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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 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 NO. 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)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Common Stock of the
registrant held by nonaffiliates on March 1, 2000 (based upon the closing price
of these shares of $20.25 per share on such date) was $285,347,671.
As of March 1, 2000, 15,764,493 shares of the registrant's Common
Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
report. Such Proxy Statement will be filed within 120 days after the end of the
fiscal year covered by this report.
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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,
strategic objectives. See "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." 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 health care business;
- the efforts of insurers, health care providers and others to contain
health care costs;
- possible changes in the Medicare program that may further limit
reimbursements to health care providers and insurers;
- changes in federal, state or local regulation affecting the health care
industry;
- the possible enactment of federal or state health care 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.
PART I
ITEM 1. BUSINESS
OVERVIEW
We own and operate acute care hospitals located in non-urban markets in
eight states. We currently own or lease 15 general acute care hospitals with a
total of 1,327 licensed beds. We also provide management services to 48
primarily non-urban hospitals in 18 states and Puerto Rico with a total of 3,584
licensed beds. Our objective is to be the primary provider of quality health
care services in these selected markets. We offer a wide range of inpatient and
outpatient medical services as well as specialty services, including
rehabilitation and home health care. We target for acquisition hospitals that
are the sole or a primary provider of health care in non-urban communities.
After acquiring a hospital, we implement a number of strategies designed to
maximize financial performance. These strategies include improving hospital
operations, expanding the breadth of services and recruiting physicians to
increase local market share. For the year ended December 31, 1999, we had, on a
pro forma basis to reflect full-year results for hospitals we acquired during
such period, net operating revenue of $415.3 million, and EBITDA, the sum of
income before income taxes, interest, depreciation and amortization, and
minority interest, of $68.9 million. During this time period, our owned and
leased hospitals accounted for 94.2% of net operating revenue.
THE NON-URBAN HEALTH CARE MARKET
According to 1999 United States Census Bureau statistics, over a third of
the people in the United States live in counties with a population of less than
150,000. In these non-urban areas, hospitals are typically the primary resource
for health care services, and in many cases the local hospital is the only
provider of acute care services. As of January 1999, there were approximately
1,100 non-urban hospitals in the country that were owned by not-for-profit or
governmental entities.
We believe that non-urban markets are attractive to health care service
providers. Because non-urban service areas have smaller populations, there are
generally only one or two hospitals in each market. We believe the size and
demographic characteristics of non-urban markets and the relative strength of
the local hospital also make non-urban markets less attractive to HMOs, other
forms of managed care, and alternate site providers, such as outpatient surgery,
rehabilitation or diagnostic imaging providers.
Despite these attractive characteristics, many not-for-profit and
governmental operators of non-urban hospitals are under increasing pressure due
to capital constraints, limited management resources and the challenges of
managing in a complex health care regulatory environment. This combination of
factors often results in a limited range of services being available locally. As
a result, patients by choice or physician direction may obtain care outside of
the community. This outmigration often leads to deteriorating operating
performance, further limiting the hospital's ability to address the issues that
initially led to these pressures. Ultimately, these pressures can force owners
to sell or lease their hospitals to companies, like us, that have greater
financial and management resources, coupled with proven operating strategies, to
address these issues. As a result of these issues, not-for-profit and
governmental hospitals increasingly are selling or leasing these hospitals to
entities like Province, that have the capital resources and the management
expertise to serve the community better. We believe that a significant
opportunity for consolidation exists in the non-urban health care market.
BUSINESS STRATEGY
The key elements of our business strategy are to:
Acquire Hospitals in Attractive Non-Urban Markets. We seek to acquire
hospitals that are the sole or a primary provider of health care services in
their markets and that present the opportunity to increase profitability and
local market share. We believe that approximately 1,100 non-urban hospitals in
the United States meet our acquisition criteria, and our goal is to acquire two
to four of these hospitals each year.
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Improve Hospital Operations. Following the acquisition of a hospital, we
augment local management with appropriate operational and financial managers and
install our standardized information system. The local management team
implements appropriate expense controls, manages staffing levels according to
patient volumes, reduces supply costs by requiring strict compliance with our
supply arrangements and often renegotiates vendor contracts. By implementing
this strategy, we seek to improve operating performance at each of the hospitals
we acquire.
Expand Breadth of Services to Increase Local Market Share and Reduce
Patient Outmigration. We seek to provide additional health care services and
programs in response to community needs. These services may include specialty
inpatient, outpatient and rehabilitation. We also may make capital investments
in technology and the physical plant to improve both the quality of health care
and the reputation of the hospital in the community. By providing a broader
range of services in a more attractive setting, we encourage residents in our
markets to seek care in our hospitals, thereby reducing patient outmigration and
increasing hospital revenue.
Recruit Physicians. We believe that recruiting physicians to local
communities is key to increasing the quality of health care and breadth of
available services. We work with the local hospital board, management and
medical staff to determine the number and type of additional physicians needed
in the community. Our corporate physician recruiting staff then assists the
local management team in identifying and recruiting specific physicians to the
community to meet those needs. During 1998, we recruited 54 new physicians, and
for the year ended December 31, 1999, we recruited 49 additional physicians.
Approximately, 60% of the physicians recruited in 1998 and 1999 were primary
care physicians and approximately 40% were specialty care physicians. We believe
that expansion of services in our hospitals also should assist in physician
recruiting.
ACQUISITION PROGRAM
We proactively identify acquisition targets in addition to responding to
requests for proposals from entities that are seeking to sell or lease
hospitals. We also seek to acquire selected hospitals to which we currently
provide contract management services. We also identify attractive markets and
hospitals and initiate meetings with hospital systems to discuss acquiring
non-urban hospitals or operating them through a joint venture. These hospital
systems are comprised of one or more urban tertiary care hospitals and a number
of non-urban hospitals, and such joint ventures allow the health system to
maintain an affiliation for providing tertiary care to the non-urban hospitals
without the management responsibility.
We believe that it generally takes six to 12 months between a hospital
owner's decision to accept an offer and the consummation of a sale or lease.
