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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
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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 [ ]
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Commission file number 333-84755
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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 April 30, 2000, the number of outstanding shares of Common Stock
of LifePoint Hospitals, Inc. was 31,309,683, and all of the shares of Common
Stock of LifePoint Hospitals Holdings, Inc. were owned by LifePoint Hospitals,
Inc.
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Part I: Financial Information
Item 1: Financial Statements
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in millions, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
------- -------
Revenues ............................................... $ 136.0 $ 134.2
Salaries and benefits .................................. 55.7 57.1
Supplies ............................................... 17.0 16.4
Other operating expenses ............................... 29.7 28.5
Provision for doubtful accounts ........................ 9.1 10.3
Depreciation and amortization .......................... 8.4 7.5
Interest expense ....................................... 7.2 4.7
Management fees ........................................ -- 2.4
ESOP expense ........................................... 1.1 --
------- -------
128.2 126.9
------- -------
Income before minority interests and
income taxes .......................................... 7.8 7.3
Minority interests in earnings of consolidated
entities .............................................. 0.6 0.4
------- -------
Income before income taxes ............................. 7.2 6.9
Provision for income taxes ............................. 3.2 2.9
------- -------
Net income .......................................... $ 4.0 $ 4.0
======= =======
Basic and diluted earnings per share:
Net income .......................................... $ 0.13 $ 0.13
======= =======
Shares used in earnings per share calculations (000s):
Basic ............................................... 31,184 29,899
Dilutive securities - stock options ............. 838 269
------- -------
Diluted ............................................. 32,022 30,168
======= =======
See accompanying notes.
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LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(Dollars in millions, except per share amounts)
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
------ ------------- -------------
Current assets:
Cash and cash equivalents ............................................ $ 25.6 $ 12.5
Accounts receivable, less allowance for doubtful accounts of $51.3
at March 31, 2000 and $50.3 at December 31, 1999 .................... 40.5 46.7
Inventories .......................................................... 14.2 14.3
Deferred taxes and other current assets .............................. 23.4 25.9
------------- -------------
103.7 99.4
Property and equipment, at cost:
Land ................................................................. 7.9 7.9
Buildings ............................................................ 207.0 204.1
Equipment ............................................................ 254.7 260.6
Construction in progress (estimated cost to complete and equip
after March 31, 2000 - $9.4 ) ....................................... 19.8 20.2
------------- -------------
489.4 492.8
Accumulated depreciation ................................................ (197.0) (198.4)
------------- -------------
292.4 294.4
Intangible assets, net of accumulated amortization of $9.2 at
March 31, 2000 and $8.6 at December 31, 1999 ......................... 25.7 26.4
Other ................................................................... -- 0.2
------------- -------------
$ 421.8 $ 420.4
============= =============
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable ..................................................... $ 15.8 $ 26.5
Accrued salaries ..................................................... 13.2 14.7
Other current liabilities ............................................ 20.0 12.9
Current maturities of long-term debt ................................. 4.1 3.1
------------- -------------
53.1 57.2
Long-term debt .......................................................... 255.8 257.1
Deferred taxes .......................................................... 13.2 12.5
Professional liability risks and other liabilities ...................... 4.4 3.4
Minority interests in equity of consolidated entities ................... 4.4 4.5
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized;
no shares issued .................................................... -- --
Common stock, $0.01 par value; 90,000,000 shares authorized;
31,282,397 shares outstanding at March 31, 2000 ..................... 0.3 0.3
Capital in excess of par value ....................................... 138.3 137.9
Unearned ESOP compensation ........................................... (28.1) (28.9)
Notes receivable for shares sold to employees ........................ (10.2) (10.2)
Accumulated deficit .................................................. (9.4) (13.4)
------------- -------------
90.9 85.7
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$ 421.8 $ 420.4
============= =============
See accompanying notes.
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LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in millions)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
------- -------
Cash flows from operating activities:
Net income ............................................. $ 4.0 $ 4.0
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
ESOP expense ....................................... 1.1 --
Provision for doubtful accounts .................... 9.1 10.3
Depreciation and amortization ...................... 8.4 7.5
Amortization of deferred loan costs ................ 0.4 --
Deferred income taxes .............................. 3.2 --
Reserve for professional liability risk ............ 1.0 --
Increase (decrease) in cash from
operating assets and liabilities:
Accounts receivable ............................. (2.9) (22.7)
Inventories and other current assets ............ 0.1 (0.3)
Accounts payable and accrued expenses ........... (3.6) 1.1
Other .............................................. 0.1 (0.1)
------- -------
Net cash provided by (used in) operating
activities ..................................... 20.9 (0.2)
Cash flows from investing activities:
Purchase of property and equipment, net ................ (7.6) (14.7)
Other .................................................. 0.4 (0.2)
------- -------
Net cash used in investing activities ........... (7.2) (14.9)
Cash flows from financing activities:
Decrease in long-term debt, net ........................ (0.7) --
Increase in intercompany balances with
Columbia/HCA, net ..................................... -- 15.1
Other .................................................. 0.1 --
------- -------
Net cash provided by (used in)
financing activities ........................... (0.6) 15.1
Change in cash and cash equivalents ........................ 13.1 --
Cash and cash equivalents at beginning of period ........... 12.5 --
------- -------
Cash and cash equivalents at end of period ................. $ 25.6 $ --
======= =======
Interest payments .......................................... $ 2.7 $ 4.7
Income tax payments ........................................ $ -- $ 2.3
See accompanying notes.
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LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
On May 11, 1999, Columbia/HCA Healthcare Corporation ("Columbia/HCA")
completed the spin-off of its operations comprising the America Group to its
shareholders 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 Columbia/HCA Common Stock received one share of the Company's
Common Stock for every 19 shares of Columbia/HCA Common Stock held which
resulted in approximately 29.9 million shares of the Company's Common Stock
outstanding immediately after the Distribution.
At March 31, 2000, the Company was comprised of 22 general, acute care
hospitals and related health care entities. The entities are located in
non-urban areas in the states of Alabama, Florida, Georgia, Kansas, Kentucky,
Louisiana, Tennessee, Utah and Wyoming.
