1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
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 September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
COMMISSION FILE NUMBER 0-23639
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 OCTOBER 29, 1999
COMMON STOCK, $.01 PAR VALUE 15,728,681
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998............................1
Condensed Consolidated Statements of Income
Three Months Ended September 30, 1999 and 1998......................2
Condensed Consolidated Statements of Income
Nine Months Ended September 30, 1999 and 1998.......................3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998.......................4
Notes to Condensed Consolidated Financial Statements......................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..........................................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK........................................................25
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
September 30, December 31,
1999 1998
-------- --------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 5,064 $ 2,113
Accounts receivable, less allowance for doubtful
accounts of $12,035 at September 30, 1999, and
$9,033 at December 31, 1998 65,448 51,253
Inventories 9,111 7,083
Prepaid expenses and other 7,209 10,211
-------- --------
Total current assets 86,832 70,660
Property, plant and equipment, net 124,276 112,114
Other assets:
Cost in excess of net assets acquired, net 153,578 142,017
Other assets 108,155 12,713
-------- --------
Total assets $472,841 $337,504
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,353 $ 6,786
Accrued salaries and benefits 11,064 8,655
Accrued expenses 6,330 2,710
Current maturities of long-term obligations 2,059 1,797
-------- --------
Total current liabilities 28,806 19,948
Long-term obligations, less current maturities 251,432 134,301
Third-party settlements 2,773 3,502
Other liabilities 9,113 9,862
Minority interest 717 700
-------- --------
Total noncurrent liabilities 264,035 148,365
Stockholders' equity:
Common stock--$0.01 par value; authorized 25,000,000
shares; issued and outstanding 15,728,463 and
15,704,578 shares at September 30, 1999, and
December 31, 1998, respectively 157 157
Additional paid-in-capital 163,339 162,926
Retained earnings 16,504 6,108
-------- --------
Total stockholders' equity 180,000 169,191
-------- --------
Total liabilities and stockholders' equity $472,841 $337,504
======== ========
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
September 30,
---------------------
1999 1998
-------- -------
Revenue:
Net patient service revenue $ 80,016 $61,977
Management and professional services 3,402 2,889
Reimbursable expenses 1,644 1,639
Other 620 766
-------- -------
Net operating revenue 85,682 67,271
Expenses:
Salaries, wages and benefits 34,293 27,202
Reimbursable expenses 1,644 1,639
Purchased services 10,591 7,192
Supplies 9,637 6,862
Provision for doubtful accounts 6,017 5,988
Other operating expenses 8,041 5,263
Rentals and leases 1,869 1,584
Depreciation and amortization 4,908 3,826
Interest expense 3,310 3,132
Minority interest 22 33
Gain on sale of assets (2) --
-------- -------
Total expenses 80,330 62,721
-------- -------
Income before provision for income taxes 5,352 4,550
Provision for income taxes 2,328 2,019
-------- -------
Net income $ 3,024 $ 2,531
======== =======
Net income per common share:
Basic $ 0.19 $ 0.17
======== =======
Diluted $ 0.19 $ 0.16
======== =======
See accompanying notes.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended
September 30,
------------------------
1999 1998
--------- ---------
Revenue:
Net patient service revenue $ 222,151 $ 155,968
Management and professional services 10,576 8,783
Reimbursable expenses 5,104 4,752
Other 2,322 2,250
--------- ---------
Net operating revenue 240,153 171,753
Expenses:
Salaries, wages and benefits 96,504 67,910
Reimbursable expenses 5,104 4,752
Purchased services 27,255 20,353
Supplies 26,944 17,024
Provision for doubtful accounts 16,806 13,367
Other operating expenses 21,422 14,333
Rentals and leases 5,358 4,267
Depreciation and amortization 13,581 9,373
Interest expense 8,675 7,792
Minority interest 113 129
Loss (gain) on sale of assets (10) 45
--------- ---------
Total expenses 221,752 159,345
--------- ---------
Income before provision for income taxes 18,401 12,408
Provision for income taxes 8,005 5,468
--------- ---------
Net income 10,396 6,940
Preferred stock dividends and accretion -- (696)
--------- ---------
Net income to common shareholders $ 10,396 $ 6,244
========= =========
Basic earnings per common share:
Net income $ 0.66 $ 0.55
Preferred stock dividends and accretion -- (0.05)
--------- ---------
Net income to common shareholders $ 0.66 $ 0.50
========= =========
Diluted earnings per common share:
Net income $ 0.65 $ 0.54
Preferred stock dividends and accretion -- (0.06)
--------- ---------
Net income to common shareholders $ 0.65 $ 0.48
========= =========
See accompanying notes.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Nine Months Ended
September 30,
------------------------
1999 1998
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 21,976 $ (6,302)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (11,990) (10,778)
Purchase of acquired companies (42,800) (130,869)
Cash held for acquisitions (77,000) --
Other 340 (111)
--------- ---------
Net cash used in investing activities (131,450) (141,758)
FINANCING ACTIVITIES
Proceeds from long-term debt 151,864 228,580
Repayments of debt (39,821) (185,075)
Issuance of common stock 382 142,614
Repurchase of common stock -- (14,884)
Redemption of Senior Preferred Stock -- (22,739)
--------- ---------
Net cash provided by financing activities 112,425 148,496
--------- ---------
Net increase in cash and cash equivalents 2,951 436
Cash and cash equivalents at beginning of period 2,113 4,186
--------- ---------
Cash and cash equivalents at end of period $ 5,064 $ 4,622
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period $ 8,291 $ 5,957
========= =========
Income taxes paid during the period $ 8,112 $ 4,239
========= =========
NONCASH TRANSACTIONS
Dividends and accretion on preferred stock $ -- $ 696
Conversion and redemption of preferred stock -- 33,138
Property and equipment acquired through
capital leases 1,175 765
ACQUISITIONS
Fair value of assets acquired $ 45,516 $ 133,710
Liabilities assumed (2,716) (2,841)
--------- ---------
Cash paid $ 42,800 $ 130,869
========= =========
See accompanying notes.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
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, 1998, 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, 1998.
