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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[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 0-23639
PROVINCE HEALTHCARE COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 62-1710772
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
105 WESTWOOD PLACE
SUITE 400
BRENTWOOD, TENNESSEE 37027
(Address of Principal Executive Offices) (Zip Code)
(615)370-1377
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 30, 2000
COMMON STOCK, $.01 PAR VALUE 20,142,762
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999.................................1
Condensed Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999...........................2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999...........................3
Notes to Condensed Consolidated Financial Statements......................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...........................................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.........................................................18
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
March 31, December 31,
2000 1999
-------- --------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 2,634 $ --
Accounts receivable, less allowance for doubtful
accounts of $14,048 at March 31, 2000, and
$16,494 at December 31, 1999 91,802 88,866
Inventories 11,253 11,122
Prepaid expenses and other 9,653 6,534
-------- --------
Total current assets 115,342 106,522
Property, plant and equipment, net 188,947 186,129
Other assets:
Cost in excess of net assets acquired, net 192,590 193,904
Other assets 22,055 15,658
-------- --------
Total assets $518,934 $502,213
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,552 $ 14,927
Accrued salaries and benefits 16,413 10,790
Accrued expenses 13,014 14,558
Current maturities of long-term obligations 2,486 2,223
-------- --------
Total current liabilities 44,465 42,498
Long-term obligations, less current maturities 262,560 259,992
Third-party settlements 8,031 4,597
Other liabilities 10,356 9,997
Minority interest 806 770
-------- --------
Total noncurrent liabilities 281,753 275,356
Stockholders' equity:
Common stock--$0.01 par value; authorized 25,000,000
shares; issued and outstanding 15,918,809 and
15,742,048 shares at March 31, 2000, and
December 31, 1999, respectively 159 157
Additional paid-in-capital 166,722 163,593
Retained earnings 25,835 20,609
-------- --------
Total stockholders' equity 192,716 184,359
-------- --------
Total liabilities and stockholders' equity $518,934 $502,213
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See accompanying notes.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31,
----------------------------
2000 1999
-------- -------
Revenue:
Net patient service revenue $103,413 $67,256
Management and professional services 3,139 3,450
Reimbursable expenses 1,711 1,777
Other 839 764
-------- -------
Net operating revenue 109,102 73,247
Expenses:
Salaries, wages and benefits 44,206 29,508
Reimbursable expenses 1,711 1,777
Purchased services 10,492 7,236
Supplies 12,351 8,217
Provision for doubtful accounts 8,069 4,676
Other operating expenses 9,799 6,145
Rentals and leases 1,803 1,683
Depreciation and amortization 6,332 4,177
Interest expense 5,212 2,575
Minority interest 36 58
Loss on sale of assets 2 --
-------- -------
Total expenses 100,013 66,052
-------- -------
Income before provision for income taxes 9,089 7,195
Provision for income taxes 3,863 3,130
-------- -------
Net income $ 5,226 $ 4,065
======== =======
Net income per common share:
Basic $ 0.33 $ 0.26
======== =======
Diluted $ 0.32 $ 0.25
======== =======
See accompanying notes.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,533 $ 13,318
INVESTING ACTIVITIES
Purchase of property, plant and equipment (7,265) (2,254)
Purchase of acquired companies (1,549) (4,920)
Other -- 238
-------- --------
Net cash used in investing activities (8,814) (6,936)
FINANCING ACTIVITIES
Proceeds from long-term debt 28,935 21,887
Repayments of debt (26,090) (18,094)
Issuance of common stock 3,070 368
-------- --------
Net cash provided by financing activities 5,915 4,161
-------- --------
Net increase in cash and cash equivalents 2,634 10,543
Cash and cash equivalents at beginning of period -- 2,113
-------- --------
Cash and cash equivalents at end of period $ 2,634 $ 12,656
======== ========
ACQUISITIONS
Fair value of assets acquired $ 2,330 $ 5,169
Liabilities assumed (781) (249)
-------- --------
Cash paid $ 1,549 $ 4,920
======== ========
See accompanying notes.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
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. Interim results are not necessarily
indicative of results that may be expected for the full year. In the opinion of
management, the accompanying interim financial statements contain all material
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the consolidated financial position, results of operations and
cash flows of Province Healthcare Company (the "Company").
The balance sheet at December 31, 1999, has been derived from the
audited financial statements at that date, but does not include all of the
financial information and footnotes required by generally accepted accounting
principles for complete financial statements.
