ------ ------ ------ ------ ------
Income before income taxes ........ 12.5 3.7 42.3 5.5 (40.9) 23.1
Provision for income taxes ........ -- (8.8) 19.4 -- -- 10.6
------ ------ ------ ------ ------ ------
Net income ................... $ 12.5 $ 12.5 $ 22.9 $ 5.5 $(40.9) $ 12.5
====== ====== ====== ====== ====== ======
</TABLE>
9
<PAGE> 11
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
WHOLLY MOSTLY
OWNED OWNED
ISSUER OF SUBSIDIARY SUBSIDIARY CONSOLIDATED
PARENT NOTES GUARANTORS GUARANTOR ELIMINATIONS TOTAL
------ ------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------------------
Current assets:
Cash and cash equivalents .................... $ -- $ -- $ 20.3 $ -- $ -- $ 20.3
Accounts receivable, net ..................... -- -- 41.0 5.7 -- 46.7
Inventories .................................. -- -- 12.7 1.1 -- 13.8
Deferred taxes and other current assets ...... -- -- 35.3 0.1 -- 35.4
------ ------ ------ ------ ------- ------
-- -- 109.3 6.9 -- 116.2
Property and equipment, at cost:
Land ......................................... -- -- 8.5 0.3 -- 8.8
Buildings .................................... -- -- 233.2 9.9 -- 243.1
Equipment .................................... -- -- 244.2 10.4 -- 254.6
Construction in progress ..................... -- -- 3.2 -- -- 3.2
------ ------ ------ ------ ------- ------
-- -- 489.1 20.6 -- 509.7
Accumulated depreciation ......................... -- -- (177.9) (12.2) -- (190.1)
------ ------ ------ ------ ------- ------
-- -- 311.2 8.4 -- 319.6
Net investment in and advances to subsidiaries ... 113.5 402.7 -- -- (516.2) --
Intangible assets, net ........................... -- 9.4 34.9 10.3 -- 54.6
Other ............................................ -- -- 0.8 -- -- 0.8
------ ------ ------ ------ ------- ------
$113.5 $412.1 $456.2 $ 25.6 $(516.2) $491.2
====== ====== ====== ====== ======= ======
LIABILITIES AND EQUITY
------------------------
Current liabilities:
Accounts payable ............................. $ -- $ -- $ 13.7 $ 0.4 $ -- $ 14.1
Accrued salaries ............................. -- -- 14.0 -- -- 14.0
Other current liabilities .................... -- 6.8 14.2 0.4 -- 21.4
Current maturities of long-term debt ......... -- 10.0 0.2 -- -- 10.2
------ ------ ------ ------ ------- ------
-- 16.8 42.1 0.8 -- 59.7
Intercompany balances to affiliates .............. -- (3.4) (7.2) 10.6 -- --
Long-term debt ................................... -- 281.1 -- -- -- 281.1
Deferred income taxes ............................ -- -- 25.0 -- -- 25.0
Professional liability risks and other liabilities -- -- 7.8 -- -- 7.8
Minority interests in equity of consolidated
entities ..................................... -- 4.1 -- -- -- 4.1
Stockholders' equity ............................. 113.5 113.5 388.5 14.2 (516.2) 113.5
------ ------ ------ ------ ------- ------
$113.5 $412.1 $456.2 $ 25.6 $(516.2) $491.2
====== ====== ====== ====== ======= ======
</TABLE>
10
<PAGE> 12
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
WHOLLY MOSTLY
OWNED OWNED
ISSUER OF SUBSIDIARY SUBSIDIARY CONSOLIDATED
PARENT NOTES GUARANTORS GUARANTOR ELIMINATIONS TOTAL
------ ------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 12.5 $ 12.5 $ 22.9 $ 5.5 $ (40.9) $ 12.5
Adjustments to reconcile net income to net cash
provided by operating activities:
ESOP expense ..................................... -- -- 4.2 0.2 -- 4.4
Equity in earnings of affiliates ................. (12.5) (28.4) -- -- 40.9 --
Provision for doubtful accounts .................. -- -- 29.5 1.9 -- 31.4
Depreciation and amortization .................... -- -- 24.0 1.3 -- 25.3
Amortization of deferred loan costs .............. -- 1.2 -- -- -- 1.2
Deferred income taxes ............................ -- -- 13.3 -- -- 13.3
Reserve for professional liability risk .......... -- -- 3.8 -- -- 3.8
Gain on previously impaired assets ............... -- -- (1.4) -- -- (1.4)
Increase (decrease) in cash from operating assets
and liabilities, net of effects from acquisitions
and divestitures:
Accounts receivable ............................ -- -- (24.7) (2.3) -- (27.0)
Inventories and other current assets ........... -- -- (1.9) 0.1 -- (1.8)
Accounts payable and accrued expenses .......... -- 4.2 (7.6) (0.1) -- (3.5)
Income taxes payable ........................... -- -- (2.8) -- -- (2.8)
Other ............................................ -- (1.2) 1.5 -- -- 0.3
------- ------- ------- ------ ------- -------
Net cash provided by (used in) operating
activities .................................... -- (11.7) 60.8 6.6 -- 55.7
Cash flows from investing activities:
Purchase of property and equipment, net ............. -- -- (23.1) (0.2) -- (23.3)
Purchase of facilities .............................. -- -- (83.3) -- -- (83.3)
Proceeds from sale of facilities .................... -- -- 24.4 -- -- 24.4
Other ............................................... -- -- (0.4) -- -- (0.4)
------- ------- ------- ------ ------- -------
Net cash used in investing activities .......... -- -- (82.4) (0.2) -- (82.6)
Cash flows from financing activities:
Increase in long-term debt, net ..................... -- 31.1 -- -- -- 31.1
Distributions ....................................... -- -- 6.7 (6.7) -- --
Proceeds from issuance of common stock .............. -- -- 4.3 -- -- 4.3
Increase (decrease) in intercompany balances
with affiliates, net .............................. -- (19.4) 18.4 0.3 -- (0.7)
------- ------- ------- ------ ------- -------
Net cash provided by (used in)
financing activities .......................... -- 11.7 29.4 (6.4) -- 34.7
Change in cash and cash equivalents .................... -- -- 7.8 -- -- 7.8
Cash and cash equivalents at beginning of period ....... -- -- 12.5 -- -- 12.5
------- ------- ------- ------ ------- -------
Cash and cash equivalents at end of period ............. -- -- $ 20.3 -- -- $ 20.3
======= ======= ======= ====== ======= =======
</TABLE>
11
<PAGE> 13
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, HCA completed the Distribution. A description of the
Distribution is included in Note 1 of the Notes to the Condensed Consolidated
Financial Statements included elsewhere in this report.