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
HAVASU SAMARITAN REGIONAL HOSPITAL
In May 1998, the Company acquired Lake Havasu Regional Medical Center
in Lake Havasu City, Arizona, for approximately $107.5 million. To finance this
acquisition, the Company borrowed $106.0 million under its revolving credit
facility. Cost in excess of net assets acquired in the acquisition totaled
approximately $76.5 million and is being amortized over 35 years.
ELKO GENERAL HOSPITAL
In June 1998, the Company acquired Elko General Hospital in Elko,
Nevada, for a purchase price of approximately $24.9 million. 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 $17.7 million and is being amortized over 35 years. The Company
has committed to spend a minimum of $30.0 million on a replacement facility
within thirty-six months of the acquisition close date.
EUNICE COMMUNITY MEDICAL CENTER
In February 1999, the Company entered into a special services agreement
for the lease of Eunice Community Medical Center ("Eunice") in Eunice,
Louisiana, by purchasing certain assets, assuming certain liabilities and
entering into a ten-year lease agreement, with a five-year renewal option. The
transaction was accounted for as a purchase business combination, with an
estimated purchase price of approximately $4.6 million. The allocation of the
purchase price associated with this acquisition has been determined based upon
available information and is subject to further refinement, pending final
settlement of working capital acquired. The Company is 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.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
GLADES GENERAL HOSPITAL
On April 12, 1999, the Company acquired certain net assets and the
business of Glades General Hospital ("Glades"), in Belle Glade, Florida for
approximately $17.3 million. To finance this acquisition, the Company borrowed
$13.5 million under its revolving credit facility. The Company has refined the
previous estimated purchase price, and the allocation of the purchase price has
been determined, based upon currently available information. The Company is
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 Glades meeting certain financial targets following the
closing.
DOCTORS' HOSPITAL OF OPELOUSAS
On June 1, 1999, the Company acquired certain net assets and the
business of Doctors' Hospital of Opelousas ("Opelousas"), in Opelousas,
Louisiana for approximately $24.0 million. To finance this acquisition, the
Company borrowed $22.0 million under its revolving credit facility. The
unallocated purchase price is included in other assets on the balance sheet at
September 30, 1999. The purchase price will be allocated upon final settlement
of the working capital acquired.
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 1999 and 1998, as if the respective transactions had
occurred at the beginning of the periods presented (in thousands, except per
share data):
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net operating revenue $ 85,682 $ 84,632 $261,975 $255,591
Net income 3,024 2,474 10,264 6,164
Net income to common shareholders 3,024 2,474 10,264 5,468
Basic earnings per common share:
Net income $ 0.19 $ 0.16 $ 0.65 $ 0.49
Net income to common shareholders 0.19 0.16 0.65 0.44
Diluted earnings per common share:
Net income $ 0.19 $ 0.16 $ 0.64 $ 0.48
Net income to common shareholders 0.19 0.16 0.64 0.42
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
On September 10, 1999, the Company increased the size of its credit
facility to $295.0 million, including a revolving line of credit and an
end-loaded lease facility. At September 30, 1999, the Company had $242.3 million
outstanding under its revolving line of credit and $47.5 million available.
5. COMPREHENSIVE INCOME
The Company had no items of other comprehensive income in 1999 or 1998,
and accordingly, comprehensive income is equivalent to net income.
6. INCOME TAXES
The income tax provision for the three months and nine months ended
September 30, 1999 and 1998, 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.