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.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued, and 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. This Statement requires all
derivatives to be recorded on the balance sheet at fair value. This results in
the offsetting changes in fair values or cash flows of both the hedge and the
hedged item being recognized in earnings in the same period. Changes in fair
value of derivatives not meeting the Statement's hedge criteria are included in
income. The Company expects to adopt the new Statement January 1, 2001. The
Company does not expect the adoption of this Statement to have a significant
effect on its results of operations or financial position.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-(CONTINUED)
3. ACQUISITIONS
EUNICE COMMUNITY MEDICAL CENTER
In February 1999, the Company entered into a special services agreement
for the lease of Eunice Community Medical Center in Eunice, Louisiana by
purchasing assets totaling $4.9 million and assuming certain liabilities and
entering into a ten-year lease agreement with a five-year renewal option,
totaling $0.8 million. Cost in excess of net assets acquired in the acquisition
totaled approximately $2.9 million and is being amortized over 15 years.
GLADES GENERAL HOSPITAL
In April 1999, the Company acquired assets totaling $17.2 million and
assumed liabilities totaling $4.9 million of Glades General Hospital in Belle
Glade, Florida. To finance this acquisition, the Company borrowed $13.5 million
under its revolving credit facility. Cost in excess of net assets acquired in
the acquisition totaled approximately $8.9 million and is being amortized over
35 years.
DOCTORS' HOSPITAL OF OPELOUSAS
In June 1999, the Company acquired assets totaling $25.7 million and
assumed liabilities totaling $2.8 million of Doctors' Hospital of Opelousas, in
Opelousas, Louisiana. To finance this acquisition, the Company borrowed $22.0
million under its revolving credit facility. Cost in excess of net assets
acquired in the acquisition totaled approximately $5.1 million and is being
amortized over 35 years.
TRINITY VALLEY MEDICAL CENTER AND MINDEN MEDICAL CENTER
In October 1999, the Company acquired assets totaling $82.5 million and
assumed liabilities totaling $4.2 million of Trinity Valley Medical Center in
Palestine, Texas and Minden Medical Center in Minden, Louisiana. To finance this
acquisition, the Company borrowed $77.0 million under its revolving credit
facility. Trinity Valley Medical Center was merged with and into Memorial Mother
Frances Hospital, a hospital already owned by the Company, in Palestine, Texas,
and the name changed to Palestine Regional Medical Center. Cost in excess of net
assets acquired in the acquisition totaled approximately $37.1 million and is
being amortized over 35 years.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-(CONTINUED)
ENNIS REGIONAL HOSPITAL
In February 2000, the Company acquired, through a long-term lease
agreement, the assets and business of the City of Ennis Hospital. The long-term
lease payments total $3.0 million over a 30-year period, including a rent
prepayment of $2.0 million. To finance this acquisition, the Company borrowed
$2.0 million under its revolving credit facility. The unallocated purchase price
is included in other assets on the balance sheet at March 31, 2000. The hospital
had been closed prior to its acquisition by the Company.
All of the acquisitions described above were accounted for as purchase
business combinations, and the results of operations of the hospitals have been
included in the results of operations of the Company from the purchase date
forward.
The following pro forma information reflects the operations of the
entities acquired in 2000 and 1999, as if the respective transactions had
occurred at the beginning of the periods presented (in thousands, except per
share data):
Three Months Ended
March 31,
-----------------------------
2000 1999
----------- -----------
Net operating revenue $ 109,102 $ 105,806
Net income to common shareholders 5,226 8,510
Basic net income per share to common shareholders 0.33 0.54
Diluted net income per share to common shareholders 0.32 0.53
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.
4. LONG-TERM OBLIGATIONS
At March 31, 2000, the Company had $252.3 million outstanding under its
revolving line of credit and $37.4 million available, which includes
availability under the end-loaded lease facility that can be converted to
revolver availability at the Company's option.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-(CONTINUED)
5. COMPREHENSIVE INCOME
The Company had no items of other comprehensive income in 2000 or 1999,
and accordingly, comprehensive income is equivalent to net income.
6. INCOME TAXES
The income tax provision for the three months ended March 31, 2000 and
1999, differs from the statutory income tax computation due to permanent
differences and the provision for state income taxes. The IRS is currently
engaged in an examination of the predecessor company's federal income tax
returns for 1995 and 1996. Finalization of the examination is not expected to
have a significant effect on the financial condition or results of operations of
the Company.