After a potential acquisition has been identified, we undertake a systematic
approach to evaluating and closing the transaction. We begin the acquisition
process with a thorough due diligence review of the target hospital and its
community. We use our dedicated teams of experienced personnel to conduct a
formalized review of all aspects of the target's operations, including Medicare
reimbursement, purchasing, fraud and abuse compliance, litigation, capital
requirements and environmental issues. During the course of our due diligence
review, we prepare an operating plan for the target hospital, identify
opportunities for operating efficiencies and physician recruiting needs, and
assess productivity and management information systems. Throughout the process,
we work closely with community leaders in order to enhance both the community's
understanding of our philosophy and abilities and our knowledge of the needs of
the community.
From time to time, we enter into letters of intent with acquisition
targets in connection with our evaluation of a potential acquisition. Such
letters of intent are generally executed prior to the commencement of due
diligence undertaken during the evaluation process. In addition to due
diligence, proposed transactions to acquire hospitals for which we have signed
a letter of intent are subject to numerous conditions and contingencies,
including internal approvals of both our company and the target companies,
receipt of regulatory approvals, resolution of legal and equitable matters
relating to continuation of labor agreements, supply and service agreements and
preparation and negotiation of documentation. Accordingly, there can be no
assurance that any such proposed transaction for which we have signed a letter
of intent will occur, or if it occurs, there can be no assurance as to the
assets that may be acquired, the purchase price of such assets or the terms of
their acquisition.
The competition to acquire non-urban hospitals is intense, and we believe
that the acquirer will be selected for a variety of reasons, not exclusively on
the basis of price. We believe that we are well positioned to compete for
acquisitions for several reasons. First, our management team has extensive
experience in acquiring and operating previously under-performing non-urban
hospitals. Second, we benefit from access to capital, strong financial and
operating systems, a national purchasing organization and training programs.
Third, we believe our strategy of increasing access to, and quality of, health
care in the communities served by our hospitals aligns our interests with those
of the communities. Finally, we believe that the alignment of
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interests with the community, our reputation for providing market-specific,
quality health care, and our focus on physician recruiting enables us to compete
successfully for acquisitions.
HOSPITAL OPERATIONS
Following the acquisition of a hospital, we implement our systematic
policies and procedures to improve the hospital's operating and financial
performance. We implement an operating plan designed to reduce costs by
improving operating efficiency and increasing revenue through the expansion of
the breadth of services offered by the hospitals and the recruitment of
physicians to the community. We believe that the long-term growth potential of a
hospital is dependent on that hospital's ability to add appropriate health care
services and effectively recruit and retain physicians.
Each hospital management team is comprised of a chief executive officer,
chief financial officer and chief nursing officer. We believe that the quality
of the local management team at each hospital is critical to the hospital's
success, because the management team is responsible for implementing the
elements of our operating plan. The operating plan is developed by the local
management team in conjunction with our senior management team and sets forth
revenue enhancement strategies and specific expense benchmarks. We have
implemented a performance-based compensation program for each local management
team based upon the achievement of the goals set forth in the operating plan.
While the local management team is responsible for the day-to-day
operations of the hospitals, our corporate staff provides support services to
each hospital, including physician recruiting, corporate compliance,
reimbursement advice, standardized information systems, human resources,
accounting, cash management and other finance activities, tax and insurance
support. Financial controls are maintained through utilization of standardized
policies and procedures. We promote communication among our hospitals so that
local expertise and improvements can be shared throughout our network.
To achieve the operating efficiencies set forth in the operating plan, we
do the following:
- evaluate existing hospital management;
- adjust staffing levels according to patient volumes using best
demonstrated practices by department;
- install a standardized management information system; and
- capitalize on purchasing efficiencies and renegotiate certain vendor
contracts.
We also enforce strict protocols for compliance with our supply contracts.
All of our owned or leased hospitals currently purchase supplies and certain
equipment pursuant to an arrangement we have with an affiliate of Columbia/HCA
Healthcare Corporation. Vendor contracts also are evaluated, and based on cost
comparisons, such contracts may be renegotiated or terminated. We prepare for
the transition of management information systems to our standardized system
prior to the completion of an acquisition, so that the newly-acquired hospital
may begin using our management information systems following completion of the
acquisition.
EXPANSION OF SERVICES
As part of our efforts to improve access to quality health care in the
communities we serve, we add services at our hospitals on an as-needed basis.
Added services and care programs may include specialty inpatient services, such
as cardiology, rehabilitation and subacute care, and outpatient services such as
same-day surgery. We believe the establishment of quality emergency room
departments, obstetrics and gynecological services are particularly important,
because they are often the most visible and needed services provided to the
community. We also make capital investments in technology and facilities to
increase the quality and breadth of services available in the communities. By
increasing the services provided at our hospitals and upgrading the technology
used in providing such services, we believe that we improve the quality of care
and the hospitals' reputation in each community, which in turn may increase
patient census and revenue.
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PHYSICIAN RECRUITMENT
We work with local hospital boards, management and medical staff to
determine the number and type of additional physicians needed in the community.
Our corporate staff then assists the local management team in identifying and
recruiting specific physicians to the community to meet those needs. The
majority of physicians who relocate their practices to the communities served by
our hospitals are identified by our internal physician recruiting staff, which
is supplemented by the efforts of independent recruiting firms. When recruiting
a physician to a community, we generally guarantee the physician a minimum level
of cash collections during a limited initial period and assist the physician
with his or her transition to the community. We require the physician to repay
some or all of the amounts expended for such assistance in the event the
physician leaves the community within a specified period. We prefer not to
employ physicians; therefore, recruited physicians generally do not become our
employees.
OWNED AND LEASED HOSPITALS
We currently own or lease and operate 15 general acute care hospitals in
California, Texas, Arizona, Colorado, Indiana, Nevada, Louisiana and Florida,
with a total of 1,327 licensed beds. Of our 15 hospitals, 13 are the only
providers of acute care services in their communities. The owned or leased
hospitals represented 94.2% of our net operating revenue for the year ended
December 31, 1999, compared to 92.3% for the year ended December 31, 1998.