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
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
September 30,
-------------------
1999 1998
------- -------
Numerator:
Net income $ 3,024 $ 2,531
======= =======
Denominator:
Denominator for basic earnings per share -
weighted-average shares 15,728 15,251
Effect of dilutive securities -
Incentive stock options 188 386
------- -------
Denominator for diluted earnings per share 15,916 15,637
Net income per common share:
Basic $ 0.19 $ 0.17
======= =======
Diluted $ 0.19 $ 0.16
======= =======
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
Nine Months Ended
September 30,
-------------------
1999 1998
------- -------
Numerator:
Net income $10,396 $ 6,940
Preferred stock dividends and accretion -- (696)
------- -------
Net income to common shareholders $10,396 $ 6,244
======= =======
Denominator:
Denominator for basic earnings per share -
weighted-average shares 15,724 12,549
Effect of dilutive securities -
Incentive stock options 295 330
------- -------
Denominator for diluted earnings per share 16,019 12,879
Basic earnings per common share:
Net income $ 0.66 $ 0.55
Preferred stock dividends and accretion -- (0.05)
------- -------
Net income to common shareholders $ 0.66 $ 0.50
======= =======
Diluted earnings per common share:
Net income $ 0.65 $ 0.54
Preferred stock dividends and accretion -- (0.06)
------- -------
Net income to common shareholders $ 0.65 $ 0.48
======= =======
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
During the third quarter of 1999, employees exercised options to
acquire 2,701 shares of common stock at an average exercise price of $8.93 per
share. During the nine-month period ended September 30, 1999, employees
exercised options to acquire 13,063 shares of common stock at an average
exercise price of $9.68 per share. Also, during the nine-month period ended
September 30, 1999, the Company issued 10,822 shares of common stock at a price
of $22.73 per share under its Employee Stock Purchase Plan.
In February 1998, the Company issued 5,405,000 shares of common stock
in its initial public offering. In July 1998, the Company issued 2,685,500
shares of common stock in its follow-on public offering.
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
The reserve for the self-insured portion of general and professional
liability risks is included in "Other liabilities" and is based on actuarially
determined estimates. In June 1999, the Company purchased unlimited reporting
period endorsements for all current professional liability policies expiring on
December 31, 1999. These endorsements allow an unlimited reporting period for
incurred claims during the policy period, but reported after the policy
expiration.
LITIGATION
The Company 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 September 30, 1999, and increases in net patient service revenue of
$2.2 million, or 3.5% of net patient revenue, for the three-month period ended
September 30, 1998. These items
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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
resulted in minimal adjustments for the nine-month period ended September 30,
1999, and increases in net patient service revenue of $3.4 million, or 2.2% of
net patient revenue, for the nine-month period ended September 30, 1998.
FINANCIAL INSTRUMENTS
Interest rate swap agreements are used on a limited basis to manage the
Company's interest rate exposure. The agreements are contracts to periodically
exchange fixed and floating interest rate payments over the life of the
agreements. On March 10, 1997, as required by the Credit Agreement, 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. The floating-rate payments are based on LIBOR, and fixed-rate
payments are based on market levels at the time the swap agreement was
consummated. For the three months ended September 30, 1999 and 1998, the Company
received a weighted average rate of 5.19% and 5.67% and paid a weighted average
rate of 6.27% in both periods. For the nine months ended September 30, 1999 and
1998, the Company received a weighted average rate of 5.13% and 5.74% and paid a
weighted average rate of 6.27% in both periods.
On September 4, 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 floating-rate payments
are based on LIBOR, and fixed-rate payments are based on market levels at the
time the swap agreement was consummated. For the three months ended September
30, 1999 and 1998, the Company received a weighted average rate of 5.33% and
5.59% and paid a weighted average rate of 5.63%, in both periods. For the nine
months ended September 30, 1999 and 1998, the Company received a weighted
average rate of 5.20% and 5.59%, and paid a weighted average rate of 5.63% in
both periods.
9. SUBSEQUENT EVENT
On October 1, 1999, the Company acquired the assets and business of
Trinity Valley Medical Center ("Trinity") in Palestine, Texas and Minden Medical
Center ("Minden") in Minden, Louisiana for approximately $77.0 million. To
finance the acquisition, the Company borrowed $77.0 million under its revolving
credit facility on September 30, 1999. These funds are classified as other
assets in the September 30, 1999 balance sheet. The acquisition will be
accounted for as a purchase business combination, and the results of operations
of Trinity and Minden will be included in the results of operations of the
Company from the purchase date forward.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
IMPACT OF ACQUISITIONS
An integral part of the Company's strategy is to acquire non-urban
acute-care hospitals. In May 1998, the Company acquired Lake Havasu Regional
Medical Center ("Havasu") in Lake Havasu City, Arizona, for approximately $107.5
million. In June 1998, the Company acquired Elko General Hospital ("Elko") in
Elko, Nevada for a purchase price of approximately $24.9 million. To finance
these acquisitions, the Company borrowed $106.0 million and $22.0 million,
respectively, under its revolving credit facility.
In February 1999, the Company entered into a special services agreement
for the lease of Eunice Community Medical Center ("Eunice") in Eunice, Louisiana
by purchasing certain assets, assuming certain liabilities, and entering into a
ten-year lease agreement, with a five-year renewal option, for an estimated
purchase price of approximately $4.6 million.