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended March 31,
----------------------------
2000 1999
------- -------
Numerator:
Net income to common shareholders $ 5,226 $ 4,065
======= =======
Denominator:
Denominator for basic income per share
to common shareholders - -
Weighted-average shares 15,770 15,709
Effect of dilutive securities -
Employee stock options 562 312
------- -------
Denominator for diluted income per share
to common shareholders - -
Adjusted weighted average shares 16,332 16,021
======= =======
Basic net income per share
to common shareholders $ 0.33 $ 0.26
======= =======
Diluted net income per share
to common shareholders $ 0.32 $ 0.25
======= =======
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-(CONTINUED)
During the first quarter of 2000, employees exercised options to acquire
155,081 shares of common stock at an average exercise price of $17.53 per share.
Also, during the three-month period ended March 31, 2000, the Company issued
21,680 shares of common stock at a price of $16.15 per share under its Employee
Stock Purchase Plan.
8. CONTINGENCIES
Management continually evaluates contingencies based on the best
available evidence and believes that adequate provision for losses has been
provided to the extent necessary. In the opinion of management, the ultimate
resolution of the following contingencies will not have a material effect on the
Company's results of operations or financial position.
GENERAL AND PROFESSIONAL LIABILITY RISKS
At December 31, 1999, the Company purchased a tail policy in the
commercial insurance market to transfer all risk for its professional liability.
LITIGATION
The Company is currently, and from time to time is expected to be,
subject to claims and suits arising in the ordinary course of business.
NET PATIENT SERVICE REVENUE
Final determination of amounts earned under the Medicare and Medicaid
programs often occurs in subsequent periods because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Differences between original estimates and subsequent revisions (including
settlements) are included in the statement of income in the period in which
revisions are made, and resulted in minimal adjustments for the three-month
period ended March 31, 2000, and increases in net patient service revenue of
$0.9 million, or 1.3% of net patient revenue, for the three-month period ended
March 31, 1999.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-(CONTINUED)
FINANCIAL INSTRUMENTS
Interest rate swap agreements are used to manage the Company's interest
rate exposure under the Credit Agreement. In 1997, the Company entered into an
interest rate swap agreement, which effectively converted for a five-year period
$35.0 million of floating-rate borrowings to fixed-rate borrowings. In 1998, the
Company entered into an interest rate swap agreement, which effectively
converted for a five-year period $45.0 million of floating-rate borrowings to
fixed-rate borrowings. The Company secured a 6.27% fixed interest rate on the
1997 swap agreement, and a 5.625% fixed interest rate on the 1998 swap
agreement. These agreements expose the Company to credit losses in the event of
non-performance by the counterparties to its financial instruments. The Company
anticipates that the counterparties will fully satisfy their obligations under
the contracts.
9. SUBSEQUENT EVENTS
In April, 2000, the Company completed its public offering of 4,222,504
shares of common stock. Net proceeds from the offering were approximately $95.2
million, which were used to reduce existing bank debt.
In April, 2000, the Company acquired, through a long-term lease
agreement, the assets and business of the 200-bed Bolivar Medical Center in
Cleveland, Mississippi, from Bolivar County. To finance the prepaid lease
payment of $25.8 million, the Company borrowed $24.6 million under its revolving
credit facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following along with the Condensed Consolidated
Financial Statements and accompanying notes.
OVERVIEW
We are a healthcare services company focused on acquiring and operating
hospitals in attractive non-urban markets in the United States. As of March 31,
2000, we owned and operated 15 general acute care hospitals in eight states with
a total of 1,327 licensed beds, and managed 48 hospitals in 19 states and Puerto
Rico, with a total of 3,602 licensed beds. In addition, in April 2000, we
entered into a long-term lease agreement to acquire the assets and business of
Bolivar Medical Center, a 200-bed facility located in Bolivar, Mississippi.
Our owned and leased hospitals accounted for 95.5% and 92.9% of our net
operating revenue in the three months ended March 31, 2000 and 1999,
respectively.