Our hospitals offer a wide range of inpatient medical services such as
operating/recovery rooms, intensive care units, diagnostic services and
emergency room services, as well as outpatient services such as same-day
surgery, radiology, laboratory, pharmacy and physical therapy. Our hospitals
also frequently provide certain specialty services which include rehabilitation
and home health care. Our hospitals currently do not provide highly specialized
surgical services such as organ transplants and open heart surgery and are not
engaged in extensive medical research or educational programs.
The following table sets forth certain information with respect to each of
our owned or leased hospitals as of March 1, 2000.
LICENSED OWNED/ DATE
HOSPITAL BEDS LEASED ACQUIRED
- -------- -------- --------- -----------
City of Ennis Hospital
Ennis, Texas.......................................... 45 Leased(1) Feb. 2000
Colorado Plains Medical Center
Fort Morgan, Colorado................................. 50 Leased(2) Dec. 1996
Colorado River Medical Center
Needles, California................................... 53 Leased(3) Aug. 1997
Doctors' Hospital of Opelousas
Opelousas, Louisiana.................................. 133 Owned Jun. 1999
Elko General Hospital
Elko, Nevada.......................................... 50 Owned(4) Jun. 1998
Eunice Community Medical Center
Eunice, Louisiana..................................... 91 Leased(5) Feb. 1999
General Hospital
Eureka, California.................................... 75 Owned(6) Dec. 1996
Glades General Hospital
Belle Glade, Florida.................................. 73 Owned Apr. 1999
Lake Havasu Regional Medical Center
Lake Havasu City, Arizona............................. 118 Owned May 1998
Minden Medical Center
Minden, Louisiana..................................... 124 Owned Oct. 1999
Ojai Valley Community Hospital
Ojai, California...................................... 110(7) Owned Dec. 1996
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LICENSED OWNED/ DATE
HOSPITAL BEDS LEASED ACQUIRED
- -------- -------- --------- -----------
Palestine Regional Medical Center(8)
Palestine, Texas...................................... 257 Owned(9) July 1996
Palo Verde Hospital
Blythe, California.................................... 55 Leased(10) Dec. 1996
Parkview Regional Hospital
Mexia, Texas.......................................... 44 Leased(11) Dec. 1996
Starke Memorial Hospital
Knox, Indiana......................................... 49 Leased(12) Oct. 1996
-----
Total......................................... 1,327
- ---------------
(1) The lease expires in February 2030, and is subject to three 10-year renewal
terms at our option.
(2) The lease expires in April 2014, and is subject to a five-year renewal
term. We have a right of first refusal to purchase the hospital.
(3) The lease expires in July 2012, and is subject to three five-year renewal
terms. We have a right of first refusal to purchase the hospital.
(4) This facility was acquired on June 11, 1998.
(5) The lease expires in June 2008, and is subject to a five-year renewal
option.
(6) We initially leased this facility and exercised our option to purchase the
hospital in December 1998.
(7) Includes a 66-bed skilled nursing facility.
(8) We initially acquired Memorial Mother Frances Hospital in July 1996. On
October 1, 1999, we completed the acquisition of Trinity Valley Medical
Center, which is also located in Palestine, Texas. With the completion of
the acquisition we renamed Trinity Valley Medical Center as Palestine
Regional Medical Center and we renamed Memorial Mother Frances Hospital as
Palestine Regional Medical Center - West Campus. We operate the two as a
single hospital with two campuses.
(9) The hospital is owned by a partnership of which a subsidiary of ours is the
sole general partner, with a 1.0% general partnership interest, and another
subsidiary of ours has a limited partnership interest of not less than
94%, subject to an option by the other non-affiliated limited partner to
acquire up to 10% of the total limited partnership interests. The
partnership recently received additional capital contributions from its
partners, and the exact ownership percentage of each limited partner
remains subject to further negotiation.
(10) The lease expires in December 2002, and is subject to a ten-year renewal
option. We have the option to purchase the hospital at any time prior to
termination of the lease, subject to regulatory approval.
(11) The lease expires in January 2011, and is subject to two five-year renewal
terms. We have a right of first refusal to purchase the hospital.
(12) The lease expires in September 2016, and is subject to two ten-year renewal
options. We have a right of first refusal to purchase the hospital.
City of Ennis Hospital is a 45-bed hospital located in Ennis, Texas,
approximately 35 miles southeast of Dallas. Established in the mid-1950s, the
hospital is owned by the City of Ennis. The acute care facility is the only
hospital serving the Ennis community, which has a total service area population
of approximately 85,000 people. The nearest competitor is the 73-bed Baylor
Health Care System Waxahachie Hospital, located 17 miles from Ennis. The City of
Ennis Hospital was previously operated by the Baylor Health Care System, which
had closed most services at the hospital in November 1999, at which time
ownership reverted back to the City of Ennis. Upon the commencement of our lease
of the facility in February 2000, the hospital provided emergency, skilled
nursing, lab and radiology services. We intend to have a full service acute care
facility operating by April 1, 2000.
Colorado Plains Medical Center is a 50-bed acute care facility located in
Fort Morgan, Colorado, approximately 70 miles from Denver. Fort Morgan is an
agricultural-based community with an estimated 12,000 residents and an estimated
service area population of 43,000. The original hospital was built in 1952, and
Brim purchased the hospital from the county in 1986. The hospital is the only
rural-based level III trauma center in Colorado, and one of only 10 such rural
centers in the United States. The hospital provides home health care services
and opened an inpatient rehabilitation unit in September 1998. The hospital's
major competition comes from the 276-bed Northern Colorado Medical Center
located in Greeley, Colorado, which is about 45 miles west of Colorado Plains.
East Morgan County Hospital, located nine miles away in Brush, Colorado, is the
closest hospital to Colorado Plains and offers only limited services. Both of
these competing hospitals are owned by the Lutheran Health System.
Colorado River Medical Center is a 53-bed hospital located in Needles,
California, approximately 100 miles southwest of Las Vegas, Nevada. The
hospital, established in 1974, was previously owned by the City of Needles.