In April 1999, the Company acquired the assets and business of Glades
General Hospital ("Glades") in Belle Glade, Florida for approximately $17.3
million. To finance this acquisition, the Company borrowed $13.5 million under
its revolving credit facility.
In June 1999, the Company acquired the assets and business of Doctors'
Hospital of Opelousas ("Opelousas"), in Opelousas, Louisiana for approximately
$24.0 million. To finance this acquisition, the Company borrowed $22.0 million
under its revolving credit facility. The unallocated purchase price is included
in other assets on the balance sheet.
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 dates
forward. The September 30, 1999 results include nine months of operations for
Havasu and Elko, seven months and six days of operations for Eunice, five and
one-half months of operations for Glades, and four months of operations for
Opelousas. The September 30, 1998 results include five months of operations for
Havasu and 3 months and 20 days of operations for Elko. The Havasu, Elko,
Eunice, Glades and Opelousas acquisitions are collectively referred to in this
discussion as "the Acquisitions."
On October 1, 1999, the Company acquired the assets and business of
Trinity Valley Medical Center ("Trinity") in Palestine, Texas and Minden Medical
Center ("Minden") in Minden, Louisiana for approximately $77.0 million. To
finance the acquisition, the Company borrowed $77.0 million under its revolving
credit facility on September 30, 1999. These funds are classified as other
assets in the September 30, 1999 balance sheet. The acquisition will be
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accounted for as a purchase business combination, and the results of operations
of Trinity and Minden will be included in the results of operations of the
Company from the purchase date forward.
Due to the relatively small number of owned and leased hospitals, each
hospital acquisition can materially affect the overall operating margin of the
Company. Upon the acquisition of a hospital, the Company typically takes a
number of steps to lower operating costs. The impact of such actions may be
offset by other cost increases to expand services, strengthen medical staff and
improve market position. The benefits of these investments and of other
activities to improve operating margins generally do not occur immediately.
Consequently, the financial performance of a newly acquired hospital may
adversely affect overall operating margins in the short term. As the Company
makes additional hospital acquisitions, the Company expects 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 the Condensed Consolidated Statements of Income of the Company
included elsewhere in this report. The results of operations for the periods
presented include hospitals from their acquisition dates, as discussed above.
Percentage
Increase
(Decrease)
Three Months Ended of Dollar
September 30, Amounts
------------------ ---------
1999 1998
------ ------
Net operating revenue 100.0% 100.0% 27.4%
Operating expenses (1) 84.1 82.8 29.4
------ ------
EBITDA (2) 15.9 17.2 17.8
Depreciation and amortization 5.7 5.7 28.3
Interest 3.9 4.7 5.7
Minority interest 0.0 0.0 (33.3)
Loss on sale of assets 0.0 0.0 0.0
------ ------
Income before income taxes 6.3 6.8 17.6
Provision for income taxes 2.8 3.0 15.3
------ ------
Net income 3.5% 3.8% 19.5%
====== ======
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Percentage
Increase
(Decrease)
Three Months Ended of Dollar
September 30, Amounts
------------------ ---------
1999 1998
------ ------
Net operating revenue 100.0% 100.0% 39.8%
Operating expenses (1) 83.0 82.7 40.4
------ ------
EBITDA (2) 17.0 17.3 37.0
Depreciation and amortization 5.7 5.5 44.9
Interest 3.6 4.5 11.3
Minority interest 0.0 0.1 (12.4)
Loss on sale of assets 0.0 0.0 (122.2)
------ ------
Income before income taxes 7.7 7.2 48.3
Provision for income taxes 3.3 3.2 46.4
------ ------
Net income 4.3% 4.0% 49.8%
====== ======
(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 tax expense,
interest, minority interest, depreciation and amortization, and loss on
sale of assets. Management understands 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.
Management believes that an increase in EBITDA level is an indicator of
the Company's 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 (i) to net income as a measure of operating performance
or (ii) 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 the
Company's owned or leased hospitals for each of the periods presented.
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Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ------------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
CONSOLIDATED HOSPITALS:
Number of hospitals end of period 13 10 13 10
Licensed beds end of period 1,008 713 1,008 713
Beds in service end of period 909 633 909 633
Inpatient admissions 7,828 5,709 22,271 15,320
Patient days 36,995 28,382 109,497 80,485
Adjusted patient days 66,181 52,143 191,630 141,848
Average length of stay (days) 4.7 5.0 4.9 5.3
Occupancy rates (licensed beds) 39.9% 43.3% 39.8% 41.3%
Occupancy rates (beds in service) 44.2% 48.7% 44.1% 46.6%
Gross inpatient revenue $82,997,321 $54,920,042 $237,503,925 $150,079,705
Gross outpatient revenue 65,449,532 45,977,458 178,482,555 114,423,400
THREE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Net operating revenue was $85.7 million for the three months ended
September 30, 1999, compared to $67.3 million for the comparable period of 1998,
an increase of $18.4 million or 27.3%. Net patient revenue generated by
hospitals owned during both periods ("same hospitals") increased $1.8 million,
or 3.1%, resulting from inpatient and outpatient volume increases, new services
and price increases. Also, same hospital cost report settlements and the filing
of cost reports resulted in a decrease in revenue of $0.2 million (0.3% of net
patient service revenue) for the three months ended September 30, 1999, and
an increase in revenue of $2.2 million (3.5% of net patient service revenue)
for the three-month period ended September 30, 1998. The remaining increase
was primarily attributable to the Acquisitions.