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 Company's limited operating
history; (ii) the Company's substantial leverage; (iii) the concentration of the
Company's revenue in Kentucky and Tennessee; (iv) the Company's holding company
structure; (v) the highly competitive nature of the health care business,
including the competition to recruit general and specialized physicians; (vi)
the efforts of insurers, health care providers and others to contain health care
costs; (vii) possible changes in the Medicare and various Medicaid programs that
may further limit reimbursements to health care providers and insurers; (viii)
changes in federal, state or local regulation affecting the health care
industry; (ix) the possible enactment of federal or state health care reform;
(x) the ability to attract and retain qualified management and personnel,
including physicians, both general practitioners and specialists, consistent
with Company expectations and targets; (xi) uncertainty surrounding
Congressional efforts to amend The Balanced Budget Act of 1997, including
uncertainties following the national election held on November 7, 2000; (xii)
the ability to enter into, renegotiate and renew payor arrangements on
acceptable terms; (xiii) the availability and terms of capital to fund the
Company's business strategy; (xiv) implementation of the Company's business
strategy and development plans; (xv) the Company's continuing efforts to
monitor, maintain and comply with applicable laws, regulations, policies and
procedures including those required by the voluntary corporate integrity
agreement that the Company expects to enter into with the government; (xvi) the
ability to increase patient volumes and control the costs of providing services
and supply costs; (xvii) successful development or license, performance and use
of management information systems, including software for efficient claims
processing; (xviii) liabilities and other claims asserted against the Company,
including without limitation, liabilities for which the Company may be
indemnified by HCA; (xix) limitations placed on the Company by the tax ruling
received in connection with the Distribution, which limitations could restrict
the Company's ability to raise capital and implement its acquisition plans,
among other things; (xx) fluctuations in the market value of the Company's
Common Stock; (xxi) changes in accounting practices; (xxii) changes in general
economic conditions; and (xxiii) other risk factors. As a consequence, current
plans, anticipated actions and future financial condition and results may differ
from those expressed in any forward-looking statements made by or on behalf of
the Company. You are cautioned not to unduly rely on such forward-looking
statements when evaluating the information presented in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Results of Operations
Revenue/Volume Trends
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 because of the general aging of the population and the expansion of
state Medicaid programs. 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 90.3% of total admissions for the nine months
ended September 30, 2000 compared to 89.3% for the same period last year.
12
<PAGE> 14
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 payments received for a similar procedure performed in an inpatient
setting. 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.
Reductions in Medicare and Medicaid reimbursement, the increasing
percentage of the patient volume 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, among other things, 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's strategy in response to these challenges includes
delivering a broad range of quality health care services to patients through a
focus on physician recruitment, investing capital in the Company's existing
facilities and a continued focus on cost control. Since the formation of the
Company, 175 physicians have been recruited, of which approximately 55% are
specialists. Adding new physicians will help increase patient volumes, and
thereby, increase revenues. Continuing to add specialists will allow the Company
to grow by offering new services. In addition, the Company plans to invest
capital in its existing facilities in order to expand services and to maintain
efficiencies resulting from changes in technology.
Impact of Acquisitions and Divestitures
Acquisitions
Effective July 1, 2000, the Company acquired Lander Valley Medical
Center in Lander, Wyoming for approximately $33.0 million; and, effective June
16, 2000, the Company acquired Putnam Community Medical Center in Palatka,
Florida for approximately $50.3 million. These acquisitions were accounted for
using the purchase method of accounting. The allocations of the purchase prices
were determined based on currently available information and are subject to
further refinement pending the final working capital settlements.
Divestitures
In September 2000, the Company signed a definitive agreement to sell
Springhill Medical Center in Springhill, Louisiana for approximately $5.0
million to $6.0 million. The transaction is scheduled to close during the fourth
quarter of 2000, subject to customary conditions.
Effective September 1, 2000, the Company sold Barrow Medical Center in
Winder, Georgia for approximately $2.2 million.
Effective August 1, 2000, the Company sold Riverview Medical Center in
Gonzales, Louisiana for approximately $20.8 million. The proceeds from the
transaction and the Company's available cash were used to pay down existing
borrowings under the Company's revolving credit facility.
Effective April 1, 2000, the Company sold Halstead Hospital in
Halstead, Kansas and effective February 1, 2000, the Company sold Trinity
Hospital in Erin, Tennessee.
Halstead Hospital, Trinity Hospital, and Barrow Medical Center were the
three hospitals previously held for sale by the Company. The Company recorded an
impairment of long-lived assets related to the hospitals held for sale in 1998
and an additional impairment in 1999.
13
<PAGE> 15
During the three months ended September 30, 2000, the Company recorded
a $1.4 million pre-tax gain related to the favorable settlement on the sale of a
facility that was previously held for sale. The gain is recorded in the
accompanying condensed consolidated statement of income as gain on previously
impaired assets.
The operating results of the acquisitions and divestitures have been
consolidated in the accompanying condensed consolidated statements of income for
the periods subsequent to acquisition and for the periods prior to sale.
Due to the relatively small number of hospitals owned by the Company,
each hospital acquisition can materially affect the Company's overall operating
margin. Upon the acquisition of a hospital, the Company typically takes a number
of steps to lower operating costs. The impact of such actions may be offset by
other cost increases to expand services, strengthen medical staff and improve
market position. The benefits of these investments and of other activities to
improve operating margins generally do not occur immediately. Consequently, the
financial performance of a newly acquired hospital may adversely affect overall
operating margins in the short term. As the Company acquires additional
hospitals, this effect should be mitigated by the expanded financial base of
existing hospitals and the allocation of corporate overhead among a larger
number of hospitals.