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 ended
March 31, 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 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 - DIVESTITURE
Effective February 1, 2000, the Company sold Trinity Hospital in Erin,
Tennessee. Trinity Hospital was one of three of the Company's hospital
facilities held for sale. The Company recorded an impairment of long-lived
assets related to the hospitals held for sale in 1998 and an additional
impairment in 1999. Due to these impairment charges, no gain or loss was
recorded for the sale of Trinity Hospital during the three months ended March
31, 2000.
Effective April 1, 2000, the Company sold another one of the three of
the Company's hospital facilities held for sale. See Note 6. The Company
anticipates that the divestiture of the remaining facility will be completed
during 2000. For
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the three months ended March 31, 2000 and 1999, these three facilities had net
revenues of approximately $7.1 million and $12.9 million, respectively and
incurred loss from continuing operations before income taxes of $1.8 million and
$0.2 million, respectively.
NOTE 4 - CONTINGENCIES
Columbia/HCA Investigations, Litigation and Indemnification Rights
Based upon its review of public filings and statements made by
Columbia/HCA, LifePoint's management understands that Columbia/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
Columbia/HCA is cooperating in these investigations and that Columbia/HCA
understands, through written notice and other means, that it is a target in
these investigations. Given the breadth of the ongoing investigations,
Columbia/HCA expects additional investigative and prosecutorial activity to
occur in these and other jurisdictions in the future. Columbia/HCA is the
subject of a formal order of investigation by the Securities and Exchange
Commission (the "Commission"). The Commission investigation includes the
anti-fraud, periodic reporting and internal accounting control provisions of the
federal securities laws. According to published reports, on July 2, 1999, a
federal jury in Tampa, Florida found two Columbia/HCA employees guilty of
conspiracy and making false statements on Medicare and 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.
Columbia/HCA is a defendant in several qui tam actions brought by
private parties on behalf of the United States of America, which have been
unsealed and served on Columbia/HCA. The actions allege, in general, that
Columbia/HCA and certain subsidiaries and/or affiliated partnerships violated
the False Claims Act by submitting improper claims to the government for
reimbursement. The lawsuits seek damages of three times the amount of all
Medicare or Medicaid claims (involving false claims) presented by the defendants
to the federal government, civil penalties of not less than $5,000 nor more than
$10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. The
government has intervened in six unsealed qui tam actions against Columbia/HCA.
Columbia/HCA is aware of additional qui tam actions that remain under seal and
believes that there are other sealed qui tam cases of which it is unaware.
Columbia/HCA is a defendant in a number of other suits, which allege,
in general, improper and fraudulent billing, overcharging, coding and physician
referrals, as well as other violations of law. Certain of the suits have been
conditionally certified as class actions.
It is too early to predict the effect or outcome of any of the ongoing
investigations or qui tam and other actions, or whether any additional
investigations or litigations will be commenced. If Columbia/HCA is found to
have violated federal or state laws relating to Medicare, Medicaid or similar
programs, Columbia/HCA could be subject to substantial monetary fines, civil and
criminal penalties, and exclusion from participation in the Medicare and
Medicaid programs. Similarly, the amounts in question in the qui tam and other
actions are substantial, and Columbia/HCA could be subject to substantial costs
resulting from an adverse outcome of one or more of such actions. In addition, a
number of derivative actions have been brought by purported stockholders of
Columbia/HCA against certain current and former officers and directors of
Columbia/HCA alleging breach of fiduciary duty and failure to take reasonable
steps to ensure that Columbia/HCA did not engage in illegal practices.
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Management of LifePoint believes that the ongoing governmental
investigations and related media coverage may have had a negative effect on
Columbia/HCA's results of operations (which include the Company for the periods
prior to the date of the Distribution which are presented herein). The extent to
which the Company may or may not continue to be affected after the Distribution
by the ongoing investigations of Columbia/HCA, the initiation of additional
investigations, if any, and the related media coverage cannot be predicted. It
is possible that these matters could have a material adverse effect on the
financial condition or results of operations of the Company in future periods.
In connection with the Distribution, Columbia/HCA has agreed to
indemnify the Company in respect of any losses which it may incur arising from
the proceedings described above. Columbia/HCA has also agreed to indemnify the
Company in respect of any losses, which it may incur as a result of proceedings
which may be commenced by government authorities or by private parties in the
future that arise from acts, practices or omissions engaged in prior to the date
of the Distribution and relate to the proceedings described above. Columbia/HCA
has also agreed that, in the event that any hospital owned by the Company as of
the date of the Distribution is permanently excluded from participation in the
Medicare and Medicaid programs as a result of the proceedings described above,
then Columbia/HCA will make cash payments to the Company based on amounts as
defined in the Distribution Agreement by and among Columbia/HCA and the Company.
The Company has agreed with Columbia/HCA that, in connection with the pending
governmental investigations, it will negotiate with the government with respect
to a compliance agreement setting forth the Company's agreement to comply with
applicable laws and regulations. If any of such indemnified matters were
successfully asserted against the Company, or any of its facilities, and
Columbia/HCA failed to meet its indemnification obligations, then such losses
could have a material adverse effect on the business, financial position,
results of operations or prospects of the Company. Columbia/HCA has not
indemnified the Company for losses relating to any acts, practices and omissions
engaged in by the Company after the Distribution, whether or not the Company is
indemnified for similar acts, practices and omissions occurring prior to the
date of the Distribution.
General Liability Claims
The Company is subject to claims and suits arising in the ordinary
course of business. In certain of these actions claimants may ask for punitive
damages against the Company, which are usually not covered by insurance. It is
management's opinion that the ultimate resolution of pending claims and legal
proceedings will not have a material adverse effect on the Company's results of
operations or financial position.
Physician Commitments
The Company has committed to provide certain financial assistance
pursuant to recruiting agreements with various physicians practicing in the
communities it serves. In consideration for a physician relocating to one of its
communities and agreeing to engage in private practice for the benefit of the
respective community, the Company may loan certain amounts of money to a
physician, normally over a period of one year, to assist in establishing his or
her practice. Amounts committed to be advanced approximated $14.3 million at
March 31, 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.
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NOTE 5 - LONG - TERM DEBT
Assumption of Certain Indebtedness from Columbia/HCA
In connection with the Distribution, all intercompany amounts payable
by the Company to Columbia/HCA were eliminated, and the Company assumed certain
indebtedness from Columbia/HCA. The indebtedness was comprised of a bank credit
agreement and senior subordinated notes.