Colorado River Medical Center is the only hospital serving a community base of
approximately 20,000 people. Colorado River Medical Center has no significant
in-market competition, but does suffer limited out-migration to a major
university medical center in Loma Linda, California. Another competitor is
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Bullhead Community Hospital, located 22 miles away, which serves the Laughlin,
Nevada and Bullhead City, Arizona areas. We began construction in November,
1998 on a $3.5 million medical office building.
Doctors' Hospital of Opelousas is a 133-bed general acute care facility,
located in Opelousas, Louisiana approximately 21 miles east of Eunice, Louisiana
where Province operates a 91-bed health care facility and approximately 22 miles
north of Lafayette. Opelousas is the parish seat with a population of
approximately 21,000 in the city of Opelousas and approximately 100,000
residents of the St. Landry Parish. We purchased the hospital from Columbia/HCA
Healthcare Corporation which owned the hospital in a joint venture with 13 area
physicians. The facility originally was constructed in 1981 with additions and
renovations completed in 1984, including a Women's Healthcare Center. The
primary competition for Doctors' Hospital of Opelousas is the 134-bed Opelousas
General Hospital, a county owned not-for-profit facility located approximately
five miles from Doctors' Hospital of Opelousas. We began construction in
November, 1999 on a $5.6 million medical office building and a $3.0 million bed
addition project.
Elko General Hospital is a 50-bed acute care facility located in Elko,
Nevada. Elko, Nevada is located 237 miles west of Salt Lake City, Utah, 295
miles northeast of Reno and 475 miles north of Las Vegas. Elko County's
population is approximately 55,000, with the primary population base residing in
the city of Elko. Originally constructed as a 20-bed hospital in 1920, Elko
General Hospital has grown and expanded with the community undergoing two major
renovations in 1958 and 1976. We began construction on February 1, 2000 on a new
$30.0 million facility to serve the growing community.
Eunice Community Medical Center is a 91-bed general acute care facility
located in Eunice, Louisiana. Eunice, Louisiana is a community of approximately
20,000 people, located approximately 50 miles northwest of Lafayette. The total
service area consisting of St. Landry Parish has a population of approximately
100,000. We entered into a 10-year lease with a 5-year renewal option on
the facility. The hospital is located 21 miles from Opelousas General Hospital,
a 133-bed facility, which we recently acquired. We must construct a replacement
facility, at such time as the hospital reaches pre-determined operating levels.
The lease will terminate at the time the replacement facility commences
operations. Eunice Community Medical Center competes with Savoy Medical Center
located in Mamou, Louisiana, approximately 15 miles north of Eunice.
General Hospital is a 75-bed acute care hospital located in Eureka,
California, approximately 300 miles north of San Francisco. Eureka, California
has a population of 28,000 within the city limits, 46,000 in the immediate urban
area, and 129,000 in the hospital's service area. General Hospital is one of two
hospitals operating in the service area. General Hospital originally was
established in 1906, and Brim Hospitals, Inc. acquired the hospital in January
1986 from the county. The hospital also operates an ambulatory surgery center
and a home health agency that are located near the hospital.
Glades General Hospital is a 73-bed full service general acute care
facility serving the residents of Western Palm Beach, Hendry and Glades counties
and is located 45 miles west of West Palm Beach on the southeast corner of Lake
Okeechobee. Belle Glade, Florida has a service area population of 36,000. The
nearest competitor is Columbia Palms West, located 30 miles away in Loxahatchee,
Florida. We believe this market presents a solid growth opportunity for the
hospital and the potential to open an emergency care clinic in the Pahokee
market. We began construction in January, 2000 on a $1.5 million office building
addition.
Lake Havasu Regional Medical Center is a 118-bed acute care facility
providing health care services for a population of over 41,000 primarily in the
Lake Havasu City, Arizona area. Lake Havasu City is on the shore
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of Lake Havasu on the Colorado River border of California and Arizona. It is now
the major population center of southern Mohave County, one of the fastest
growing counties in the United States. We acquired the facility in May 1998 from
the Samaritan Health System, a Phoenix, Arizona, based not-for-profit health
care system. The hospital currently provides general acute care, skilled nursing
care, radiation, oncology and diagnostic services, including the recent addition
of a cardiac catheterization lab. Lake Havasu City has a service area population
of 127,000 residents in the rapidly growing Colorado River basin. We began
construction of a $26.0 million ancillary expansion in January, 2000.
Minden Medical Center is a 124-bed general acute care hospital located in
Minden, Louisiana. Minden, Louisiana is approximately 28 miles from Shreveport
and has a service area population of approximately 64,000. Province acquired the
facility in October 1999, along with Trinity Valley Medical Center, from Tenet
Healthcare Corporation. The hospital currently provides general acute care,
geriatric psychiatric and obstetric services. The hospital's nearest competitors
are the Willis-Knight Medical Center and Bossier Medical Center, which are both
located in Shreveport.
Ojai Valley Community Hospital is a 110-bed acute care hospital, including
a 66-bed nursing facility in Ojai, California, a geographically isolated
community 85 miles northwest of Los Angeles. Ojai is located approximately 18
miles from Ventura, California, but its geographical isolation delays travel
such that Ojai residents must drive for 30-60 minutes to reach Ventura by car.
The Ojai Valley community includes about 31,000 residents. The acute care
hospital was acquired by Brim, Inc. in April 1994. Ojai Valley Community
Hospital's primary competitor is Community Memorial Hospital located in Ventura,
California.
Palestine Regional Medical Center is a two-campus, 257-bed general acute
care hospital facility located in Palestine, Texas. Palestine, a community of
approximately 19,000 residents, is located 50 miles south of Tyler, Texas and is
roughly equidistant from Dallas and Houston. The total service area population
for the hospital, which includes Anderson and eight surrounding counties, is
estimated at 104,000 people. The main campus is comprised of the former Trinity
Valley Medical Center, a 153-bed facility that we acquired in October 1999 from
Tenet Healthcare Corporation. The West campus is comprised of the former
Memorial Mother Frances Hospital, a 104-bed acute care facility also located in
Palestine, which we have owned since 1996. Palestine Regional Medical Center
competes indirectly with two other hospitals, Mother Francis Medical Center and
East Texas Medical Center, both in Tyler, Texas. We completed construction in
August, 1999 of a $3.8 million medical office building at the hospital's main
campus.