14
<PAGE> 16
Operating Results Summary
The following is a summary of results of operations for the three
months and nine months ended September 30, 2000 and 1999 (dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2000 1999
---------------- ----------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
<S> <C> <C> <C> <C>
Revenues ............................. $145.3 100.0% $125.4 100.0%
Salaries & benefits .................. 58.1 40.1 52.2 41.7
Supplies ............................. 17.1 11.8 15.7 12.5
Other operating expenses ............. 30.6 20.9 28.8 23.0
Provision for doubtful accounts ...... 12.5 8.6 10.7 8.5
Depreciation & amortization .......... 8.5 5.9 7.9 6.4
Interest expense ..................... 8.3 5.7 6.7 5.3
Gain on previously impaired assets ... (1.4) (1.0) -- --
ESOP expense ......................... 2.0 1.4 1.2 0.9
------ ------ ------ ------
135.7 93.4 123.2 98.3
------ ------ ------ ------
Income before minority interests
and income taxes .................... 9.6 6.6 2.2 1.7
Minority interests in earnings of
consolidated entities ............... 0.5 0.3 0.4 0.3
------ ------ ------ ------
Income before income taxes ........... 9.1 6.3 1.8 1.4
Provision for income taxes ........... 4.3 3.0 0.7 0.6
------ ------ ------ ------
Net income ........................... $ 4.8 3.3% $ 1.1 0.8%
====== ====== ====== ======
% changes from prior year:
Revenues............................ 15.7%
Income before income taxes.......... 405.1
Net income.......................... 356.9
Admissions (a)...................... 11.3
Equivalent admissions (b)........... 10.9
Revenues per equivalent admission .. 4.4
Same hospital % changes from prior
year (c):
Revenues ........................... 9.6
Admissions (a) ..................... 3.8
Equivalent admissions (b)........... 7.8
Revenues per equivalent admission .. 1.6
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2000 1999
---------------- ----------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
<S> <C> <C> <C> <C>
Revenues ............................. $414.6 100.0% $387.8 100.0%
Salaries & benefits .................. 168.2 40.6 165.1 42.6
Supplies ............................. 50.1 12.1 47.7 12.3
Other operating expenses ............. 88.8 21.3 87.4 22.5
Provision for doubtful accounts ...... 31.4 7.6 30.1 7.8
Depreciation & amortization .......... 25.3 6.1 23.3 6.0
Interest expense ..................... 22.9 5.5 17.4 4.5
Management fees allocated from HCA ... -- -- 3.2 0.8
Gain on previously impaired assets ... (1.4) (0.3) -- --
ESOP expense ......................... 4.4 1.1 1.7 0.4
------ ------ ------ ------
389.7 94.0 375.9 96.9
------ ------ ------ ------
Income before minority interests
and income taxes .................... 24.9 6.0 11.9 3.1
Minority interests in earnings of
consolidated entities ............... 1.8 0.4 1.4 0.4
------ ------ ------ ------
Income before income taxes ........... 23.1 5.6 10.5 2.7
Provision for income taxes ........... 10.6 2.6 4.4 1.1
------ ------ ------ ------
Net income ........................... $ 12.5 3.0% $ 6.1 1.6%
====== ====== ====== ======
% changes from prior year:
Revenues............................ 6.9%
Income before income taxes.......... 120.6
Net income.......................... 105.4
Admissions (a)...................... 2.0
Equivalent admissions (b)........... 4.9
Revenues per equivalent admission... 1.9
Same hospital % changes from prior
year (c):
Revenues ........................... 8.2
Admissions (a) ..................... 2.7
Equivalent admissions (b) .......... 6.6
Revenues per equivalent admission .. 1.6
</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.
(c) Same hospital information excludes the operations of hospitals which
were either acquired or divested during the current and prior periods.
16
<PAGE> 18
For the Three Months Ended September 30, 2000 and 1999
Revenues increased 15.7% to $145.3 million for the three months ended
September 30, 2000 compared to $125.4 million for the three months ended
September 30, 1999. This increase is primarily attributable to a 9.6% increase
in same hospital revenue and the acquisition of two hospitals during fiscal
2000. The increase in revenues was partially offset by the sale of four
hospitals during fiscal 2000. The 9.6% increase in same hospital revenues was
primarily a result of a 3.8% increase in same hospital inpatient admissions and
a 7.8% increase in same hospital equivalent admissions (adjusted to reflect
combined inpatient and outpatient volume).
Revenues per equivalent admission increased 4.4% primarily due to the
acquisition of two hospitals in fiscal 2000 which have higher net revenues per
equivalent admission compared to the Company average. The higher net revenues
per equivalent admission at one of the acquired hospitals is primarily the
result of a low number of outpatient procedures performed at that hospital as
revenues earned on outpatient services are generally lower than inpatient
services. In addition, the higher net revenues per equivalent admission at the
other acquired hospital is primarily as a result of a lower percentage of net
revenues from managed care plans as compared to the Company average. The
increase in revenues per equivalent admission was partially offset by an
increase in outpatient revenues for the three months ended September 30, 2000
compared to the same period last year. Net outpatient revenues as a percentage
of net patient revenues were 49.5% for the three months ended September 30, 2000
compared to 48.9% for the same period last year.
The Company recorded favorable cost report adjustments of $1.3 million
for the three months ended September 30, 2000 compared to $0.3 million for the
three months ended September 30, 1999.
Salaries and benefits decreased as a percentage of revenues to 40.1%
for the three months ended September 30, 2000 from 41.7% for the three months
ended September 30, 1999 as a result of improvements in labor productivity and
an increase in revenues per equivalent admission, as discussed above. Man-hours
per equivalent admission decreased 4.2% over the same period last year.
Supply costs decreased as a percentage of revenues to 11.8% for the
three months ended September 30, 2000 from 12.5% for the three months ended
September 30, 1999 as a result of a 1.2% decrease in the cost of supplies per
equivalent admission which is primarily related to the Company's acquisitions in
fiscal 2000. The supply costs as a percentage of revenues at the acquired
facilities were lower than the Company average.
Other operating expenses decreased as a percentage of revenues to 20.9%
for the three months ended September 30, 2000 from 23.0% for the three months
ended September 30, 1999. Other operating expenses consist primarily of contract
services, physician recruitment, professional fees, repairs and maintenance,
rents and leases, utilities, insurance, marketing and non-income taxes. The
decrease was primarily the result of a decrease in professional fees and
contract services as a percentage of revenues.
Provision for doubtful accounts increased as a percentage of revenues
to 8.6% for the three months ended September 30, 2000 from 8.5% for the three
months ended September 30, 1999 primarily due to the effect of one of the
Company's acquisitions in fiscal 2000. The provision for doubtful accounts as a
percentage of revenues at this hospital is significantly higher than the Company
average.
Depreciation and amortization expense increased to $8.5 million for the
three months ended September 30, 2000 from $7.9 million for the three months
ended September 30, 1999 primarily due to the opening of a replacement facility
in Bartow, Florida in December 1999 and the acquisition of two hospitals in
fiscal 2000. This increase was partially offset by a decrease in depreciation
and amortization expense related to the sale of four hospitals in fiscal 2000.
17
<PAGE> 19
Interest expense increased to $8.3 million for the three months ended
September 30, 2000 from $6.7 million for the three months ended September 30,
1999. This increase is primarily due to the increased borrowings to finance
acquisitions and an increase in interest rates.
During the three months ended September 30, 2000, the Company recorded
a $1.4 million pre-tax gain related to the favorable settlement on the sale of a
facility that was previously held for sale. The gain is recorded in the
accompanying condensed consolidated statement of income as gain on previously
impaired assets.
ESOP expense increased to $2.0 million for the three months ended
September 30, 2000 from $1.2 million for the three months ended September 30,
1999, primarily as a result of a higher average fair market value of the
Company's Common Stock for the three months ended September 30, 2000 compared to
the same period last year. ESOP expense is recognized based on the average fair
market value of the shares committed to be released during the period.
Minority interests in earnings of consolidated entities increased
slightly to $0.5 million for the three months ended September 30, 2000 from $0.4
million for the three months ended September 30, 1999.
Income before income taxes increased to $9.1 million for the three
months ended September 30, 2000 compared to $1.8 million for the three months
ended September 30, 1999 primarily as a result of increases in revenues and
decreases in certain expenses as described above.
The provision for income taxes for the three months ended September 30,
2000 was $4.3 million compared to $0.7 million for the three months ended
September 30, 1999. These provisions reflect effective income tax rates of 47.5%
for 2000 compared to 42.0% for 1999. The increase in the effective rate is due
to the increase in the nondeductible portion of ESOP expense.