Operating expenses were $72.1 million, or 84.1% of net operating
revenue, for the three months ended September 30, 1999, compared to $55.7
million, or 82.8% of net operating revenue, for the comparable period of 1998.
The increase in operating expenses of hospitals owned during both periods
resulted primarily from new services, volume increases, change in case mix and
increased recruiting expenses, offset by a decrease in provision for doubtful
accounts. The provision for doubtful accounts decreased to 7.0% of net revenue
in 1999 from 8.9% of net revenue in 1998 as a result of increased collections
and improvement in accounts receivable agings. The majority of the increase in
operating expenses was attributable to the Acquisitions.
EBITDA was $13.6 million or 15.9% of net operating revenue for the
three months ended September 30, 1999, compared to $11.5 million, or 17.2% of
net operating revenue, for the comparable period of 1998.
Depreciation and amortization expense was $4.9 million, or 5.7% of net
operating revenue, for the three months ended September 30,1999, compared to
$3.8 million, or 5.7% of net operating revenue for the comparable period of
1998. The increase in depreciation and amortization resulted primarily from the
Acquisitions. Interest expense as a percent of net operating revenue decreased
to 3.9% for the three months ended September 30, 1999, from 4.7% for the
comparable period of 1998.
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Income before provision for income taxes was $5.4 million for the three
months ended September 30, 1999, compared to $4.6 million for the comparable
period of 1998, an increase of $0.8 million or 17.6%. The increase resulted
primarily from the Acquisitions. The Company's provision for income taxes was
$2.3 million for the 1999 period, compared to $2.0 million for the 1998 period.
These provisions reflect effective income tax rates of 43.5% for the 1999
period, compared to 44.4% for the 1998 period. As a result of the foregoing, the
Company's net income was $3.0 million, or 3.5% of net operating revenue, for the
three months ended September 30, 1999, compared to $2.5 million, or 3.8% of net
operating revenue for the comparable period of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Net operating revenue was $240.2 million for the nine months ended
September 30, 1999, compared to $171.8 million for the comparable period of
1998, an increase of $68.4 million or 39.8%. Net patient revenue generated by
same hospitals increased $5.4 million, or 3.6%, resulting from inpatient and
outpatient volume increases, new services and price increases. Also, same
hospital cost report settlements and the filing of cost reports resulted in
minimal adjustments in 1999 and an increase in revenue of $3.4 million (2.2% of
net operating revenue) for the nine months ended September 30, 1998. The
remaining increase was primarily attributable to the Acquisitions.
Operating expenses were $199.4 million, or 83.0% of net operating
revenue, for the nine months ended September 30, 1999, compared to $142.0
million, or 82.7% of net operating revenue, for the comparable period of 1998.
The increase in operating expenses of hospitals owned during both periods
resulted primarily from new services, volume increases, change in case mix and
increased recruiting expenses, offset by a decrease in bad debt expense. Bad
debt expense, as a percent of net operating revenue decreased to 7.0% for the
nine months ended September 30, 1999, from 7.8% for the comparable period of
1998, as a result of increased collections and improvement in accounts
receivable agings. The majority of the increase in operating expenses was
attributable to the Acquisitions.
EBITDA was $40.8 million or 17.0% of net operating revenue for the nine
months ended September 30, 1999, compared to $29.7 million, or 17.3% of net
operating revenue, for the comparable period of 1998.
Depreciation and amortization expense was $13.6 million, or 5.7% of net
operating revenue, for the nine months ended September 30, 1999, compared to
$9.4 million, or 5.5% of net operating revenue for the comparable period of
1998. The increase in depreciation and amortization resulted primarily from the
Acquisitions. Interest expense as a percent of net operating revenue decreased
to 3.6% for the nine months ended September 30, 1999, from 4.5% for the
comparable period of 1998.
Income before provision for income taxes was $18.4 million for the nine
months ended September 30, 1999, compared to $12.4 million for the comparable
period of 1998, an increase of $6.0 million or 48.3%. The increase resulted
primarily from the Acquisitions. The Company's provision for income taxes was
$8.0 million for the 1999 period, compared to $5.5 million for the 1998 period.