Bank Credit Agreement
On May 11, 1999, the Company assumed from Columbia/HCA the obligations
under a bank credit agreement (the "Credit Agreement") with a group of lenders
with commitments aggregating $210 million. The Credit Agreement consists of a
$60 million term loan facility, an $85 million term loan facility, and a $65
million revolving credit facility (collectively the "Bank Facilities").
As of March 31, 2000, $25 million of the $60 million term loan facility
was drawn, with the remaining $35 million available for limited purposes to be
drawn by May 11, 2000. See Note 6. The final payment under this term loan
facility is due November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
Distribution. The final payment under this term loan is due November 11, 2005.
The $65 million revolving credit facility is available for working
capital and other general corporate purposes, and any outstanding amounts
thereunder will be due and payable on November 11, 2004. No amounts were
outstanding under this facility as of April 30, 2000.
Repayments under the term loan facilities are due in quarterly
installments with quarterly amortization based on annual amounts. Interest on
the Bank Facilities is currently based on LIBOR plus 3.0% for the revolving
credit facility and the $60 million term loan facility, and LIBOR plus 3.5% for
the $85 million term loan facility. The weighted average interest rate on the
Bank Facilities was approximately 9.5% at March 31, 2000. The Company also pays
a commitment fee equal to 0.5% of the average daily amount available under the
revolving credit facility and on the undrawn portion of the $60 million term
loan facility.
The Company's obligations under the Bank Facilities are guaranteed by
its subsidiaries. These guarantees are secured by a pledge of substantially all
of the subsidiaries' assets. The Credit Agreement requires that the Company
comply with various financial ratios and tests and contains covenants, including
but not limited to restrictions on new indebtedness, the ability to merge or
consolidate, asset sales, capital expenditures and dividends.
Senior Subordinated Notes
On May 11, 1999, the Company assumed from Columbia/HCA $150 million in
senior subordinated notes maturing on May 15, 2009 and bearing interest at
10.75%. In November 1999, in a registered exchange offer, the Company issued a
like aggregate principal amount of notes in exchange for these notes (the
"Notes"). Interest is payable semi-annually. The Notes are unsecured obligations
and are subordinated in right of payment to all existing and future senior
indebtedness.
The indenture pursuant to which the Notes were made contains certain
covenants, including but not limited to restrictions on new indebtedness, the
ability to merge or consolidate, asset sales, capital expenditures and
dividends.
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
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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
March 31, 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 guarantor subsidiary.
Presented below is summarized condensed unaudited consolidating
financial information for the Company and its subsidiaries as of and for the
three months ended March 31, 2000 segregating the parent company, the issuer of
the Notes (LifePoint Hospitals Holdings, Inc.), the combined wholly owned
guarantor subsidiaries, the mostly owned guarantor subsidiary and eliminations.
Separate audited financial statements for the year ended December 31, 1999 of
the non-wholly owned guarantor subsidiary, Dodge City Healthcare Group, L.P.,
have been filed with the Commission.
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN MILLIONS)
WHOLLY OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
Revenues ............................... $ -- $ -- $127.8 $ 8.2 $ -- $136.0
Salaries and benefits .................. -- -- 53.1 2.6 -- 55.7
Supplies ............................... -- -- 15.9 1.1 -- 17.0
Other operating expenses ............... -- -- 28.6 1.1 -- 29.7
Provision for doubtful accounts ........ -- -- 8.5 0.6 -- 9.1
Depreciation and amortization .......... -- -- 8.0 0.4 -- 8.4
Interest expense ....................... -- 7.2 (0.1) 0.1 -- 7.2
Management fees ........................ -- -- (0.2) 0.2 -- --
ESOP expense ........................... -- -- 1.0 0.1 -- 1.1
Equity in earnings of affiliates ....... (4.0) (9.3) -- -- 13.3 --
------ ------ ------ ------ ------ ------
(4.0) (2.1) 114.8 6.2 13.3 128.2
------ ------ ------ ------ ------ ------
Income before minority interests
and income taxes ..................... 4.0 2.1 13.0 2.0 (13.3) 7.8
Minority interests in earnings of
consolidated entities ................ -- 0.6 -- -- -- 0.6
------ ------ ------ ------ ------ ------
Income before income taxes ............. 4.0 1.5 13.0 2.0 (13.3) 7.2
Provision for income taxes ............. -- (2.5) 5.7 -- -- 3.2
------ ------ ------ ------ ------ ------
Net income ........................ $ 4.0 $ 4.0 $ 7.3 $ 2.0 $(13.3) $ 4.0
====== ====== ====== ====== ====== ======
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LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
(DOLLARS IN MILLIONS)
WHOLLY OWNED MOSTLY OWNED CONSOLI-
ISSUER OF GUARANTOR GUARANTOR DATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ -- $ -- $ 25.6 $ -- $ -- $ 25.6
Accounts receivable, net ............................. -- -- 35.6 4.9 -- 40.5
Inventories .......................................... -- -- 13.1 1.1 -- 14.2
Deferred taxes and other current assets .............. -- -- 23.2 0.2 -- 23.4
------ ------ ------- ------- ------- -------
-- -- 97.5 6.2 -- 103.7
Property and equipment, at cost:
Land ................................................. -- -- 7.6 0.3 -- 7.9
Buildings ............................................ -- -- 197.1 9.9 -- 207.0
Equipment ............................................ -- -- 244.4 10.3 -- 254.7
Construction in progress ............................. -- -- 19.8 -- -- 19.8
------ ------ ------- ------- ------- -------
-- -- 468.9 20.5 -- 489.4
Accumulated depreciation ................................. -- -- (185.5) (11.5) -- (197.0)
------ ------ ------- ------- ------- -------
-- -- 283.4 9.0 -- 292.4
Net investment in and advances to subsidiaries ........... 90.9 366.4 -- -- (457.3) --
Intangible assets, net ................................... -- 9.8 5.5 10.4 -- 25.7
Other .................................................... -- -- -- -- -- --
------ ------ ------- ------- ------- -------
$ 90.9 $376.2 $ 386.4 $ 25.6 $(457.3) $ 421.8