Net income increased to $4.8 million for the three months ended
September 30, 2000 compared to $1.1 million for the three months ended September
30, 1999.
For the Nine Months Ended September 30, 2000 and 1999
Revenues increased 6.9% to $414.6 million for the nine months ended
September 30, 2000 compared to $387.8 million for the nine months ended
September 30, 1999. This increase is primarily attributable to an 8.2% increase
in same hospital revenue and the acquisition of two hospitals during fiscal
2000. The increase in revenues was partially offset by the sale of four
hospitals during fiscal 2000. The 8.2% increase in same hospital revenues was
primarily a result of a 2.7% increase in same hospital inpatient admissions and
a 6.6% increase in same hospital equivalent admissions (adjusted to reflect
combined inpatient and outpatient volume).
Revenues per equivalent admission increased 1.9% primarily due to the
acquisition of two hospitals in fiscal 2000 which have a higher net revenues per
equivalent admission compared to the Company average. The higher net revenues
per equivalent admission at one of the acquired hospitals is primarily the
result of a low number of outpatient procedures performed at that hospital as
revenues from outpatient services are generally lower than inpatient services.
In addition, the higher net revenues per equivalent admission at the other
acquired hospital is primarily as a result of a lower percentage of net revenues
from managed care plans as compared to the Company average. The increase in
revenues per equivalent admission was partially offset by an increase in
outpatient revenues for the nine months ended September 30, 2000 compared to the
same period last year. Net outpatient revenues as a percentage of net patient
revenues were 48.9% for the nine months ended September 30, 2000 compared to
47.0% for the same period last year.
The Company recorded favorable cost report adjustments of $2.8 million
for the nine months ended September 30, 2000 compared to $0.7 million for the
nine months ended September 30, 1999.
18
<PAGE> 20
Salaries and benefits decreased as a percentage of revenues to 40.6%
for the nine months ended September 30, 2000 from 42.6% for the nine months
ended September 30, 1999 as a result of improvements in labor productivity and
an increase in revenues per equivalent admission, as discussed above. Man-hours
per equivalent admission decreased 4.9% over the same period last year.
Supply costs decreased as a percentage of revenues to 12.1% for the
nine months ended September 30, 2000 from 12.3% for the nine months ended
September 30, 1999. The decrease was related to the Company's acquisitions in
fiscal 2000. The supply costs as a percentage of revenues at the acquired
facilities were lower than the Company average.
Other operating expenses decreased as a percentage of revenues to 21.3%
for the nine months ended September 30, 2000 from 22.5% for the nine months
ended September 30, 1999. Other operating expenses consist primarily of contract
services, physician recruitment, professional fees, repairs and maintenance,
rents and leases, utilities, insurance, marketing and non-income taxes. The
decrease was primarily the result of a decrease in contract services as a
percentage of revenues.
Provision for doubtful accounts decreased as a percentage of revenues
to 7.6% for the nine months ended September 30, 2000 from 7.8% for the nine
months ended September 30, 1999 primarily due to increased collections of the
Company's accounts receivable.
Depreciation and amortization expense increased to $25.3 million for
the nine months ended September 30, 2000 from $23.3 million for the nine months
ended September 30, 1999 primarily due to the opening of a replacement facility
in Bartow, Florida in December 1999 and the acquisition of two hospitals in
fiscal 2000. This increase was partially offset by a decrease in depreciation
and amortization expense related to the sale of four hospitals in fiscal 2000.
Interest expense increased to $22.9 million for the nine months ended
September 30, 2000 from $17.4 million for the nine months ended September 30,
1999. This increase is primarily due to the interest expense incurred on the
debt obligations assumed from HCA as a result of the Distribution. The increase
is also due to the increased borrowings to finance acquisitions and an increase
in interest rates. For the nine months ended September 30, 1999, interest
expense was a combination of interest incurred on the net intercompany balance
with HCA and approximately four and a half months of interest expense on debt
obligations assumed from HCA.
Management fees incurred during 1999 represent fees allocated by HCA
prior to the Distribution. This amount represented allocations, using revenues
as the allocation basis, of the corporate, general and administrative expenses
of HCA.
During the nine months ended September 30, 2000, the Company recorded a
$1.4 million pre-tax gain related to the favorable settlement on the sale of a
facility that was previously held for sale. The gain is recorded in the
accompanying condensed consolidated statement of income as gain on previously
impaired assets.
ESOP expense increased to $4.4 million for the nine months ended
September 30, 2000 from $1.7 million for the nine months ended September 30,
1999. The ESOP was established in June 1999; therefore, only four months of
expense for the ESOP is reflected in the nine months ended September 30, 1999.
The increase in ESOP expense is also due to a higher average fair market value
of the Company's Common Stock for the nine months ended September 30, 2000
compared to the same period last year. ESOP expense is recognized based on the
average fair market value of the shares committed to be released during the
period.
Minority interests in earnings of consolidated entities increased
slightly to $1.8 million for the nine months ended September 30, 2000 from $1.4
million for the three months ended September 30, 1999.
19
<PAGE> 21
Income before income taxes increased to $23.1 million for the nine
months ended September 30, 2000 compared to $10.5 million for the nine months
ended September 30, 1999 primarily as a result of increases in revenues and
decreases in certain expenses as described above.
The provision for income taxes for the nine months ended September 30,
2000 was $10.6 million compared to $4.4 million for the nine months ended
September 30, 1999. These provisions reflect effective income tax rates of 46.0%
for 2000 and 42.0% for 1999. The increase in the effective rate is due to the
increase in the nondeductible portion of ESOP expense.
Net income increased to $12.5 million for the nine months ended
September 30, 2000 compared to $6.1 million for the nine months ended September
30, 1999.
20
<PAGE> 22
Pro Forma Operating Results Summary
The following is a summary of pro forma results for the three and nine
months ended September 30, 2000 and 1999 (dollars in millions, except per share
amounts). The pro forma results reflect the results of the Company's operations
as if the Distribution and the divestitures of the three facilities the
Company's management previously identified as held for sale had occurred at the
beginning of 1999.