These provisions reflect effective income tax rates of 43.5% for the 1999
period, compared to 44.4% for the 1998 period. As a result of the foregoing, the
Company's net income was
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$10.4 million, or 4.3% of net operating revenue, for the nine months ended
September 30, 1999, compared to $6.9 million, or 4.0% of net operating revenue
for the comparable period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had working capital of $58.0
million, including cash and cash equivalents of $5.1 million. The ratio of
current assets to current liabilities was 3.0 to 1.0 at September 30, 1999, and
3.5 to 1.0 at December 31, 1998.
Total long-term obligations increased to $251.4 million at September
30, 1999, from $134.3 million at December 31, 1998. The increase resulted
primarily from the borrowings to finance the Glades and Opelousas acquisitions,
and the then-pending acquisition of Trinity and Minden.
Cash provided by operations was $22.0 million for the nine months ended
September 30, 1999. Cash used in investing activities was $131.5 million for the
nine months ended September 30, 1999, relating primarily to acquisitions and
capital expenditures. Net cash provided by financing activities was $112.4
million for the nine months ended September 30, 1999, primarily as a result of
net borrowings on the revolving line of credit to finance acquisitions.
The Company intends to acquire additional acute care facilities, and is
actively seeking out 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 equity or debt financing for its
acquisition program or other needs.
On September 10, 1999, the Company increased the size of its credit
facility to $295.0 million, including a revolving line of credit and an
end-loaded lease facility. At September 30, 1999, the Company had $242.3 million
outstanding under its revolving line of credit and $47.5 million available.
Capital expenditures, excluding acquisitions, for the nine months ended
September 30, 1999 and 1998, were $12.0 million and $10.8 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. The Company expects to make total capital expenditures in 1999 of
approximately $19.0 million, exclusive of any acquisitions of businesses or
construction projects. Planned capital expenditures for 1999 consist principally
of capital improvements to owned and leased hospitals. The Company expects to
fund these expenditures through cash provided by operating activities and
borrowings under its revolving credit facility.
IMPACT OF YEAR 2000
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS
OF THE YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS
The following discussion is designated as Year 2000 readiness
disclosure for purposes of the Year 2000 Information Readiness and Disclosure
Act.
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Some older computer programs and systems were written using two rather
than four digits to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. Certain of the Company's computer hardware
and software, facility equipment (e.g., communications equipment, environmental
controls, such as heating and air conditioning systems, and elevators), and
medical equipment that are date sensitive, may contain programs with the Year
2000 problem. If uncorrected, the problem could result in computer system and
program failures or equipment and medical device malfunctions that could result
in a disruption of business operations or affect patient diagnosis and
treatment.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT, INCLUDING TIMETABLE FOR
COMPLETION OF EACH REMAINING PHASE
The Company's plan to resolve the Year 2000 issue involves the
following four phases: assessment, remediation, testing, and implementation. The
Company has replaced the majority of its key financial and operational systems
as a part of its systems consolidation in the normal course of business. This
replacement has been a planned approach during the last two years to enhance or
better meet its functional business and operational requirements. In addition to
the replacement program, some of the Company's software and hardware has been
modified so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter.
The Company has worked with outside consultants, who have visited each
of the owned hospitals to determine the depth of the problem as it relates to
devices that are attached to the Company's information systems. These visits
have two purposes. First, they have tested the hospital computer networks to
identify problem areas relative to the communications of the information system
hardware, the network servers and various devices attached to the network. This
phase focused on identifying conflict/problem areas and recommending solutions
to address these problems. Second, they have evaluated each personal computer
for hardware and software related Year 2000 issues. The result of this process
was a report that documented a physical layout of the network, any potential or
existing network problems, and an inventory of each system with its potential
Year 2000 problems.
In the area of medical equipment, the Company has worked with a
consultant to identify issues impacting medical equipment items/systems. This
process was completed in three phases:
- identification of medical equipment items/systems impacted by
Year 2000 issues;
- evaluation of such medical equipment; and
- Year 2000 resolution.
The Company has completed all phases of the process. Management
believes that this process substantially addressed any Year 2000 issues.
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NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO THE
YEAR 2000
The Company relies heavily on third parties in operating its business.
In addition to its reliance on software, hardware and other equipment vendors to
verify Year 2000 compliance of their products, the Company also depends on:
- fiscal intermediaries that process claims and make payments on
behalf of the Medicare and Medicaid programs;
- insurance companies, HMOs and other private payors;
- utilities that provide electricity, water, natural gas and
telephone services; and
- vendors of medical supplies and pharmaceuticals used in
patient care.
As part of its Year 2000 strategy, the Company has been working with its major
vendors and has received assurances such vendors are addressing the Year 2000
issue. For example, the Company has received assurances from four of its largest
vendors that their software modules are fully compliant with software releases
completed by the end of 1998. At this point, there have been no identified
problems associated with this portion of the systems. Failure of these third
parties to resolve their Year 2000 issues could have a material adverse effect
on the Company's results of operations and ability to provide health care
services.
The Company uses various third-party software products to perform
electronic billing to Medicare, Medicaid, and certain other third-party payors.
These electronic billing systems allow for a direct electronic interface with
the computer systems of third-party payors, including Medicare and Medicaid.