====== ====== ======= ======= ======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable ..................................... $ -- $ -- $ 15.2 $ 0.6 $ -- $ 15.8
Accrued salaries ..................................... -- -- 13.2 -- -- 13.2
Other current liabilities ............................ -- 6.4 13.2 0.4 -- 20.0
Current maturities of long-term debt ................. -- 4.1 -- -- -- 4.1
------ ------ ------- ------- ------- -------
-- 10.5 41.6 1.0 -- 53.1
Intercompany balances to affiliates ...................... -- 14.6 (24.0) 9.4 -- --
Long-term debt ........................................... -- 255.8 -- -- -- 255.8
Deferred income taxes .................................... -- -- 13.2 -- -- 13.2
Professional liability risks and other liabilities ....... -- -- 4.4 -- -- 4.4
Minority interests in equity of consolidated entities .... -- 4.4 -- -- -- 4.4
Stockholders' equity ..................................... 90.9 90.9 351.2 15.2 (457.3) 90.9
------ ------ ------- ------- ------- -------
$ 90.9 $376.2 $ 386.4 $ 25.6 $(457.3) $ 421.8
====== ====== ======= ======= ======= =======
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LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN MILLIONS)
WHOLLY OWNED MOSTLY OWNED CONSOLI-
ISSUER OF GUARANTOR GUARANTOR DATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ --------
Cash flows from operating activities:
Net income ............................................. $ 4.0 $ 4.0 $ 7.3 $ 2.0 $ (13.3) $ 4.0
Adjustments to reconcile net income to net cash
provided by operating activities:
ESOP expense ........................................ -- -- 1.0 0.1 -- 1.1
Equity in earnings of affiliates .................... (4.0) (9.3) -- -- 13.3 --
Provision for doubtful accounts ..................... -- -- 8.5 0.6 -- 9.1
Depreciation and amortization ....................... -- -- 8.0 0.4 -- 8.4
Amortization of deferred loan costs ................. -- -- 0.4 -- -- 0.4
Deferred income taxes ............................... -- -- 3.2 -- -- 3.2
Reserve for professional liability risk ............. -- -- 1.0 -- -- 1.0
Increase (decrease) in cash from operating assets
and liabilities:
Accounts receivable ............................... -- -- (2.7) (0.2) -- (2.9)
Inventories and other current assets .............. -- -- 0.1 -- -- 0.1
Accounts payable and accrued expenses ............. -- 3.9 (7.6) 0.1 -- (3.6)
Other ............................................... -- (0.1) 0.2 -- -- 0.1
------ ------ ------ ------- ------- -------
Net cash provided by operating activities ......... -- (1.5) 19.4 3.0 -- 20.9
Cash flows from investing activities:
Purchase of property and equipment, net ................ -- -- (7.6) -- -- (7.6)
Other .................................................. -- -- 0.4 -- -- 0.4
------ ------ ------ ------- ------- -------
Net cash used in investing activities ............. -- -- (7.2) -- -- (7.2)
Cash flows from financing activities:
Decrease in long-term debt, net ........................ -- (0.7) -- -- -- (0.7)
Distributions .......................................... -- -- 2.1 (2.1) -- --
Other .................................................. -- -- 0.1 -- -- 0.1
Increase (decrease) in intercompany balances
with affiliates, net ................................. -- 2.2 (1.3) (0.9) -- --
------ ------ ------ ------- ------- -------
Net cash provided by (used in)
financing activities ............................. -- 1.5 0.9 (3.0) -- (0.6)
Change in cash and cash equivalents ....................... -- -- 13.1 -- -- 13.1
Cash and cash equivalents at beginning of period .......... -- -- 12.5 -- -- 12.5
------ ------ ------ ------- ------- -------
Cash and cash equivalents at end of period ................ $ -- $ -- $ 25.6 $ -- $ -- $ 25.6
====== ====== ====== ======= ======= =======
NOTE 6 - SUBSEQUENT EVENT
Effective April 1, 2000, the Company sold Halstead Hospital in
Halstead, Kansas. Halstead Hospital was one of the Company's hospital facilities
held for sale. Due to the impairment charges taken by the Company as discussed
in Note 3, no gain or loss will be recorded by the Company for the sale of
Halstead Hospital.
Effective May 1, 2000, the Company received a 60-day extension of time
to draw on the undrawn portion of its $60 million term loan facility. The
remaining $35 million is now available to be drawn by July 10, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements included herein.
Overview
On May 11, 1999, Columbia/HCA 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 highly competitive nature of
the health care business, (ii) the efforts of insurers, health care providers
and others to contain health care costs, (iii) possible changes in the Medicare
program that may further limit reimbursements to health care providers and
insurers, (iv) changes in federal, state or local regulation affecting the
health care industry, (v) the possible enactment of federal or state health care
reform, (vi) the ability to attract and retain qualified management and
personnel, including physicians, (vii) liabilities and other claims asserted
against the Company, including without limitation, liabilities for which the
Company may be indemnified by Columbia/HCA, (viii) fluctuations in the market
value of the Company's Common Stock, (ix) changes in accounting practices, (x)
changes in general economic conditions, and (xi) 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 experienced an increase in revenues and revenue per
equivalent admission for the three months ended March 31, 2000 compared to the
prior year. However, the Company's admissions and equivalent admissions
decreased for the three months ended March 31, 2000 compared to the prior year
primarily because of the Company's three facilities that are held for sale. One
of the facilities held for sale was sold effective February 1, 2000 and another
was sold effective April 1, 2000.
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. However, under the Balanced Budget Act, the Company's
reimbursement from the Medicare and Medicaid programs was reduced in 1999 and
for the three months ended March 31, 2000 and will be further reduced as some
reductions in reimbursement levels are phased in over the next two to three
years. The Company generally receives lower payments per patient under managed
care plans than under traditional indemnity insurance plans. With an increasing
proportion of services being
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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 90.7% and
89.0% of total admissions for the three months ended March 31, 2000 and 1999,
respectively.