<TABLE>
<CAPTION>
PRO FORMA COMPARISONS FOR THE
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2000 1999
---------------- ----------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
<S> <C> <C> <C> <C>
Revenues ............................ $142.0 100.0% $116.0 100.0%
Salaries & benefits ................. 56.9 40.1 47.7 41.2
Supplies ............................ 16.9 11.9 14.3 12.3
Other operating expenses ............ 29.8 21.0 26.0 22.3
Provision for doubtful accounts ..... 11.7 8.2 9.2 8.0
Depreciation & amortization ......... 8.3 5.8 7.1 6.1
Interest expense .................... 8.3 5.9 6.7 5.8
ESOP expense ........................ 2.0 1.4 1.2 1.0
------ ------ ------ ------
133.9 94.3 112.2 96.7
Income before minority interests
and income taxes .................. 8.1 5.7 3.8 3.3
Minority interests in earnings of
consolidated entities ............. 0.5 0.3 0.4 0.3
------ ------ ------ ------
Income before income taxes .......... 7.6 5.4 3.4 3.0
Provision for income taxes .......... 3.7 2.6 1.4 1.3
------ ------ ------ ------
Net income .......................... $ 3.9 2.8% $ 2.0 1.7%
====== ====== ====== ======
Earnings per share:
Basic ............................. $ 0.12 $ 0.07
Diluted ........................... $ 0.12 $ 0.07
% changes from prior year:
Revenues........................... 22.4%
Income before income taxes......... 118.6
Net income......................... 95.5
Admissions ........................ 18.3
Equivalent admissions ............. 17.4
Revenues per equivalent admission.. 4.3
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
PRO FORMA COMPARISONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2000 1999
---------------- ----------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
<S> <C> <C> <C> <C>
Revenues ............................ $400.2 100.0% $354.3 100.0%
Salaries & benefits ................. 161.3 40.3 147.6 41.7
Supplies ............................ 48.5 12.1 43.1 12.2
Other operating expenses ............ 84.8 21.1 80.1 22.5
Provision for doubtful accounts ..... 28.6 7.2 25.8 7.3
Depreciation & amortization ......... 24.1 6.1 20.7 5.8
Interest expense .................... 22.9 5.7 20.0 5.7
ESOP expense ........................ 4.4 1.1 2.7 0.8
------ ------ ------ ------
374.6 93.6 340.0 96.0
Income before minority interests
and income taxes ................... 25.6 6.4 14.3 4.0
Minority interests in earnings of
consolidated entities .............. 1.7 0.4 1.4 0.3
------ ------ ------ ------
Income before income taxes .......... 23.9 6.0 12.9 3.7
Provision for income taxes .......... 11.0 2.8 5.4 1.6
------ ------ ------ ------
Net income .......................... $ 12.9 3.2% $ 7.5 2.1%
====== ====== ====== ======
Earnings per share:
Basic ............................. $ 0.41 $ 0.25
Diluted ........................... $ 0.40 $ 0.25
% changes from prior year:
Revenues........................... 13.0%
Income before income taxes......... 84.6
Net income......................... 71.9
Admissions ........................ 7.9
Equivalent admissions ............. 10.2
Revenues per equivalent admission . 2.5
</TABLE>
For the three months and nine months ended September 30, 2000 and the three
months ended September 30, 1999, the only pro forma adjustment is to eliminate
the historical results of operations for the three facilities which the
Company's management previously identified as held for sale. One of the three
facilities was sold effective February 1, 2000, one was sold effective April 1,
2000 and the last was sold effective September 1, 2000. See Note 3 of the Notes
to the Condensed Consolidated Financial Statements.
For the nine months ended September 30, 1999, the pro forma results
reflect the following adjustments at the beginning of the period:
(1) To eliminate the results of operations for the three facilities which
the Company's management previously identified as held for sale.
(2) To adjust historical retirement plan expense recorded as a component of
salaries and wages and record the Company's estimated Employee Stock
Ownership Plan expense.
(3) 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 fee allocated
from HCA.
22
<PAGE> 24
(4) To adjust interest expense for the elimination of all intercompany
amounts payable by the Company to HCA and the assumption of certain
indebtedness from HCA.
(5) To adjust the income tax provision for the estimated impact of the pro
forma adjustments.
Pro Forma Comparisons of the Three Months Ended September 30, 2000 and 1999
The following discussion compares the results of the three months ended
September 30, 2000 to the results of the three months ended September 30, 1999,
in each case giving effect to the adjustments set forth above.
On a pro forma basis, revenues increased 22.4% to $142.0 million for
the three months ended September 30, 2000 compared to $116.0 million for the
three months ended September 30, 1999. Of the 22.4% increase, 15.3% was due to
the two acquisitions during fiscal 2000. The remaining increase is primarily a
result of increases in the volume of patients treated at the Company's
facilities. Inpatient admissions increased 18.3%, equivalent admissions
(adjusted to reflect combined inpatient and outpatient volume) increased 17.4%
and revenues per equivalent admission increased 4.3% for the three months ended
September 30, 2000 compared to the three months ended September 30, 1999. The
increase in revenues was partially offset by the sale of one hospital during the
three months ended September 30, 2000. The increase in revenues per equivalent
admission of 4.3% was primarily due to the acquisition of two hospitals in
fiscal 2000 which have higher net revenues per equivalent admission compared to
the Company average. The higher net revenues per equivalent admission at one of
the acquired hospitals is primarily the result of a low number of outpatient
procedures performed at that hospital as revenues earned on outpatient services
are generally lower than inpatient services. In addition, the higher net
revenues per equivalent admission at the other acquired hospital is primarily as
a result of a lower percentage of net revenues from managed care plans as
compared to the Company average.
On a pro forma basis, salaries and benefits decreased as a percentage
of revenues to 40.1% for the three months ended September 30, 2000 from 41.2%
for the three months ended September 30, 1999 as a result of improvements in
labor productivity and an increase in revenues per equivalent admission, as
discussed above. Man-hours per equivalent admission decreased 2.9% over the same
period in the prior year.
On a pro forma basis, supply costs decreased as a percentage of
revenues to 11.9% for the three months ended September 30, 2000 from 12.3% for
the three months ended September 30, 1999. The decrease was related to the
Company's acquisitions in fiscal 2000. The supply costs as a percentage of
revenues at the acquired facilities were lower than the Company average.
On a pro forma basis, other operating expenses decreased as a
percentage of revenues to 21.0% for the three months ended September 30, 2000
from 22.3% for the three months ended September 30, 1999. Other operating
expenses consist primarily of contract services, physician recruitment,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance, marketing and non-income taxes. The decrease was primarily due to a
decrease in professional fees and contract services as a percentage of revenues.
On a pro forma basis, provision for doubtful accounts increased
slightly as a percentage of revenues to 8.2% for the three months ended
September 30, 2000 from 8.0% for the three months ended September 30, 1999
primarily due to the effect of one of the Company's acquisitions in fiscal 2000.
The provision for doubtful accounts as a percentage of revenues at this hospital
is significantly higher than the Company average.
On a pro forma basis, depreciation and amortization expense increased
to $8.3 million for the three months ended September 30, 2000 from $7.1 million
for the three months ended September 30, 1999 primarily due to the opening of a
replacement facility in Bartow, Florida in December 1999 and the acquisition of
two hospitals in fiscal 2000.
23
<PAGE> 25
On a pro forma basis, interest expense increased to $8.3 million for
the three months ended September 30, 2000 from $6.7 million for the three months
ended September 30, 1999 primarily due to increased borrowings to finance
acquisitions and an increase in interest rates.