IMPACT OF ACQUISITIONS
1999 Acquisitions
In February 1999, we entered into a special services agreement for the
lease of Eunice Community Medical Center in Eunice, Louisiana, by purchasing
assets totaling $4.9 million and assuming certain liabilities and entering into
a ten-year lease agreement, with a five-year renewal option, totaling $0.8
million. We are obligated under the lease to construct a replacement facility
(currently estimated to cost approximately $20.0 million) at such time as the
net patient service revenue of the hospital reaches a pre-determined level. The
lease will terminate at the time the replacement facility commences operations.
In April 1999, we acquired assets totaling $17.2 million and assumed
liabilities totaling $4.9 million of Glades General Hospital in Belle Glade,
Florida. To finance this acquisition, we borrowed $13.5 million under our
revolving credit facility. We are obligated under the Asset Purchase Agreement
to build a replacement hospital following the fifth year after the closing, at a
cost of not less than $25.0 million, contingent upon the hospital meeting
certain financial targets following the closing.
In June 1999, we acquired assets totaling $25.7 million and assumed
certain liabilities totaling $2.8 million of Doctors' Hospital of Opelousas in
Opelousas, Louisiana. To finance this acquisition, we borrowed $22.0 million
under our revolving credit facility.
In October 1999, we acquired assets totaling $82.5 million and assumed
liabilities totaling $4.2 million of Trinity Valley Medical Center in Palestine,
Texas and Minden Medical Center in Minden, Louisiana. To finance the
acquisition, we borrowed $77.0 million under our revolving
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credit facility. Following the acquisition, we merged Trinity Valley Medical
Center into Memorial Mother Frances Hospital, a hospital that we already owned
in Palestine, Texas, and changed the name of the hospital to Palestine Regional
Medical Center.
2000 Acquisitions
In February 2000, we acquired, through a long-term lease agreement, the
assets and business of the 45-bed City of Ennis Hospital from the City of Ennis,
Texas. The long-term lease totals $3.0 million over a 30-year period, including
a prepayment of $2.0 million. To finance the lease payment, we borrowed $2.0
million under our revolving credit facility.
All of the acquisitions described above were accounted for as purchase
business combinations, and the results of operations of the hospitals have been
included in our results of operations from the purchase dates forward. The March
31, 2000 results include three months of operations for Eunice Community Medical
Center, Glades General Hospital, and Doctors' Hospital of Opelousas, and one and
one-half months of operations for City of Ennis Hospital. The March 31, 1999
results include one month and six days of operations for Eunice Community
Medical Center. These acquisitions are collectively referred to in this
discussion as "the Acquisitions."
In April 2000, we acquired, through a long-term lease agreement, the
assets and business of the 200-bed Bolivar Medical Center in Cleveland,
Mississippi, from Bolivar County. To finance the prepaid lease payment of $25.8
million, we borrowed $24.6 million under our revolving credit facility.
Due to the relatively small number of owned and leased hospitals, each
hospital acquisition can materially affect our overall operating margin. Upon
the acquisition of a hospital, we typically take 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 we make additional hospital
acquisitions, we expect that this effect will be mitigated by the expanded
financial base of existing hospitals and the allocation of corporate overhead
among a larger number of hospitals.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenue. Such information has been
derived from our Condensed Consolidated Statements of Income included elsewhere
in this report. The results of operations for the periods presented include
hospitals from their acquisition dates, as discussed above.
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Percentage
Increase (Decrease)
Three Months Ended March 31, of Dollar Amounts
---------------------------- -----------------
2000 1999
------ ------
Net operating revenue 100.0% 100.0% 49.0%
Operating expenses (1) 81.1 80.9 49.3
------ ------
EBITDA (2) 18.9 19.1 47.6
Depreciation and amortization 5.8 5.7 51.6
Interest 4.8 3.5 102.4
Minority interest 0.0 0.1 (37.9)
Loss on sale of assets 0.0 0.0 0.0
------ ------
Income before income taxes 8.3 9.8 25.8
Provision for income taxes 3.5 4.3 23.4
------ ------
Net income 4.8% 5.5% 28.6%
====== ======
(1) Operating expenses represent expenses before interest, minority
interest, loss on sale of assets, income taxes, depreciation and
amortization expense.
(2) EBITDA represents the sum of income before income taxes, interest,
minority interest, depreciation and amortization, and loss on sale of
assets. We understand that industry analysts generally consider EBITDA
to be one measure of the financial performance of a company that is
presented to assist investors in analyzing the operating performance of
the Company and its ability to service debt. We believe that an increase
in EBITDA level is an indicator of our improved ability to service
existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
operating performance or to cash flows from operating, investing, or
financing activities as a measure of liquidity. Given that EBITDA is not
a measurement determined in accordance with generally accepted
accounting principles and is thus susceptible to varying calculations,
EBITDA, as presented, may not be comparable to other similarly titled
measures of other companies.