The Company's revenues also continue to be adversely affected by the
trend toward certain services being performed more frequently on an outpatient
basis. Generally, the payments received for an outpatient procedure are less
than for a similar procedure performed in an inpatient setting. The Company
believes that further payment reductions could occur as a result of the
implementation of a prospective payment system for Medicare outpatient services
(pursuant to the Balanced Budget Act and scheduled for implementation July 1,
2000). Growth in outpatient services is expected to continue in the health care
industry as procedures performed on an inpatient basis are converted to
outpatient procedures through continuing advances in pharmaceutical and medical
technologies. The redirection of certain procedures to an outpatient basis is
also influenced by pressures from payers to perform certain procedures as
outpatient care rather than inpatient care.
Reductions in Medicare and Medicaid reimbursement, the increasing
percentage of the patient volume being related to patients participating in
managed care plans and continuing trends toward more services being performed on
an outpatient basis are expected to present ongoing challenges. The challenges
presented by these trends are magnified by the Company's inability to control
these trends and the associated risks. To maintain and improve its operating
margins in future periods, the Company must, 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 believes that the proper response to these challenges
includes the delivery of a broad range of quality health care services to
patients by assuring that physicians with appropriate specializations practice
in the hospitals, that the appropriate equipment and range of specialized
services are available within the hospitals, and that the hospitals are
positioned as community assets.
As part of Columbia/HCA, the Company's facilities were included in
managed care contracts negotiated by Columbia/HCA on a market-wide basis
emphasizing large urban facilities. The Company's management believes that
independence from Columbia/HCA will help the Company over time to negotiate
contract terms that are generally more favorable for its facilities.
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Operating Results Summary
The following is a summary of results of operations for the three
months ended March 31, 2000 and 1999 (dollars in millions):
THREE MONTHS ENDED MARCH 31,
---------------------------------------
2000 1999
------------------- ------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
-------- -------- -------- --------
Revenues ............................ $ 136.0 100.0% $ 134.2 100.0%
Salaries & benefits ................. 55.7 41.0 57.1 42.6
Supplies ............................ 17.0 12.5 16.4 12.2
Other operating expenses ............ 29.7 21.8 28.5 21.3
Provision for doubtful accounts ..... 9.1 6.7 10.3 7.6
Depreciation & amortization ......... 8.4 6.1 7.5 5.6
Interest expense .................... 7.2 5.3 4.7 3.5
Management fees allocated from
Columbia/HCA ....................... -- -- 2.4 1.8
ESOP expense ........................ 1.1 0.8 -- --
-------- -------- -------- --------
128.2 94.2 126.9 94.6
Income before minority interests
and income taxes ................... 7.8 5.8 7.3 5.4
Minority interests in earnings of
consolidated entities .............. 0.6 0.5 0.4 0.3
-------- -------- -------- --------
Income before income taxes .......... 7.2 5.3 6.9 5.1
Provision for income taxes .......... 3.2 2.3 2.9 2.1
-------- -------- -------- --------
Net income .......................... $ 4.0 3.0% $ 4.0 3.0%
======== ======== ======== ========
% changes from prior year:
Revenues.............................. 1.4%
Income before income taxes............ 4.9
Net income............................ 1.3
Admissions (a)........................ (4.1)
Equivalent admissions (b)............. (0.1)
Revenues per equivalent admission..... 1.4
(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.
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16
For the Three Months Ended March 31, 2000 and 1999
Revenues increased 1.4% to $136.0 million for the three months ended
March 31, 2000 compared to $134.2 million for the three months ended March 31,
1999 primarily as a result of an increase in the number of higher intensity
services provided by the Company during the three months ended March 31, 2000
compared to the three months ended March 31, 1999. Inpatient admissions
decreased 4.1%, equivalent admissions (adjusted to reflect combined inpatient
and outpatient volume) decreased 0.1% and revenues per equivalent admission
increased 1.4% for the three months ended March 31, 2000 compared to the three
months ended March 31, 1999. Excluding the hospital sold during the three months
ended March 31, 2000, inpatient admissions decreased 2.3% and equivalent
admissions increased 1.8%. The remaining decrease in inpatient admissions is
primarily due to a lower number of low intensity services provided during the
three months ended March 31, 2000 compared to the three months ended March 31,
1999 and the closure of two skilled nursing facilities in 1999. The increase in
revenues per equivalent admission was primarily as a result of an increase in
the number of higher intensity services provided by the Company during the three
months ended March 31, 2000 compared to the three months ended March 31, 1999.
The increase in revenues per equivalent admission was partially offset by
decreases in Medicare reimbursement rates mandated by the Balanced Budget Act
which became effective October 1, 1997 (such rates lowered revenues by
approximately $0.3 million for the three months ended March 31, 2000 compared to
the three months ended March 31, 1999), and continued increases in the number of
managed care payers (managed care as a percentage of total admissions increased
to 21.4% for the three months ended March 31, 2000 compared to 19.0% for the
three months ended March 31, 1999). In addition, unfavorable cost report
adjustments of $0.3 million were recorded during the three months ended March
31, 2000 compared to favorable cost report adjustments of $0.4 million recorded
during the three months ended March 31, 1999.
Salaries and benefits decreased as a percentage of revenues to 41.0%
for the three months ended March 31, 2000 from 42.6% for the three months ended
March 31, 1999 primarily as a result of improvements in labor productivity.
Man-hours per equivalent admission decreased 1.6% over the same period in the
prior year.
Supply costs increased as a percentage of revenues to 12.5% for the
three months ended March 31, 2000 from 12.2% for the three months ended March
31, 1999. The cost of supplies per equivalent admission increased 3.7% primarily
as a result of increases in the number of surgeries performed by the Company
during the three months ended March 31, 2000 compared to the three months ended
March 31, 1999 as supply costs incurred in connection with surgeries are higher
than supply costs incurred for other procedures. In addition, the increase is
partially due to increases in pharmaceutical costs, other supplies and increases
in new product development costs and general inflation.
Other operating expenses increased as a percentage of revenues to 21.8%
for the three months ended March 31, 2000 from 21.3% for the three months ended
March 31, 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 increase was
primarily the result of an increase in physician recruitment costs and
non-income taxes.
Provision for doubtful accounts, as a percentage of revenues, decreased
to 6.7% for the three months ended March 31, 2000 from 7.6% for the three months
ended March 31, 1999 primarily due to the Company's concentration on collections
of accounts receivable.