This direct interface allows the individual electronic bills to be edited
on-line so that they can be successfully uploaded to the host system. In
addition, certain Medicare intermediaries transmit remittance advice data back
to the Company through these same electronic billing systems. The remittance
advice data transmitted back to the Company determines the amount of payment
that a particular hospital will receive for a particular remittance advice. In
addition, most of the Company's hospitals receive electronic funds transfers
from the Medicare intermediaries.
Reimbursement under the Medicare program is administered by HCFA. HCFA
employs more than 60 carriers and intermediaries to process Medicare
fee-for-service claims throughout the United States. There are several hundred
different computer systems involved in the daily work of HCFA, its carriers and
intermediaries. HCFA, under its internal Year 2000 compliance program,
identified 99 mission critical systems, 25 that are directly managed by HCFA and
74 that are managed by outside carriers and intermediaries. These 99 systems
contain more than 50 million lines of computer code that require re-writing to
ensure Year 2000 compliance. In a public statement on its web page, HCFA has
stated that the major HCFA forms, utilized for claims submission by the Company,
are Year 2000 compliant. This includes both paper and electronic claims
submission. There can be no assurance that HCFA's mission critical systems,
which most directly affect the Company, will be compliant in time to prevent
disruptions to the Medicare payments received by the Company. Moreover, HCFA has
announced the delayed implementation of certain new regulations
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while its resources are re-directed towards Year 2000 compliance.
COSTS
The Company has utilized both internal and external resources to
complete the Year 2000 modifications. The majority of the costs incurred to date
related to Year 2000 were in the area of consulting services to assess the
impact of Year 2000, and to inventory the existing information technology and
medical equipment to determine the level of Year 2000 compliance. The costs of
Year 2000 software compliance were included in standard software maintenance
agreements with the Company's major vendors. No additional costs were incurred
to modify this software over and above those amounts incurred as part of the
normal business process.
During 1999, the consulting services have continued relative to the
assessment of the Year 2000 project. The Company incurred consulting costs
related to medical equipment compliance of approximately $48,000 in the third
quarter of 1999, and $272,000 year-to-date, and expects to incur minimal costs
in the fourth quarter of 1999. Assessment costs related to information
technology compliance were approximately $482,000 in the third quarter of 1999,
and $695,000 year-to-date, and are expected to be minimal in the fourth quarter
of 1999. These costs are expensed as incurred, and have been included in the
Company's 1999 internal operating budget.
Based upon a review of completed hospital assessments, the Company
expects to incur in the aggregate less than $2,000,000 in
remediation/replacement capital expenditures for both information technology and
medical equipment. These funds are part of a contingency budget. There can be no
guarantee that actual costs and results will not differ materially from those
anticipated. No significant information systems projects have been delayed due
to the Year 2000 project.
By utilizing external consultants for the assessments associated with
Year 2000, the Company has achieved independent verification and validation
processes to assure the reliability of risk and cost estimates.
RISK AND CONTINGENCY PLANS
The Company has completed all necessary phases of the Year 2000
program, and management believes it has an effective program in place.
The Company believes that the most reasonably likely worst case Year
2000 scenario is that some of its material third party payors will not be Year
2000 compliant, and will have difficulty processing and paying the Company's
bills, thereby possibly affecting the Company's cash flows. The Company has
developed a contingency plan to address this scenario. This plan involves
procedures whereby the Company would revert to manual billing processes. In
addition, the plan involves ensuring the Company's access to additional capital
through, for example, its revolving credit facility.
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The Company has completed its initial contingency plan. Each of the
Company's owned hospitals has a disaster plan that has been reviewed as a part
of the Company's overall contingency planning process, to assure that each plan
includes contingency planning for the Year 2000 issues. However, failure by
third parties to resolve their own Year 2000 issues may render each hospital's
contingency plan ineffective.
The foregoing assessment is based on information currently available to
the Company. The Company can provide no assurances that applications and
equipment the Company believes to be Year 2000 compliant will not experience
difficulties, or that the Company will not experience difficulties obtaining
resources needed to make modifications to or replace the Company's affected
systems and equipment. Failure by the Company or third parties on which it
relies to resolve Year 2000 issues could have a material adverse effect on the
Company's results of operations and its ability to provide health care services.
Consequently, the Company can give no assurances that issues related to the Year
2000 will not have a material adverse effect on the Company's financial
condition or results of operations.
The Company has established and distributed a set of guidelines and
strategies for each of its managed hospitals to use in evaluating and planning
for making their facilities Year 2000 compliant. The Company continues to
monitor the progress of the response by the hospitals it manages to the Year
2000 problem. The Company does not believe that it is responsible for ensuring
Year 2000 compliance by its managed hospitals. Ultimately, responsibility for
implementing the individual Year 2000 compliance plan at each managed hospital
rests with each managed hospital's board; the Company can only implement the
boards' recommendations at their direction.