SELECTED OPERATING STATISTICS - OWNED OR LEASED HOSPITALS
The following table sets forth certain operating statistics for our
company's owned or leased hospitals for each of the periods presented.
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Three Months Ended
March 31,
------------------------------
2000 1999
------------ -----------
CONSOLIDATED HOSPITALS:
Number of hospitals end of period 15 11
Licensed beds end of period 1,327 802
Beds in service end of period 1,231 732
Inpatient admissions 10,949 7,099
Patient days 51,559 36,266
Adjusted patient days 87,881 61,049
Average length of stay (days) 4.7 5.1
Occupancy rates (licensed beds) 42.7% 50.2%
Occupancy rates (beds in service) 46.0% 55.0%
Gross inpatient revenue $127,213,506 $75,239,271
Gross outpatient revenue 89,617,715 51,432,780
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net operating revenue was $109.1 million for the three months ended March
31, 2000, compared to $73.2 million for the comparable period of 1999, an
increase of $35.9 million or 49.0%. Cost report settlements and the filing of
cost reports resulted in minimal revenue adjustments for the three months ended
March 31, 2000, and an increase in revenue of $0.9 million (1.3% of net patient
service revenue) for the three-month period ended March 31, 1999. Net patient
revenue generated by hospitals owned during both periods increased $13.8
million, or 21.1%, resulting from market expansion, inpatient and outpatient
volume increases, new services and price increases. The remaining increase was
primarily attributable to the Acquisitions.
Operating expenses were $88.4 million, or 81.1% of net operating revenue,
for the three months ended March 31, 2000, compared to $59.2 million, or 80.9%
of net operating revenue, for the comparable period of 1999. The provision for
doubtful accounts increased to 7.4% of net revenue in 2000 from 6.4% of net
revenue in 1999, primarily as a result of the Acquisitions. The majority of the
increase in operating expenses was attributable to the Acquisitions. Operating
expenses of hospitals owned during both periods decreased to 73.2% of net
operating revenue for the three months ended March 31, 2000, compared to 75.7%
for the comparable period of 1999.
EBITDA was $20.7 million or 18.9% of net operating revenue for the three
months ended March 31, 2000, compared to $14.0 million, or 19.1% of net
operating revenue, for the comparable period of 1999, primarily as a result of
the Acquisitions.
Depreciation and amortization expense was $6.3 million, or 5.8% of net
operating revenue, for the three months ended March 31, 2000, compared to $4.2
million, or 5.7% of net operating revenue for the comparable period of 1999. The
increase in depreciation and amortization resulted primarily from the
Acquisitions. Interest expense as a percent of net operating revenue increased
to 4.8% for
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the three months ended March 31, 2000, from 3.5% for the comparable period of
1999, as a result of the Acquisitions.
Income before provision for income taxes was $9.1 million for the three
months ended March 31, 2000, compared to $7.2 million for the comparable period
of 1999, an increase of $1.9 million or 26.4%.
Our provision for income taxes was $3.9 million for the three months
ended March 31, 2000, compared to $3.1 million for the comparable period of
1999. These provisions reflect effective income tax rates of 42.5% for the 2000
period, compared to 43.5% for the 1999 period. As a result of the foregoing, our
net income was $5.2 million, or 4.8% of net operating revenue, for the three
months ended March 31, 2000, compared to $4.1 million, or 5.5% of net operating
revenue for the comparable period of 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had working capital of $70.9 million, including
cash and cash equivalents of $2.6 million. The ratio of current assets to
current liabilities was 2.6 to 1.0 at March 31, 2000, and 2.5 to 1.0 at December
31, 1999.
Total long-term obligations increased to $262.6 million at March 31,
2000, from $260.0 million at December 31, 1999. The increase resulted primarily
from borrowings, under our revolving credit facility, to finance the City of
Ennis Hospital acquisition.