Depreciation and amortization expense increased to $8.4 million for the
three months ended March 31, 2000 from $7.5 million for the three months ended
March 31, 1999 primarily due to the opening of a replacement facility in Bartow,
Florida in December 1999.
Interest expense increased to $7.2 million for the three months ended
March 31, 2000 from $4.7 million for the three months ended March 31, 1999. This
increase is primarily due to the interest expense incurred on the debt
obligations assumed from Columbia/HCA as discussed in Note 5 of the Notes to the
Condensed Consolidated Financial Statements. For the three months ended March
31, 1999, interest expense was primarily represented by interest incurred on the
net intercompany balance with Columbia/HCA; however, upon the Distribution, the
intercompany amounts payable by the Company to Columbia/HCA were eliminated.
15
17
As of the Distribution, Columbia/HCA no longer allocated management
fees to the Company; therefore, there were no management fees allocated by
Columbia/HCA for the three months ended March 31, 2000. Management fees
allocated by Columbia/HCA were $2.4 million for the three months ended March 31,
1999. This amount represented allocations, using revenues as the allocation
basis, of the corporate, general and administrative expenses of Columbia/HCA.
ESOP expense of $1.1 million relates to the Employee Stock Ownership
Plan established in connection with the Distribution.
Minority interests increased slightly as a percentage of revenues to
0.5% for the three months ended March 31, 2000 from 0.3% for the three months
ended March 31, 1999.
Income before income taxes increased to $7.2 million for the three
months ended March 31, 2000 compared to $6.9 million for the three months ended
March 31, 1999 primarily as a result of increases in revenues and decreases in
certain expenses as described above.
Net income remained constant at $4.0 million for the three months ended
March 31, 2000 and for the three months ended March 31, 1999.
Pro Forma Operating Results Summary
The following is a summary of pro forma results for the three months
ended March 31, 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 has previously identified as held for sale had occurred at the
beginning of 1999.
PRO FORMA COMPARISONS FOR THE
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
2000 1999
----------------- --------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
-------- -------- -------- --------
Revenues ............................... $ 128.9 100.0% $ 121.3 100.0%
Salaries & benefits .................... 52.0 40.3 50.6 41.8
Supplies ............................... 16.2 12.5 14.8 12.2
Other operating expenses ............... 27.3 21.3 26.9 22.2
Provision for doubtful accounts ........ 7.9 6.1 8.3 6.8
Depreciation & amortization ............ 7.6 5.9 6.7 5.5
Interest expense ....................... 7.2 5.6 6.6 5.5
ESOP expense ........................... 1.1 0.9 0.7 0.6
-------- -------- -------- --------
119.3 92.6 114.6 94.6
Income before minority interests
and income taxes ...................... 9.6 7.4 6.7 5.4
Minority interests in earnings of
consolidated entities ................. 0.6 0.5 0.4 0.4
-------- -------- -------- --------
Income before income taxes ............. 9.0 6.9 6.3 5.0
Provision for income taxes ............. 4.0 3.0 2.7 2.1
-------- -------- -------- --------
Net income ............................. $ 5.0 3.9% $ 3.6 2.9%
======== ======== ======== ========
Basic and diluted earnings per share:
Net income............................. $ 0.16 $ 0.12
% changes from prior year:
Revenues................................ 6.3%
Income before income taxes.............. 46.2
Net income.............................. 41.2
Admissions (a).......................... (0.1)
Equivalent admissions (b)............... 3.6
Revenues per equivalent admission....... 2.6
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18
(a) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient
volume.
(b) Equivalent admissions are used by management and certain investors as
a general measure of combined inpatient and outpatient volume.
Equivalent admissions are computed by multiplying admissions
(inpatient volume) by the sum of gross inpatient revenue and gross
outpatient revenue and then dividing the resulting amount by gross
inpatient revenue. The equivalent admissions computation "equates"
outpatient revenue to the volume measure (admissions) used to measure
inpatient volume resulting in a general measure of combined inpatient
and outpatient volume.
For the three months ended March 31, 2000, the only pro forma
adjustment is to eliminate the results of operations for the three facilities
which the Company's management has identified as held for sale. One of the three
facilities was sold effective February 1, 2000 and another was sold effective
April 1, 2000. See Notes 3 and 6 of the Notes to the Condensed Consolidated
Financial Statements.
For the three months ended March 31, 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 has 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 Columbia/HCA.
(4) To adjust interest expense for the elimination of all intercompany
amounts payable by the Company to Columbia/HCA and the assumption of
certain indebtedness from Columbia/HCA.
(5) To adjust income tax provision for the estimated impact of the pro
forma adjustments.
(6) Pro forma basic earnings per share was computed based upon
approximately 29.9 million shares of the Company's Common Stock which
were distributed to the stockholders of Columbia/HCA on the date of the
Distribution. Pro forma diluted earnings per share was computed based
upon approximately 30.2 million shares which includes the dilutive
effect of approximately 0.3 million shares related to stock options.
Pro Forma Comparisons of the Three Months Ended March 31, 2000 and 1999
The following discussion compares the results of the three months ended
March 31, 2000 to the results of the three months ended March 31, 1999, in each
case giving effect to the adjustments set forth above.
On a pro forma basis, revenues increased 6.3% to $128.9 million for the
three months ended March 31, 2000 compared to $121.3 million for the three
months ended March 31, 1999 primarily as a result of increases in the volume of
patients treated on an outpatient basis and an increase in the number of higher
intensity services provided by the Company during the three months ended March
31, 2000 compared to the three months ended March 31, 1999. Inpatient admissions
decreased 0.1%, equivalent admissions (adjusted to reflect combined inpatient
and outpatient volume) increased 3.6% and revenues per equivalent admission
increased 2.6% for the three months ended March 31, 2000 compared to the three
months ended March 31, 1999. The increase in revenues per equivalent admission
was primarily as a result of an increase in the number of higher intensity
services provided by the Company during the three months ended March 31, 2000
compared to the three months ended March 31, 1999. The increase in revenues per
equivalent admission was partially offset by decreases in Medicare reimbursement
rates mandated by the Balanced Budget Act which became
17
19
effective October 1, 1997 (such rates lowered revenues by approximately $0.2
million for the three months ended March 31, 2000 compared to the three months
ended March 31, 1999), and continued increases in the number of managed care
payers (managed care as a percentage of total admissions increased to 21.7% for
the three months ended March 31, 2000 compared to 19.5% for the three months
ended March 31, 1999).