Palo Verde Hospital is a 55-bed acute care hospital located in Blythe,
California, which is in southeast California on the Arizona border. The hospital
is located in a community with a stable population of 20,000; however, the
population increases significantly during the winter months. Brim Hospitals,
Inc. entered into a lease to operate the hospital in January 1993 from the Palo
Verde Hospital Association. The nearest competitor is Parker Hospital in Parker,
California, which is approximately 45 miles from Palo Verde Hospital.
Parkview Regional Hospital is a 44-bed acute care hospital located in
Mexia, Texas. Parkview's primary service area includes Mexia and the surrounding
Limestone County, as well as Freestone, Leon, and Hill counties. Mexia is the
area's largest city with a population of 7,000 people. The service area of the
hospital includes approximately 50,000 residents. Brim Hospitals, Inc. acquired
the hospital through a long-term lease in February 1996. Parkview Regional
Hospital is the only hospital in the community, but experiences competition from
Waco hospitals, about 40 miles to the west.
Starke Memorial Hospital is a 49-bed hospital in Knox, Indiana, a community
located approximately 50 miles from South Bend. The town of Knox has a
population of approximately 8,000, and the population of Starke County is
estimated to be 23,200. The hospital's total service area, including the
surrounding counties, is approximately 35,000. Established in 1952, the hospital
had been owned by Starke County until we purchased it in October 1996. The
nearest competing hospitals are the 36-bed St. Joe Marshall County Hospital,
which is located 18 miles east in Plymouth, Indiana, and the 307-bed Starke
Porter Memorial Hospital, which is located 32 miles away in Valpraiso, Indiana.
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OPERATING STATISTICS
The following table sets forth certain operating statistics for our owned
or leased hospitals for each of the periods presented.
BRIM |
(PREDECESSOR) | PROVINCE (SUCCESSOR)
------------- | ---------------------------------
PERIOD | PERIOD
JANUARY 1 TO | FEB. 2 TO YEAR ENDED DECEMBER 31,
DECEMBER 18, | DEC. 31, ---------------------------------
1996 | 1996 1997 1998 1999
------------- | --------- -------- --------- --------
|
Hospitals owned or leased at end |
of period....................... 5 | 7 8 10 14
Licensed beds (at end of |
period)......................... 371 | 513 570 723 1,282
Beds in service (at end of |
period)......................... 266 | 393 477 647 1,186
Admissions........................ 9,496 | 1,964 15,142 21,538 32,509
Average length of stay |
(days)(1)....................... 5.9 | 4.3 5.6 5.2 4.8
Patient days...................... 56,310 | 8,337 84,386 110,816 156,846
Adjusted patient days(2).......... 96,812 | 15,949 149,567 195,998 273,394
Occupancy rate (% of licensed |
beds)(3)........................ 43.1% | 39.5% 40.6% 42.0% 33.4%
Occupancy rate (% of beds in |
service)(4)..................... 60.1% | 51.3% 48.5% 46.9% 36.2%
Net patient service revenue (in |
thousands)...................... $87,900 | $16,425 $149,296 $ 217,364 $323,319
Gross outpatient service revenue |
(in thousands).................. $64,472 | $14,088 $110,879 $ 161,508 $257,248
Gross outpatient service revenue |
(% of gross patient service |
revenue......................... 43.4% | 48.2% 44.5% 43.5% 42.6%
- ---------------
(1) Average length of stay is calculated based on the number of patient days
divided by the number of admissions.
(2) Adjusted patient days have been calculated based on an industry-accepted
revenue-based formula of multiplying actual patient days by the sum of gross
inpatient revenue and gross outpatient revenue and dividing the result by
gross inpatient revenue for each hospital, to reflect an approximation of
the volume of service provided to inpatients and outpatients by converting
total patient revenue to equivalent patient days.
(3) Percentages are calculated by dividing average daily census by average
licensed beds.
(4) Percentages are calculated by dividing average daily census by average beds
in service.
SOURCES OF REVENUE
We receive payments for patient care from private insurance carriers,
federal Medicare programs for elderly and disabled patients, HMOs, preferred
provider organizations, state Medicaid programs, the Civilian Health and Medical
Program of the Uniformed Services, also known as CHAMPUS, and from employers and
patients directly. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The following table sets forth the percentage of the patient days of our
owned or leased hospitals (excluding the 66-bed skilled nursing facility at Ojai
Valley Community Hospital) from various payors for the periods indicated. The
data for the periods presented are not strictly comparable because of the
significant
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effect that acquisitions have had on us. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PERIOD
FEBRUARY 2 TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------
SOURCE 1996 1997 1998 1999
- ------ ------------- ----- ----- -----
Medicare............................................... 63.3% 60.3% 57.8% 56.2%
Medicaid............................................... 12.0 13.1 11.1 12.4
Private and other sources.............................. 24.7 26.6 31.1 31.4
----- ----- ----- -----
Total........................................ 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
All percentages in the table above exclude the 66-bed skilled nursing
facility at Ojai Valley Community Hospital. Substantially all of the patient
days at the Ojai Valley skilled nursing facility are provided by Medicaid. The
Ojai Valley skilled nursing facility utilization is as follows:
PRIVATE AND
OTHER
MEDICARE MEDICAID SOURCES
-------- -------- -------------
Period February 2 to December 31, 1996..................... 16.0% 68.6% 15.4%
Year ended December 31, 1997............................... 11.8 76.2 12.0
Year ended December 31, 1998............................... 7.8 80.9 11.3
Year ended December 31, 1999............................... 4.5 83.1 12.5
MANAGEMENT INFORMATION SYSTEMS
Upon the completion of an acquisition, one of our first steps is to convert
the newly-acquired hospital to our management information system. Our hospital
management system contains the primary software required to run an entire
hospital, bundled into one software package. This software includes features
such as a general ledger, patient accounting, billing, accounts receivable,
payroll, accounts payable and pharmacy. Our goal is to convert an acquired
hospital to our management information system within sixty days from the date of
the acquisition.