GENERAL
The federal Medicare program accounted for approximately 49.9% and
55.2% of hospital patient days for the three months and nine months ended
September 30, 1999. The state Medicaid programs accounted for approximately
13.5% and 11.5% of hospital patient days for the three months and nine months
ended September 30, 1999. The payment rates under the Medicare program for
inpatients are prospective, based upon the diagnosis of a patient. The Medicare
payment rate increases have historically 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 the
Company is unable to predict what, if any, future health reform legislation may
be enacted at the federal or state level, the Company expects continuing
pressure to limit expenditures by governmental health care programs. The
Balanced Budget Act of 1997 (the "1997 Act") 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 1997 Act requires that the payment for those services be converted
to a prospective payment system, which will be phased in over time. The 1997 Act
also includes a managed care option which 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 the Company.
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The Company's 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
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. The Company expects 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 hospitals'
ability to maintain their current rate of net revenue growth and operating
margins.
The Company expects the industry trend in increased outpatient services
to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's owned hospitals was
approximately 44.1% and 42.9% of gross patient service revenue for the three
months and nine-months ended September 30, 1999, respectively, compared to 45.6%
and 43.3% for the three months and nine months ended September 30, 1998,
respectively.
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
complicates the billing and collections of accounts receivable by hospitals.
There can be no assurance that this complexity will not impact negatively the
Company's future cash flow or results of operations.
The Company's historical financial trend has been impacted favorably by
the Company's success in acquiring acute care hospitals. While the Company
believes that trends in the health care industry described above may create
possible future acquisition opportunities, there can be no assurances that it
can continue to maintain its current growth rate through hospital acquisitions
and successfully integrate the hospitals into its system.
The Company's owned hospitals accounted for 94.1% and 93.5% of the
Company's net operating revenue for the three months and nine months ended
September 30, 1999, respectively, compared to 93.2% and 92.1% for the three
months and nine months ended September 30, 1998, respectively.
The federal government and a number of states are increasing rapidly
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 more vigorously enforcing the requirements imposed on providers
by the Social Security Act and Medicare and Medicaid regulations. Although the
Company believes that it is in material compliance with such laws, a
determination that the Company has violated such laws, or even the public
announcement that the Company was being investigated concerning possible
violations, could have a material adverse effect on the Company.
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INFLATION
The health care industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along rising costs to the Company in the form of higher
prices. The Company generally has been able to offset increases in operating
costs by increasing charges for services and expanding services. The Company has
also implemented cost control measures to curb increases in operating costs and
expenses. In light of cost containment measures imposed by government agencies
and private insurance companies, the Company is unable to predict its ability to
offset or control future cost increases, or its ability to pass on the increased
costs associated with providing health care services to patients with government
or managed care payors, unless such payors correspondingly increase
reimbursement rates.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Certain statements contained in this discussion, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in
regions where the Company operates; demographic changes; the effect of existing
or future governmental regulation and federal and state legislative and
enforcement initiatives on the Company's business, including the 1997 Act;
changes in Medicare and Medicaid reimbursement levels; the Company's ability to
implement successfully its acquisition and development strategy and changes in
such strategy; Year 2000 compliance; the availability and terms of financing to
fund the expansion of the Company's business, including the acquisition of
additional hospitals; the Company's ability to attract and retain qualified
management personnel and to recruit and retain physicians and other health care
personnel to the non-urban markets it serves; the effect of managed care
initiatives on the non-urban markets served by the Company's hospitals and the
Company's ability to enter into managed care provider arrangements on acceptable
terms; the effect of liability and other claims asserted against the Company;
the effect of competition in the markets served by the Company's hospitals; and
other factors referenced in this Report. Certain of these factors are discussed
in more detail elsewhere in this Report. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to announce publicly the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the nine months ended September 30, 1999, 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, 1998.
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PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The deadline for delivering to the Company notice of shareholder
proposals, other than proposals to be included in the proxy statement for the
2000 Annual Meeting of Shareholders will be March 2, 2000, 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 the Company 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 Second Amended and Restated Credit Agreement, dated as of
September 10, 1999, among Province Healthcare Company, First
Union National Bank, as Agent and Issuing Bank, and various
lenders thereto.
10.2 Amendment No. 1 to Certain Operative Agreements, dated as of
September 10, 1999, among Province Healthcare Company, as
Construction Agent and Lessee, various parties as Guarantors,
First Security Bank, National Association, as Owner Trustee,
various banks party thereto, as Lenders, and First Union
National Bank as Agent.
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
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on June 17, 1999, in
connection with the
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acquisition of substantially all of the assets of Doctors' Hospital of Opelousas
on June 1, 1999. On August 16, 1999, the Company filed an amendment No. 1 to
such Current Report on Form 8-K/A, containing the financial statements of
Doctors' Hospital of Opelousas and certain pro forma financial information.
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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: November 15, 1999 By: /s/ BRENDA B. RECTOR
--------------------------------
Brenda B. Rector
Vice President and Controller
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