On a pro forma basis, salaries and benefits decreased as a percentage
of revenues to 40.3% for the three months ended March 31, 2000 from 41.8% for
the three months ended March 31, 1999 primarily as a result of improvements in
labor productivity. Man-hours per equivalent admission decreased 1.8% over the
same period in the prior year.
On a pro forma basis, supply costs increased as a percentage of
revenues to 12.5% for the three months ended March 31, 2000 from 12.2% for the
three months ended March 31, 1999. The cost of supplies per equivalent admission
increased 5.1% primarily as a result of an increase in the number of surgeries
performed by the Company during the three months ended March 31, 2000 compared
to the three months ended March 31, 1999 as supply costs incurred in connection
with surgeries are higher than supply costs incurred for other procedures. In
addition, the increase is partially due to increases in pharmaceutical costs,
other supplies and increases in new product development costs and general
inflation.
On a pro forma basis, other operating expenses decreased as a
percentage of revenues to 21.3% for the three months ended March 31, 2000 from
22.2% for the three months ended March 31, 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.
On a pro forma basis, provision for doubtful accounts, as a percentage
of revenues, decreased to 6.1% for the three months ended March 31, 2000 from
6.8% for the three months ended March 31, 1999 primarily due to the Company's
concentration on collections of accounts receivable.
On a pro forma basis, depreciation and amortization expense increased
to $7.6 million for the three months ended March 31, 2000 from $6.7 million for
the three months ended March 31, 1999 primarily due to the opening of a
replacement facility in Bartow, Florida in December 1999.
On a pro forma basis, interest expense increased to $7.2 million for
the three months ended March 31, 2000 from $6.6 million for the three months
ended March 31, 1999 primarily as a result of higher actual interest rates at
March 31, 2000 compared to the interest rate assumptions used for the March 31,
1999 pro forma calculation of interest expense.
On a pro forma basis, ESOP expense increased to $1.1 million for the
three months ended March 31, 2000 from $0.7 million for the three months ended
March 31, 1999 primarily as a result of a higher average fair market value of
the Company's Common Stock at March 31, 2000 compared to the average fair market
value assumptions used for the March 31, 1999 pro forma calculation of ESOP
expense.
On a pro forma basis, minority interests increased slightly as a
percentage of revenues to 0.5% for the three months ended March 31, 2000 from
0.4% for the three months ended March 31, 1999.
On a pro forma basis, income before income taxes increased to $9.0
million for the three months ended March 31, 2000 compared to $6.3 million for
the three months ended March 31, 1999 primarily as a result of increases in
revenues and decreases in certain expenses as described above.
On a pro forma basis, net income increased to $5.0 million for the
three months ended March 31, 2000 compared to $3.6 million for the three months
ended March 31, 1999.
18
20
Liquidity and Capital Resources
Prior to the Distribution, the Company relied upon Columbia/HCA for
liquidity and sources of capital to supplement any needs not met by operations.
As an independent, publicly-traded company, the Company must now rely upon its
bank credit facilities and other traditional funding sources to supplement needs
not met by operations. At March 31, 2000, the Company had working capital of
$50.6 million compared to $42.2 million at December 31, 1999. The increase in
working capital was primarily due to a $13.1 million increase in cash from
December 31, 1999 primarily resulting from an increase in net cash collections.
In addition, accounts payable decreased by $10.7 million primarily due to
payments made to Columbia/HCA and payment of trade accounts payable. The
increase in working capital was partially offset by a decrease in accounts
receivable of approximately $6.2 million primarily due to collections and an
increase in accrued interest of $4.1 million.
Cash provided by operating activities was $20.9 million for the three
months ended March 31, 2000 compared to cash used in operating activities of
$0.2 million for the three months ended March 31, 1999. This increase was
primarily attributable to less of an increase in accounts receivable compared to
the increase in the same period of the prior year.
Cash used in investing activities was $7.2 million for the three months
ended March 31, 2000 compared to $14.9 million for the three months ended March
31, 1999. The decrease was primarily due to decreased capital expenditures of
$7.6 million during the three months ended March 31, 2000 compared to $14.7
million for the three months ended March 31, 1999. At March 31, 2000, there were
projects under construction which had an estimated additional cost to complete
and equip of approximately $9.4 million. These projects are scheduled for
completion by the end of 2000. 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 $47.0 million, excluding acquisitions.
Cash used in financing activities was $0.6 million for the three months
ended March 31, 2000 compared to cash provided by financing activities of $15.1
million for the three months ended March 31, 1999. The decrease was primarily
due to increases in the intercompany amounts payable by the Company to
Columbia/HCA prior to the Distribution.
Management does not consider the sale of any assets to be necessary to
repay the Company's indebtedness or to provide working capital. However, for
other reasons, certain of the Company's hospitals may be sold in the future from
time to time. At March 31, 2000, two of the Company's hospitals were held for
sale. One of the hospitals was sold effective April 1, 2000. See Note 6 of the
Notes to the Condensed Consolidated Financial Statements. 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 in 2000.
The Company intends to acquire additional hospitals and is actively
seeking such acquisitions. 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 in consideration of acquisitions.
The Company does not expect to pay dividends on its Common Stock in the
foreseeable future.
Contingencies
Based upon its review of public filings and statements made by
Columbia/HCA, LifePoint's management understands that Columbia/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
19
21
report regarding such matters is based solely upon such public filings and
statements. Management of LifePoint understands that Columbia/HCA is cooperating
in these investigations and that Columbia/HCA understands, through written
notice and other means, that it is a target in these investigations. Given the
breadth of the ongoing investigations, Columbia/HCA expects additional
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future. Columbia/HCA is the subject of a formal order of
investigation by the Commission. The Commission investigation includes the
anti-fraud, periodic reporting and internal accounting control provisions of the
federal securities laws. According to published reports, on July 2, 1999, a
federal jury in Tampa, Florida found two Columbia/HCA employees guilty of
conspiracy and making false statements on Medicare and 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.