QUALITY ASSURANCE
Our hospitals implement quality assurance procedures to monitor the level
of care. Each hospital has a medical director who supervises and is responsible
for the quality of medical care provided. In addition, each hospital has a
medical advisory committee comprised of physicians who review the professional
credentials of physicians applying for medical staff privileges at the hospital.
Medical advisory committees also review and monitor surgical outcomes along with
procedures performed and the quality of the logistical, medical and
technological support provided to the physician. We survey all of our patients
either during their stay at the hospital or subsequently by mail to identify
potential areas of improvement. All of our hospitals are accredited by the Joint
Commission on Accreditation of Health Care Organizations.
REGULATORY COMPLIANCE PROGRAM
We maintain a corporate-wide compliance program under the direction of
Starley Carr, our Vice President of Corporate Compliance. Prior to joining our
company, Mr. Carr served with the Federal Bureau of Investigation, where he
investigated various white collar crimes, including those related to the health
care industry. Our compliance program focuses on all areas of regulatory
compliance, including physician recruitment, reimbursement and cost reporting
practices, laboratory and home health care operations. Each of our hospitals
designates a compliance officer, and each facility undergoes an annual risk
assessment to determine potential risk issues and develop plans to correct
problems should they arise. In addition, all of our employees are given a
thorough introduction to our ethical and compliance guidelines, as well as a
guide to the proper resources to address any concerns that may arise. We also
conduct annual training to re-emphasize our established guidelines. We regularly
monitor corporate compliance programs to respond to developments in
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health care regulation and the industry. We also maintain a toll-free hotline to
permit employees to report compliance concerns on an anonymous basis. In
addition, the hotline is a method of obtaining answers to questions of
compliance encountered during the day-to-day operation of a facility.
MANAGEMENT AND CONSULTING SERVICES
Brim Healthcare, Inc., a wholly owned subsidiary, provides management
services to 48 primarily non-urban hospitals in 18 states and Puerto Rico with a
total of 3,584 licensed beds. These services are provided for a fixed monthly
fee under three to seven-year contracts. Brim Healthcare, Inc. generally
provides a chief executive officer, who is an employee of Brim Healthcare,
Inc., and may also provide a chief financial officer. Brim Healthcare, Inc.
typically does not employ other hospital personnel. Management services
generally are limited to strategic planning, operational consulting and
assistance with Joint Commission of Accreditation for Health Care Organizations
accreditation and compliance. To further promote compliance, Brim Healthcare,
Inc. requires that each of the hospitals that it manages have a compliance
officer. In addition, to assist hospitals and community health care, Brim
Healthcare, Inc. sometimes establishes regional provider networks. We believe
that Brim Healthcare, Inc.'s contract management business provides a
competitive advantage in identifying and developing relationships with suitable
acquisition candidates and in understanding the local markets in which such
hospitals operate. This subsidiary represented less than 6.0% of net operating
revenue for the year ended December 31, 1999 compared to less than 8.0% of net
operating revenue for the year ended December 31, 1998.
COMPETITION
The primary bases of competition among hospitals in non-urban markets are
the quality and scope of medical services, strength of referral network,
location, and, to a lesser extent, price. With respect to the delivery of
general acute care services, most of our hospitals face less competition in
their immediate patient service areas than would be expected in larger
communities. While our hospitals are generally the primary provider of health
care services in their respective communities, our hospitals face competition
from larger tertiary care centers and, in some cases, other non-urban hospitals.
Some of the hospitals that compete with us are owned by governmental agencies or
not-for-profit entities supported by endowments and charitable contributions,
and can finance capital expenditures on a tax-exempt basis.
One of the most significant factors in the competitive position of a
hospital is the number and quality of physicians affiliated with the hospital.
Although physicians may at any time terminate their affiliation with a hospital
that we operate, our hospitals seek to retain physicians of varied specialties
on the hospitals' medical staffs and to attract other qualified physicians. We
believe physicians refer patients to a hospital primarily on the basis of the
quality of services it renders to patients and physicians, the quality of other
physicians on the medical staff, the location of the hospital and the quality of
the hospital's facilities, equipment and employees. Accordingly, we strive to
maintain high ethical and professional standards and quality facilities,
equipment, employees and services for physicians and their patients.
Another factor in the competitive position of a hospital is management's
ability to negotiate service contracts with purchasers of group health care
services. HMOs and preferred provider organizations attempt to direct and
control the use of hospital services through managed care programs and to obtain
discounts from hospitals' established charges. In addition, employers and
traditional health insurers are increasingly interested in containing costs
through negotiations with hospitals for managed care programs and discounts from
established charges. Generally, hospitals compete on the basis of market
reputation, geographic location, quality and range of services, quality of the
medical staff, convenience and price for service contracts with group health
care service purchasers. The importance of obtaining contracts with managed care
organizations varies from market to market, depending on the market strength of
such organizations. Managed care contracts generally are less important in the
non-urban markets served by us than they are in urban and suburban markets where
there is typically a higher level of managed care penetration.
State certificate of need laws, which place limitations on a hospital's
ability to expand hospital services and add new equipment, also may have the
effect of restricting competition. Two states in which we operate,
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Florida and Nevada, currently have certificate of need laws. The application
process for approval of covered services, facilities, changes in operations and
capital expenditures is, therefore, highly competitive. In those states that
have no certificate of need laws or that set relatively high thresholds before
expenditures become reviewable by state authorities, competition in the form of
new services, facilities and capital spending may be more prevalent. We have not
experienced, and do not expect to experience, any material adverse effects from
state certificate of need requirements or from the imposition, elimination or
relaxation of such requirements. See "Item 1. Business - Health Care Regulation
and Licensing."
We, and the health care industry as a whole, face the challenge of
continuing to provide quality patient care while dealing with rising costs,
strong competition for patients and a general reduction of reimbursement rates
by both private and government payers. As both private and government payers
reduce the scope of what may be reimbursed and reduced reimbursement levels for
what is covered, federal and state efforts to reform the health care system may
further impact reimbursement rates. Changes in medical technology, existing and
future legislation, regulations and interpretations and competitive contracting
for provider services by private and government payers may require changes in
our facilities, equipment, personnel, rates and/or services in the future.