On a pro forma basis, ESOP expense increased to $2.0 million for the
three months ended September 30, 2000 from $1.2 million for the three months
ended September 30, 1999 primarily as a result of a higher average fair market
value of the Company's Common Stock for the three months ended September 30,
2000 compared to the same period last year. ESOP expense is recognized based on
the average fair market value of the shares committed to be released during the
period.
On a pro forma basis, minority interests in earnings of consolidated
entities increased slightly to $0.5 million for the three months ended September
30, 2000 from $0.4 million for the three months ended September 30, 1999.
On a pro forma basis, income before income taxes increased to $7.6
million for the three months ended September 30, 2000 compared to $3.4 million
for the three months ended September 30, 1999 primarily as a result of increases
in revenues and decreases in certain expenses as described above.
On a pro forma basis, the provision for income taxes for the three
months ended September 30, 2000 was $3.7 million compared to $1.4 million for
the three months ended September 30, 1999. These provisions reflect effective
income tax rates of 48.1% for 2000 and 42.0% for 1999. The increase in the
effective rate is due to the increase in the nondeductible portion of ESOP
expense.
On a pro forma basis, net income increased to $3.9 million for the
three months ended September 30, 2000 compared to $2.0 million for the three
months ended September 30, 1999.
Pro Forma Comparisons of the Nine Months Ended September 30, 2000 and 1999
The following discussion compares the results of the nine months ended
September 30, 2000 to the results of the nine months ended September 30, 1999,
in each case giving effect to the adjustments set forth above.
On a pro forma basis, revenues increased 13.0% to $400.2 million for
the nine months ended September 30, 2000 compared to $354.3 million for the nine
months ended September 30, 1999. Of the 13.0% increase, 5.7% was due to the two
acquisitions during fiscal 2000. The remaining increase is primarily a result of
increases in the volume of patients treated at the Company's facilities.
Inpatient admissions increased 7.9%, equivalent admissions (adjusted to reflect
combined inpatient and outpatient volume) increased 10.2% and revenues per
equivalent admission increased 2.5% for the nine months ended September 30, 2000
compared to the nine months ended September 30, 1999. The increase in revenues
was partially offset by the sale of one hospital in fiscal 2000. The increase in
revenues per equivalent admission of 2.5% was primarily due to the acquisition
of two hospitals in fiscal 2000 which have higher net revenues per equivalent
admission compared to the Company average. The higher net revenues per
equivalent admission at one of the acquired hospitals is primarily the result of
a low number of outpatient procedures performed at that hospital as revenues
from outpatient services are generally lower than inpatient services. In
addition, the higher net revenues per equivalent admission at the other acquired
hospital is primarily as a result of a lower percentage of net revenues from
managed care plans as compared to the Company average.
On a pro forma basis, salaries and benefits decreased as a percentage
of revenues to 40.3% for the nine months ended September 30, 2000 from 41.7% for
the nine months ended September 30, 1999 as a result of improvements in labor
productivity and an increase in revenues per equivalent admission, as discussed
above. Man-hours per equivalent admission decreased 4.1% over the same period in
the prior year.
24
<PAGE> 26
On a pro forma basis, supply costs decreased as a percentage of
revenues to 12.1% for the nine months ended September 30, 2000 from 12.2% for
the nine months ended September 30, 1999. The decrease was related to the
Company's acquisitions in fiscal 2000. The supply costs as a percentage of
revenues at the acquired facilities were lower than the Company average.
On a pro forma basis, other operating expenses decreased as a
percentage of revenues to 21.1% for the nine months ended September 30, 2000
from 22.5% for the nine months ended September 30, 1999. Other operating
expenses consist primarily of contract services, physician recruitment,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance, marketing and non-income taxes. The decrease was primarily due to a
decrease in contract services as a percentage of revenues.
On a pro forma basis, provision for doubtful accounts, as a percentage
of revenues, decreased to 7.2% for the nine months ended September 30, 2000 from
7.3% for the nine months ended September 30, 1999 primarily due to an
improvement in the Company's accounts receivable days outstanding.
On a pro forma basis, depreciation and amortization expense increased
to $24.1 million for the nine months ended September 30, 2000 from $20.7 million
for the nine months ended September 30, 1999 primarily due to the opening of a
replacement facility in Bartow, Florida in December 1999 and the acquisition of
two hospitals in fiscal 2000.
On a pro forma basis, interest expense increased to $22.9 million for
the nine months ended September 30, 2000 from $20.0 million for the nine months
ended September 30, 1999. The increase was primarily due to the increased
borrowings to finance acquisitions and higher actual interest rates at September
30, 2000 compared to the interest rate assumptions used for the nine months
ended September 30, 1999 pro forma calculation of interest expense.
On a pro forma basis, ESOP expense increased to $4.4 million for the
nine months ended September 30, 2000 from $2.7 million for the nine months ended
September 30, 1999 primarily as a result of a higher average fair market value
of the Company's Common Stock for the nine months ended September 30, 2000
compared to the average fair market value assumptions used for the nine months
ended September 30, 1999 pro forma calculation of ESOP expense. ESOP expense is
recognized based on the average fair market value of the shares committed to be
released during the period.
On a pro forma basis, minority interests in earnings of consolidated
entities increased slightly to $1.7 million for the nine months ended September
30, 2000 from $1.4 million for the nine months ended September 30, 1999.
On a pro forma basis, income before income taxes increased to $23.9
million for the nine months ended September 30, 2000 compared to $12.9 million
for the nine months ended September 30, 1999 primarily as a result of increases
in revenues and decreases in certain expenses as described above.
On a pro forma basis, the provision for income taxes for the nine
months ended September 30, 2000 was $11.0 million compared to $5.4 million for
the nine months ended September 30, 1999. These provisions reflect effective
income tax rates of 46.0% for 2000 and 42.0% for 1999. The increase in the
effective rate is due to the increase in the nondeductible portion of ESOP
expense.
On a pro forma basis, net income increased to $12.9 million for the
nine months ended September 30, 2000 compared to $7.5 million for the nine
months ended September 30, 1999.
Liquidity and Capital Resources
Prior to the Distribution, the Company relied upon HCA for liquidity
and sources of capital to supplement any needs not met by operations. As an
independent, publicly-traded company, the Company has relied upon its bank
credit facilities and other traditional funding sources to supplement needs not
met by operations. At September 30, 2000, the Company had working capital of
$56.5 million
25
<PAGE> 27
compared to $42.2 million at December 31, 1999. The increase in working capital
was primarily due to (i) a decrease in accounts payable of $12.4 million which
was primarily due to payments made to HCA and payments on trade accounts
payable, (ii) an increase in income tax receivable of $7.4 million which was
largely a result of the sale, in fiscal 2000, of the three facilities the
Company previously identified as held for sale and (iii) an increase in cash of
$7.8 million. The increase in working capital was partially offset by an
increase in current maturities of long-term debt of $7.1 million and an increase
in accrued interest of $4.2 million on the Company's Notes which will be paid in
the fourth quarter of 2000.