Columbia/HCA is a defendant in several qui tam actions brought by
private parties on behalf of the United States of America, which have been
unsealed and served on Columbia/HCA. The actions allege, in general, that
Columbia/HCA and certain subsidiaries and/or affiliated partnerships violated
the False Claims Act by submitting improper claims to the government for
reimbursement. The lawsuits seek damages of three times the amount of all
Medicare or Medicaid claims (involving false claims) presented by the defendants
to the federal government, civil penalties of not less than $5,000 nor more than
$10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. The
government has intervened in six unsealed qui tam actions against Columbia/HCA.
Columbia/HCA is aware of additional qui tam actions that remain under seal and
believes that there are other sealed qui tam cases of which it is unaware.
Columbia/HCA is a defendant in a number of other suits, which allege,
in general, improper and fraudulent billing, overcharging, coding and physician
referrals, as well as other violations of law. Certain of the suits have been
conditionally certified as class actions.
It is too early to predict the effect or outcome of any of the ongoing
investigations or qui tam and other actions, or whether any additional
investigations or litigations will be commenced. If Columbia/HCA is found to
have violated federal or state laws relating to Medicare, Medicaid or similar
programs, Columbia/HCA could be subject to substantial monetary fines, civil and
criminal penalties, and exclusion from participation in the Medicare and
Medicaid programs. Similarly, the amounts in question in the qui tam and other
actions are substantial, and Columbia/HCA could be subject to substantial costs
resulting from an adverse outcome of one or more of such actions. In addition, a
number of derivative actions have been brought by purported stockholders of
Columbia/HCA against certain current and former officers and directors of
Columbia/HCA alleging breach of fiduciary duty and failure to take reasonable
steps to ensure that Columbia/HCA did not engage in illegal practices.
Management of LifePoint believes that the ongoing governmental
investigations and related media coverage may have had a negative effect on
Columbia/HCA's results of operations (which includes the Company for the periods
prior to the date of Distribution, which are presented herein). The extent to
which the Company may or may not continue to be affected after the Distribution
by the ongoing investigations of Columbia/HCA, the initiation of additional
investigations, if any, and the related media coverage cannot be predicted. It
is possible that these matters could have a material adverse effect on the
financial condition or results of operations of the Company in future periods.
In connection with the Distribution, Columbia/HCA has agreed to
indemnify the Company in respect of any losses, which it may incur arising from
the proceedings described above. Columbia/HCA has also agreed to indemnify the
Company in respect of any losses which it may incur as a result of proceedings
which may be commenced by government authorities or by private parties in the
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22
future that arise from acts, practices or omissions engaged in prior to the date
of the Distribution and relate to the proceedings described above. Columbia/HCA
has also agreed that, in the event that any hospital owned by the Company as of
the date of the Distribution is permanently excluded from participation in the
Medicare and Medicaid programs as a result of the proceedings described above,
then Columbia/HCA will make cash payments to the Company based on amounts as
defined in the Distribution Agreement by and among Columbia/HCA and the Company.
The Company has agreed with Columbia/HCA that, in connection with the pending
governmental investigations, it will negotiate with the government with respect
to a compliance agreement setting forth the Company's agreement to comply with
applicable laws and regulations. If any of such indemnified matters were
successfully asserted against the Company, or any of its facilities, and
Columbia/HCA failed to meet its indemnification obligations, then such losses
could have a material adverse effect on the business, financial position,
results of operations or prospects of the Company. Columbia/HCA has not
indemnified the Company for losses relating to any acts, practices and omissions
engaged in by the Company after the Distribution, whether or not the Company is
indemnified for similar acts, practices and omissions occurring prior to the
date of the Distribution.
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.
Inflation
The health care industry is labor intensive. Wages and other expenses
increase during periods of inflation and when shortages in marketplaces occur.
In addition, suppliers pass along rising costs to the Company in the form of
higher prices. The Company's ability to pass on these increased costs is limited
due to increasing regulatory and competitive pressures, as discussed above. 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 that
would significantly affect health care systems in the Company's markets. The
cost of certain proposals would be funded in significant part by reduction in
payments by government programs, including Medicare and Medicaid, to health care
providers or taxes levied on hospitals or other providers. While the Company is
unable to predict which, if any, proposals for health care reform will be
adopted; there can be no assurance that proposals adverse to the business of the
Company will not be adopted.
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OPERATING DATA
ACTUAL PRO FORMA
---------------- -----------------
2000 1999(g) 2000 1999(g)
------ ------- ------ ------
Number of hospitals in operations at
March 31........................... 22 23 20 20
June 30............................ 23 20
September 30....................... 23 20
December 31........................ 23 20
Licensed hospitals beds at (a):
March 31........................... 2,129 2,169 1,896 1,896
June 30............................ 2,169 1,896
September 30....................... 2,169 1,896
December 31........................ 2,169 1,896
Weighted average licensed beds (b):
Quarter:
First.............................. 2,143 2,169 1,896 1,896
Second............................. 2,169 1,896
Third.............................. 2,169 1,896
Fourth............................. 2,169 1,896
Year................................... 2,169 1,896
Average daily census (c):
Quarter:
First.............................. 801 863 758 785
Second............................. 714 646
Third.............................. 668 615
Fourth............................. 713 664
Year................................... 739 677
Admissions (d):
Quarter:
First.............................. 17,195 17,936 16,441 16,454
Second............................. 15,294 14,070
Third.............................. 15,018 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............................. 27,574 25,412
Third.............................. 27,762 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............................. 4.2 4.2
Third.............................. 4.1 4.0
Fourth............................. 4.1 4.1
Year................................... 4.2 4.2
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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.
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Item 3: Quantitative and Qualitative Disclosures about Market Risk
During the three months ended March 31, 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:
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
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.
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).
(b) Reports on Form 8-K filed during the quarter ended March 31, 2000:
None.
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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: May 11, 2000 /s/ Kenneth C. Donahey
-------------------------------------
Kenneth C. Donahey
Senior Vice President &
Chief Financial Officer
LifePoint Hospitals Holdings, Inc.
Date: May 11, 2000 /s/ Kenneth C. Donahey
-------------------------------------
Kenneth C. Donahey
Senior Vice President &
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
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.
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).
26