Cash provided by operations was $5.5 million for the three months ended
March 31, 2000. Cash used in investing activities was $8.8 million for the three
months ended March 31, 2000, relating primarily to acquisitions and capital
expenditures. Net cash provided by financing activities was $5.9 million for the
three months ended March 31, 2000, primarily as a result of net borrowings on
the revolving line of credit to finance acquisitions, and issuance of common
stock through exercise of stock options and through the Employee Stock Purchase
Plan.
We intend to acquire additional acute care facilities, and are actively
seeking out such acquisitions. There can be no assurance that we will not
require additional debt or equity financing for any particular acquisition.
Also, we continually review our capital needs and financing opportunities and
may seek additional equity or debt financing for our acquisition program or
other needs.
Capital expenditures, excluding acquisitions, for the three months ended
March 31, 2000 and 1999, were $7.3 million and $2.3 million, respectively.
Capital expenditures for the owned hospitals may vary from year to year
depending on facility improvements and service enhancements undertaken by the
hospitals. We expect to make total capital expenditures in 2000 of approximately
$24.3 million, exclusive of any acquisitions of businesses or construction
projects. Planned capital expenditures for 2000 consist principally of capital
improvements to owned and leased hospitals. We expect to fund these expenditures
through cash provided by operating activities and borrowings under our revolving
credit facility.
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In April 2000, we completed our public offering of 4,222,504 shares of
common stock. Net proceeds from the offering were approximately $95.2 million,
which were used to reduce existing bank debt.
IMPACT OF YEAR 2000
In late 1999, we completed our remediation and testing of systems to
become Year 2000 ready. As a result of those planning and implementation
efforts, we experienced no disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from Year 2000 issues, either with our services, our
internal systems, or the products and services of third parties. We will
continue to monitor our mission critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
GENERAL
The federal Medicare program accounted for approximately 60.5% and 61.8%
of hospital patient days for the three months ended March 31, 2000 and 1999,
respectively. The state Medicaid programs accounted for approximately 13.7% and
9.1% of hospital patient days for the three months ended March 31, 2000 and
1999, respectively. The payment rates under the Medicare program for inpatients
are prospective, based upon the diagnosis of a patient. The Medicare payment
rate increases historically have been less than actual inflation.
Both federal and state legislators are continuing to scrutinize the
health care industry for the purpose of reducing health care costs. While we are
unable to predict what, if any, future health reform legislation may be enacted
at the federal or state level, we expect continuing pressure to limit
expenditures by governmental health care programs. The Balanced Budget Act of
1997 imposed certain limitations on increases in the inpatient Medicare rates
paid to acute care hospitals. Payments for Medicare outpatient services provided
at acute care hospitals and home health services historically have been paid
based on costs, subject to certain limits. The Balanced Budget Act of 1997
requires that the payment for those services be converted to a prospective
payment system, which will be phased in over time. The Balanced Budget Act of
1997 also includes a managed care option that could direct Medicare patients to
managed care organizations. Further changes in the Medicare or Medicaid programs
and other proposals to limit health care spending could have a material adverse
impact upon the health care industry and our company.
Some of our acute care hospitals, like most acute care hospitals in the
United States, have significant unused capacity. The result is substantial
competition for patients and physicians. Inpatient utilization continues to be
affected negatively by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. We expect increased competition and admission
constraints to continue in the future. The ability to respond successfully to
these trends, as well as spending reductions in governmental health care
programs, will play a significant role in determining the ability of our
hospitals to maintain their current rate of net revenue growth and operating
margins.
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We expect the industry trend in increased outpatient services to continue
because of the increased focus on managed care and advances in technology.
Outpatient revenue of our owned or leased hospitals was approximately 41.3% and
40.6% of gross patient service revenue for the three months ended March 31, 2000
and 1999, respectively.
The billing and collection of accounts receivable by hospitals are
complicated by:
- the complexity of the Medicare and Medicaid regulations;
- increases in managed care;
- hospital personnel turnover;
- the dependence of hospitals on physician documentation of medical
records; and
- the subjective judgment involved.
There can be no assurance that this complexity will not negatively impact
our future cash flows or results of operations.
The federal government and a number of states are rapidly increasing the
resources devoted to investigating allegations of fraud and abuse in the
Medicare and Medicaid programs. At the same time, regulatory and law enforcement
authorities are taking an increasingly strict view of the requirements imposed
on providers by the Social Security Act and Medicare and Medicaid regulations.
Although we believe that we are in material compliance with such laws, a
determination that we have violated such laws, or even the public announcement
that we were being investigated concerning possible violations, could have a
material adverse effect on our company.