Cash provided by operating activities was $55.7 million for the nine
months ended September 30, 2000 compared to $50.2 million for the nine months
ended September 30, 1999. This increase was primarily due to a higher net income
and increases in working capital, as discussed above.
Cash used in investing activities was $82.6 million for the nine months
ended September 30, 2000 compared to $40.2 million for the nine months ended
September 30, 1999 primarily due to the two acquisitions during fiscal 2000. The
increase was partially offset by proceeds of $24.4 million from the sale of
facilities and by decreased capital expenditures of $23.3 million during the
nine months ended September 30, 2000 compared to $40.5 million for the nine
months ended September 30, 1999 (which included the construction of a
replacement facility). At September 30, 2000, there were projects under
construction which had an estimated additional cost to complete and equip of
approximately $11.3 million. These projects are scheduled for completion over
the next twelve months. Management believes that its capital expenditure program
is adequate to expand, improve and equip the Company's existing health care
facilities. The Company expects to make total capital expenditures in 2000 of
approximately $35 to $40 million, excluding acquisitions.
Cash provided by financing activities was $34.7 million for the nine
months ended September 30, 2000 compared to $22.7 million for the nine months
ended September 30, 1999. The increase was primarily due to an increase in
long-term debt as a result of acquisitions.
In June 2000, the Company borrowed the remaining $35 million from its
$60 million term loan facility and $30 million under its $65 million revolving
credit facility. The Company utilized this additional debt to fund acquisitions.
Effective August 1, 2000, the Company sold Riverview Medical Center in Gonzales,
Louisiana for approximately $20.8 million. The proceeds from the transaction and
the Company's available cash were used to pay off the $30 million outstanding
balance under the Company's revolving credit facility. No amounts were
outstanding under the Company's revolving credit facility at September 30, 2000.
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. Although the Company's indebtedness is much more significant than
was the case for its predecessor entities, management expects that operations
and amounts available under the Company's credit agreement will provide
sufficient liquidity for the next twelve months.
The Company intends to acquire additional hospitals in the future.
There can be no assurance that the Company will not require additional debt or
equity financing for any particular acquisition. Also, the Company continually
reviews its capital needs and financing opportunities and may seek additional
debt or equity financing for its acquisition program or other needs. In order to
ensure the tax-free treatment of the Distribution, however, the Company is
limited in the amount of stock it may issue.
The Company does not expect to pay dividends on its Common Stock in the
foreseeable future.
26
<PAGE> 28
Contingencies
HCA Investigations, Litigation and Indemnification Rights
Based upon its review of public filings and statements made by HCA,
LifePoint's management understands that HCA is the subject of several federal
investigations into certain of its business practices, as well as governmental
investigations by various states. Any discussion contained in this report
regarding such matters is based solely upon such public filings and statements.
Management of LifePoint understands that HCA is cooperating in these
investigations and that HCA understands, through written notice and other means,
that it is a target in these investigations. Given the breadth of the ongoing
investigations, HCA expects subpoenas and investigative and prosecutorial
activity to occur in these and other jurisdictions in the future. HCA is the
subject of a formal order of investigation by the Securities and Exchange
Commission (the "Commission"). HCA understands that the Commission's
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
HCA employees guilty of conspiracy and making false statements on Medicare and
TRICARE cost reports for the years 1992 and 1993 and on a Medicaid cost report
for 1993. Both were found not guilty of obstructing a federal auditor. One other
employee was acquitted on all counts for which he had been charged and the jury
was unable to reach a verdict with respect to another employee. This employee
and the government executed an agreement to defer prosecution for 18 months
after which charges will be dismissed. The two convicted employees were
sentenced in December 1999 and both have appealed to the 11th Circuit.
HCA is a defendant in several qui tam actions, or actions under a state
statute brought by private parties on behalf of the United States of America,
which have been unsealed and served on HCA. The actions allege, in general, that
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 three times the amount of damages caused to the United States
by submission of any Medicare or Medicaid 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. The government has intervened in six qui tam actions against HCA. HCA
is aware of additional qui tam actions that remain under seal and believes that
there may be other sealed qui tam cases of which it is unaware.
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. Several derivative actions have been
filed in state court by certain purported stockholders of HCA against certain of
its current and former officers and directors alleging breach of fiduciary duty,
and failure to take reasonable steps to ensure that HCA did not engage in
illegal practices thereby exposing it to significant damages.
On May 18, 2000, HCA announced that it had reached an understanding
with the Civil Division of the Department of Justice to recommend an agreement
to settle, subject to certain conditions, the civil claims actions against HCA
relating to diagnosis related group coding, outpatient laboratory billing and
home health issues. The understanding with the Department of Justice would
require HCA to pay $745 million in compensation to the government, with interest
accruing immediately at a fixed rate of 6.5% per annum, and would reduce HCA's
existing letter of credit agreement with the government from $1 billion to $250
million at the time of the payment of the settlement. The settlement is subject
to approval by additional officials of the Department of Justice, other federal
agencies as well as state officials; execution of a corporate integrity
agreement; execution of definitive settlement documents; execution of agreements
to resolve all criminal investigations pending against HCA and court approval.
We are unable 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 will be commenced. In connection with the
Distribution,
27
<PAGE> 29
the Company entered into a Distribution Agreement with HCA. The terms of the
Distribution Agreement provide that HCA will indemnify the Company in respect of
any losses which it may incur as a result of the proceedings described above,
all of which the Company believes relate to periods prior to the Distribution.
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. HCA has further 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 HCA will make cash payments to the Company
based on an amount (if positive) equal to five times the excluded hospital's
1998 income from continuing operations before depreciation and amortization,
interest expense, management fees, impairment of long-lived assets, minority
interests and income taxes, as set forth on a schedule to the Distribution
Agreement, less the net proceeds of the sale or other disposition of the
excluded hospital. The Company has agreed with HCA that, in connection with the
pending governmental investigations, the Company will negotiate one or more
compliance agreements with the OIG setting forth the Company's agreement to
comply with applicable laws and regulations. HCA is expected to enter into its
own compliance agreement with the OIG that will become effective when its
settlement is final. If any of such indemnified matters were successfully
asserted against the Company, or any of its facilities, and 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. HCA has not indemnified the Company for losses relating to any
acts, practices and omissions engaged in by the Company after the Distribution,
regardless of whether the Company is indemnified for similar acts, practices and
omissions occurring prior to the date of the Distribution.
Management of LifePoint believes that the ongoing governmental
investigations and related media coverage may have had a negative effect on
HCA's results of operations (which include the Company for the periods prior to
the date of the Distribution which are presented herein). The extent to which
the Company may or may not continue to be affected by the ongoing investigations
of 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 Company's business, financial condition,
results of operations or prospects in future periods.