The hospital industry and some of our hospitals continue to have
significant unused capacity. Inpatient utilization, average lengths of stay and
average inpatient occupancy rates continue to be negatively affected by
payer-required pre-admission authorization, utilization review, and payment
mechanisms to maximize outpatient and alternative health care delivery services
for less acutely ill patients. Admissions constraints, payer pressures and
increased competition are expected to continue. We will endeavor to meet these
challenges by expanding our facilities' outpatient services, offering
appropriate discounts to private payer groups, upgrading facilities and
equipment, and offering new programs and services.
We also face competition for acquisitions primarily from for-profit
hospital management companies as well as not-for-profit entities. Some of our
competitors have greater financial and other resources than us. Increased
competition for the acquisition of non-urban acute care hospitals could have an
adverse impact on our ability to acquire such hospitals on favorable terms.
PROPERTIES
In addition to our owned and leased hospitals, we own a 48,000 square foot
office building in Portland, Oregon and lease approximately 33,488 square feet
of office space for our corporate headquarters in Brentwood, Tennessee under a
seven-year lease that expires on March 31, 2005 and contains customary terms and
conditions. See "Item 1. Business -- Owned and Leased Hospitals."
EMPLOYEES AND MEDICAL STAFF
As of March 1, 2000, we had 3,324 "full-time equivalent" employees,
including 32 corporate personnel and 125 management company personnel. The
remaining employees, most of whom are nurses and office personnel, work at the
hospitals. We consider relations with our employees to be good. Approximately
1.56% of our employees are represented by unions.
We typically do not employ physicians and, as of March 1, 2000, we employed
less than 10 practicing physicians. Certain of our hospital services, including
emergency room coverage, radiology, pathology and anesthesiology services, are
provided through independent contractor arrangements with physicians.
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GOVERNMENT REIMBURSEMENT
A significant portion of our revenue is dependent upon Medicare and
Medicaid payments. In recent years, fundamental changes in the Medicare and
Medicaid programs, including the implementation of a prospective payment system
for inpatient services at medical/surgical hospitals, have resulted in
limitations on, and reduced levels of payment and reimbursement for, a
substantial portion of hospital procedures and costs.
Under the prospective payment system, a hospital receives a fixed amount
for inpatient hospital services based on the established fixed payment amount
per discharge for categories of hospital treatment known as diagnosis related
group payments. Diagnosis related group payments do not consider a specific
hospital's costs, but are national rates adjusted for area wage differentials.
Psychiatric services, long-term care, rehabilitation, certain designated
research hospitals and distinct parts of rehabilitation and psychiatric units
within hospitals currently are exempt from the prospective payment system and
are reimbursed on a cost-based system, subject to specific reimbursement caps,
which are known as TEFRA limits.
For several years, the percentage increases to the diagnosis related group
payments rates have been lower than the percentage increases in the cost of
goods and services purchased by general hospitals. The index used to adjust the
diagnosis related group payments rates is based on a price proxy, known as the
HCFA market basket index, reduced by Congressionally-mandated reduction factors.
The historical diagnostic related group rate increases were 1.1%, 1.5%, 2%, 0,
and .5% for federal fiscal years 1995, 1996, 1997, 1998 and 1999, respectively.
The Balanced Budget Act of 1997 set the diagnostic related group payment rates
of increase for future federal fiscal years at rates that will be based on the
market basket rates less reduction factors of 1.8% in 2000, and 1.1% in 2001 and
2002. We anticipate that future legislation may further decrease the rates of
increase for diagnosis related group payments, but we do not know the amount of
the final reduction.
Outpatient services provided by general hospitals are reimbursed by
Medicare at the lower of customary charges or Medicare's definition of cost,
subject to additional limits on the reimbursement of certain outpatient
services. The Balanced Budget Act of 1997 mandated the implementation of the
prospective payment system for Medicare outpatient services by January 1, 1999.
This outpatient prospective payment system will be based on a system of
Ambulatory Payment Categories. Each Ambulatory Payment Category will represent a
bundle of outpatient services, and each Ambulatory Payment Category will be
assigned a fully prospective reimbursement rate. Because final regulations
implementing the outpatient prospective payment system have not been
promulgated, we are not able to predict the full impact of this provision of the
Balanced Budget Act of 1997. The Health Care Financing Administration has
announced that the implementation of the outpatient prospective payment system
will be delayed until July 1, 2000 or later. The outpatient prospective payment
system will be further affected by changes mandated by the Medicare Balanced
Budget Refinement Act of 1999. In most cases, this legislation will lessen the
impact of reimbursement limitations imposed by the Balanced Budget Act of 1997.
For example, the Balanced Budget Refinement Act of 1999 increases Medicare
payments under the prospective payment system for hospital outpatient services
provided to certain high-cost outlier patients.
Medicare has special payment provisions for "Sole Community Hospitals." A
Sole Community Hospital is generally the only hospital in at least a 35-mile
radius or a 45-minute driving time radius. Colorado Plains, Colorado River,
Elko, Havasu and Palo Verde qualify as Sole Community Hospitals under Medicare
regulations. Special payment provisions related to Sole Community Hospitals
include a higher diagnosis related group payments rate, which is based on a
blend of hospital-specific costs and the national diagnosis related group
payments rate; and a 90% payment "floor" for capital cost. In addition, the
CHAMPUS program has special payment provisions for hospitals recognized as Sole
Community Hospitals for Medicare purposes. The Balanced Budget Refinement Act of
1999 provides hospitals with greater flexibility to participate in Medicare as
Sole Community Hospitals. The Balanced Budget Refinement Act of 1999 also
provides a payment increase for Sole Community Hospitals for fiscal year 2001.
For fiscal year 2001, the prospective payment system rate increase for hospitals
not qualifying as Sole Community Hospitals is the market basket minus 1.1%. For
Sole Community Hospitals, the prospective payment system rate increase will be
the market basket percentage increase.