Our historical financial trend has been impacted favorably by our success
in acquiring acute care hospitals. While we believe that trends in the health
care industry described above may create possible future acquisition
opportunities, there can be no assurances that we can continue to maintain our
current growth rate through hospital acquisitions and successfully integrate the
hospitals into our system.
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in our financial statements. Resolution of
matters, for example, final settlements with third party payors, may result in
changes from those estimates. The timing and amount of such changes in estimates
may cause fluctuations in our quarterly or annual operating results.
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FORWARD-LOOKING STATEMENTS
This report and other materials we have filed or may file with the
Securities and Exchange Commission, as well as information included in oral
statements or other written statements made, or to be made, by us, contain, or
will contain, 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 address, among other things, our
strategic objectives. These forward-looking statements are based on the current
plans and expectations of our management and are subject to a number of
uncertainties and risks that could significantly affect our current plans and
expectations and future financial condition and results. These factors include,
but are not limited to:
- the highly competitive nature of the healthcare business;
- the efforts of insurers, healthcare providers and others to
contain healthcare costs;
- possible changes in the Medicare program that may further limit
reimbursements to healthcare providers and insurers;
- changes in federal, state or local regulation affecting the
healthcare industry;
- the possible enactment of federal or state healthcare reform;
- the departure of key members of our management;
- claims and legal actions relating to professional liability;
- our ability to implement successfully our acquisition and
development strategy;
- potential federal or state investigations;
- fluctuations in the market value of our common stock;
- changes in accounting practices;
- changes in general economic conditions; and
- other risks described in this report.
As a consequence, current plans, anticipated actions and future financial
conditions and results may differ from those expressed in any forward-looking
statements made by or on behalf of our company. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. You are cautioned not to unduly
rely on such forward-looking statements when evaluating the information
presented herein.
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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 our Annual Report on Form 10-K for the year ended December 31,
1999.
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PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The deadline for delivering your notice of shareholder proposal, other
than proposal to be included in the proxy statement for the 2001 Annual Meeting
of Shareholders, will be March 2, 2001, pursuant to Rule 14a-4 under the
Securities Exchange Act of 1934. The persons named as proxies in the proxy
statement may exercise discretionary voting authority with respect to any matter
that is not submitted to us by such date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description of Exhibits
3.1 Amended and Restated Certificate of Incorporation of Province
Healthcare Company (a)
3.2 Amended and Restated Bylaws of Province Healthcare Company (a)
10.1 Executive Severance Agreement by and between Province
Healthcare Company and Martin S. Rash, dated October 18, 1999
10.2 Executive Severance Agreement by and between Province
Healthcare Company and James Thomas Anderson, dated October
18,1999
10.3 Executive Severance agreement by and between Province
Healthcare Company and John M. Rutledge, dated October 18,
1999
10.4 Executive Severance Agreement by and between Province
Healthcare Company and Howard T. Wall III, dated October 18,
1999
27.1 Financial Data Schedule (for SEC use only)
-------------------------
(a) Incorporated by reference to the Exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 333-34421
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(b) Reports on Form 8-K
During the three months ended March 31, 2000, the Company filed a Form
8-K, dated March 2, 2000, relating to the Company's agreement to lease from the
City of Ennis, Texas the City of Ennis Hospital located in Ennis, Texas.
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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.
PROVINCE HEALTHCARE COMPANY
Date: May 12, 2000 By: /s/ Brenda B. Rector
--------------- ----------------------------------------
Brenda B. Rector
Vice President and Controller
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EXHIBIT INDEX
Exhibit
Number Description of Exhibits
------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of Province
Healthcare Company (a)
3.2 Amended and Restated Bylaws of Province Healthcare Company (a)
10.1 Executive Severance Agreement by and between Province
Healthcare Company and Martin S. Rash, dated October 18, 1999
10.2 Executive Severance Agreement by and between Province
Healthcare Company and James Thomas Anderson, dated October
18,1999
10.3 Executive Severance agreement by and between Province
Healthcare Company and John M. Rutledge, dated October 18,
1999
10.4 Executive Severance Agreement by and between Province
Healthcare Company and Howard T. Wall III, dated October 18,
1999
27.1 Financial Data Schedule (for SEC use only)
-------------------------
(a) Incorporated by reference to the Exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 333-34421