Risks Associated with Liabilities of Acquired Businesses
The Company has acquired and plans to continue to acquire businesses
with prior operating histories. Acquired companies may have unknown or
contingent liabilities, including liabilities for failure to comply with health
care laws and regulations, such as billing and reimbursement, fraud and abuse
and similar anti-referral laws. The Company has from time to time identified
certain past practices of acquired companies that do not conform to its
standards. Although the Company institutes policies designed to conform such
practices to its standards following completion of acquisitions, there can be no
assurance that the Company will not become liable for past activities that may
later be asserted to be improper by private plaintiffs or government agencies.
Although the Company generally seeks to obtain indemnification from prospective
sellers covering such matters, there can be no assurance that any such matter
will be covered by indemnification, or if covered, that such indemnification
will be adequate to cover potential losses and fines.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
was required to be adopted in years beginning after June 15, 1999. In June 1999,
SFAS No. 137 was issued, deferring the effective date of SFAS No. 133 for one
year. Management does not anticipate that the adoption of the new statement will
have a material effect on the financial condition or results of operations of
the Company.
28
<PAGE> 30
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
because of increasing regulatory and competitive pressures. In the event the
Company experiences inflationary pressures, there can be no assurance that the
Company's results of operations will not be materially effected.
Health Care Reform
In recent years, an increasing number of legislative proposals have
been introduced or proposed to Congress and in some state legislatures. 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 which are adverse to
the business of the Company will not be adopted.
29
<PAGE> 31
OPERATING DATA
<TABLE>
<CAPTION>
ACTUAL PRO FORMA(h)
---------------- -----------------
2000 1999(g) 2000 1999(g)
------ ------- ------ ------
<S> <C> <C> <C> <C>
Number of hospitals in operation at
March 31.......................... 22 23 20 20
June 30............................ 22 23 21 20
September 30....................... 21 23 21 20
December 31........................ 23 20
Licensed hospitals beds at (a):
March 31.......................... 2,129 2,169 1,896 1,896
June 30............................ 2,083 2,169 2,027 1,896
September 30....................... 2,026 2,169 2,026 1,896
December 31........................ 2,169 1,896
Weighted average licensed beds (b):
Quarter:
First.............................. 2,143 2,169 1,896 1,896
Second............................. 1,999 2,169 1,943 1,896
Third.............................. 2,098 2,169 2,061 1,896
Fourth............................. 2,169 1,896
Year................................... 2,169 1,896
Average daily census (c):
Quarter:
First.............................. 801 863 758 785
Second............................. 676 714 668 646
Third.............................. 731 668 726 615
Fourth............................. 713 664
Year................................... 739 677
Admissions (d):
Quarter:
First.............................. 17,195 17,936 16,441 16,454
Second............................. 15,281 15,294 15,057 14,070
Third.............................. 16,721 15,018 16,559 13,998
Fourth............................. 15,833 14,870
Year................................... 64,081 59,392
Equivalent Admissions (e):
Quarter:
First.............................. 30,521 30,545 29,018 28,005
Second............................. 28,780 27,574 28,025 25,412
Third.............................. 30,779 27,762 30,229 25,743
Fourth............................. 28,440 26,558
Year................................... 114,321 105,718
Average length of stay (days) (f):
Quarter:
First.............................. 4.2 4.3 4.2 4.3
Second............................. 4.0 4.2 4.0 4.2
Third.............................. 4.0 4.1 4.0 4.0
Fourth............................. 4.1 4.1
Year................................... 4.2 4.2
</TABLE>
30
<PAGE> 32
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.
(g) 1999 operating data has been restated due to a correction in
admissions.
(h) Pro forma information excludes the three facilities the Company's
management previously identified as held for sale.
31
<PAGE> 33
Item 3: Quantitative and Qualitative Disclosures about Market Risk
During the nine months ended September 30, 2000, there were no material
changes in the quantitative and qualitative disclosures about market risks
presented in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
Part II. Other Information
Item 6: Exhibits and Reports on Form 8-K
(a) List of Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
3.1 Certificate of Incorporation of LifePoint Hospitals, Inc.
Incorporated by reference from the LifePoint Hospitals, Inc.
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
3.2 Bylaws of LifePoint Hospitals, Inc. Incorporated by reference
from the LifePoint Hospitals, Inc. Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
3.3 Certificate of Incorporation of LifePoint Hospitals Holdings,
Inc. Incorporated by reference from the LifePoint Hospitals
Holdings, Inc. Annual Report on Form 10-K for the year ended
December 31, 1999.
3.4 Bylaws of LifePoint Hospitals Holdings, Inc. Incorporated by
reference from the LifePoint Hospitals Holdings, Inc. Annual
Report on Form 10-K for the year ended December 31, 1999.
10.1 Second Amendment to Credit Agreement dated as of May 23, 2000
among LifePoint Hospitals Holdings, Inc., as Borrower, the
several lenders which are parties to the Credit Agreement,
Fleet National Bank as arranger and administrative agent,
ScotiaBanc, Inc. as documentation agent and co-arranger,
Deutsche Bank Securities Inc. as syndication agent and
co-arranger, and SunTrust Bank, Nashville, N.A. as co-agent.
27.1 Financial Data Schedule for LifePoint Hospitals, Inc. (for SEC
use only).
27.2 Financial Data Schedule for LifePoint Hospitals Holdings, Inc.
(for SEC use only).
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended September 30, 2000:
None.
32
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LifePoint Hospitals, Inc.
Date: November 13, 2000 /s/ Kenneth C. Donahey
-------------------------------------
Kenneth C. Donahey
Senior Vice President &
Chief Financial Officer
LifePoint Hospitals Holdings, Inc.
Date: November 13, 2000 /s/ Kenneth C. Donahey
-------------------------------------
Kenneth C. Donahey
Senior Vice President &
Chief Financial Officer
33
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
3.1 Certificate of Incorporation of LifePoint Hospitals, Inc.
Incorporated by reference from the LifePoint Hospitals, Inc.
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
3.2 Bylaws of LifePoint Hospitals, Inc. Incorporated by reference
from the LifePoint Hospitals, Inc. Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
3.3 Certificate of Incorporation of LifePoint Hospitals Holdings,
Inc. Incorporated by reference from the LifePoint Hospitals
Holdings, Inc. Annual Report on Form 10-K for the year ended
December 31, 1999.
3.4 Bylaws of LifePoint Hospitals Holdings, Inc. Incorporated by
reference from the LifePoint Hospitals Holdings, Inc. Annual
Report on Form 10-K for the year ended December 31, 1999.
10.1 Second Amendment to Credit Agreement dated as of May 23, 2000
among LifePoint Hospitals Holdings, Inc., as Borrower, the
several lenders which are parties to the Credit Agreement,
Fleet National Bank as arranger and administrative agent,
ScotiaBanc, Inc. as documentation agent and co-arranger,
Deutsche Bank Securities Inc. as syndication agent and
co-arranger, and SunTrust Bank, Nashville, N.A. as co-agent.
27.1 Financial Data Schedule for LifePoint Hospitals, Inc. (for SEC
use only).
27.2 Financial Data Schedule for LifePoint Hospitals Holdings, Inc.
(for SEC use only).
</TABLE>
34