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Each state has its own Medicaid program that is funded jointly by such
state and the federal government. Federal law governs how each state manages its
Medicaid program, but there is wide latitude for states to customize Medicaid
programs to fit local needs and resources. As a result, each state Medicaid plan
has its own payment formula and recipient eligibility criteria.
The Balanced Budget Act of 1997 also repealed the Boren Amendment. The
Boren Amendment was enacted in 1980 and imposed several requirements on states
in their calculations of Medicaid rates. For example, the Boren Amendment
required states to pay providers rates that are "reasonable and adequate" to
meet the necessary costs of an efficiently operated facility. Although the full
effect of the repeal of the Boren Amendment is not yet known, the likely
result will be that states will begin setting lower Medicaid reimbursement
rates than they would have under Boren.
We own or lease four hospitals in California. The Medicaid program in
California, known as Medi-Cal, reimburses hospital inpatient cost on one of
three methods: (i) cost-based, subject to various limits known as MIRL/Peer
Group limits; (ii) negotiated rates per discharge or per diems for hospitals
under contract; or (iii) managed care initiatives, where payment rates tend to
be capitated and networks must be formed. Three of our four California hospitals
are cost-based for Medi-Cal and the other is paid under the negotiated contract
method. None of our cost-based hospitals is currently subject to a MIRL/Peer
Group limit, because its cost per discharge has historically been below the
limit. There can be no assurance that this will remain the case in the future.
Medi-Cal currently has a managed care initiative that is primarily targeted at
urban areas. We do not expect that Medi-Cal will begin rural managed care
contracting in the near future.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes, administrative rulings, interpretations and determinations,
requirements for utilization review and new governmental funding restrictions,
all of which may materially increase or decrease program payments as well as
affect the cost of providing services and the timing of payment to facilities.
The final determination of amounts earned under the programs often requires many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions.
Management believes that adequate provision has been made for such adjustments.
Until final adjustment, however, significant issues remain unresolved and
previously determined allowances could become either inadequate or more than
ultimately required.
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HEALTH CARE REGULATION AND LICENSING
CERTAIN BACKGROUND INFORMATION
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. Medicare,
Medicaid, and other public and private hospital cost-containment programs,
proposals to limit health care spending, proposals to limit prices and industry
competitive factors are among the many factors that are highly significant to
the health care industry. In addition, the health care industry is governed by a
framework of federal and state laws, rules and regulations that are extremely
complex and for which the industry has the benefit of only limited regulatory or
judicial interpretation.
There continue to be federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to providers
such as us. In addition, there are proposals to increase co-payments and
deductibles from program and private patients. Our facilities also are affected
by controls imposed by government and private payors designed to reduce
admissions and lengths of stay. Such controls, including what is commonly
referred to as "utilization review," have resulted in a decrease in certain
treatments and procedures being performed. Utilization review entails the review
of the admission and course of treatment of a patient by a third party.
Utilization review by third-party peer review organizations is required in
connection with the provision of care paid for by Medicare and Medicaid.
Utilization review by third parties also is required under many managed care
arrangements.
Many states have enacted, or are considering enacting, measures that are
designed to reduce their Medicaid expenditures and to make changes to private
health care insurance. Various states have applied, or are considering applying,
for a federal waiver from current Medicaid regulations to allow them to serve
some of their Medicaid participants through managed care providers. These
proposals also may attempt to include coverage for some people who presently are
uninsured, and generally could have the effect of reducing payments to
hospitals, physicians and other providers for the same level of service provided
under Medicaid.
CERTIFICATE OF NEED REQUIREMENTS
Some states require approval for purchase, construction and expansion of
health care facilities, including findings of need for additional or expanded
health care facilities or services. Certificates of need, which are issued by
governmental agencies with jurisdiction over health care facilities, are at
times required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. Two states in which we
currently own hospitals, Florida and Nevada, have certificate of need laws. In
addition, we may in the future buy additional hospitals in states that require
certificates of need. We are unable to predict whether our hospitals will be
able to obtain any certificates of need that may be necessary to accomplish
their business objectives in any jurisdiction where such certificates of need
are required.
ANTI-KICKBACK AND SELF-REFERRAL REGULATIONS
Sections of the Anti-Fraud and Abuse Amendments to the Social Security Act,
commonly known as the "anti-kickback" statute, prohibit certain business
practices and relationships that might influence the provision and cost of
health care services reimbursable under Medicaid or Medicare or other federal
health care programs, including the payment or receipt of remuneration for the
referral of patients whose care will be paid for by Medicare or other government
programs. Sanctions for violating the anti-kickback statute include criminal
penalties and civil sanctions, including fines and possible exclusion from
government programs, such as the Medicare and Medicaid programs. Pursuant to the
Medicare and Medicaid Patient and Program Protection Act of 1987, the U.S.
Department of Health and Human Services issued regulations that create safe
harbors under the anti-kickback statute. A given business arrangement that does
not fall within an enumerated safe harbor is not per se illegal; however,
business arrangements of health care services providers that fail to satisfy the
applicable safe harbor criteria risk increased scrutiny by enforcement
authorities. The Health Insurance Portability and Accountability Act of 1996,
which became effective January 1, 1997, added several new fraud and abuse laws.
These new laws cover all health insurance programs--private as well as
governmental. In addition, the Health Insurance Portability and Accountability
Act of 1996 broadened the
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scope of certain fraud and abuse laws, such as the anti-kickback statute, to
include not just Medicare and Medicaid services, but all health care services
reimbursed under a federal or state health care program.
There is increasing scrutiny by law enforcement authorities, the Office of
Inspector General of the Department of Health and Human Services, the courts
and Congress of arrangements between health care providers and potential
referral sources to ensure that the arrangements are not designed as a mechanism
to exchange remuneration for patient care referrals and opportunities.
Investigators also have demonstrated a willingness to look behind the
formalities of a business transaction to determine the underlying purpose of
payments between health care providers and potential referral sources.
Enforcement actions have increased, as evidenced by recent highly publicized
enforcement investigations of certain hospital activities.
In addition, provisions of the Social Security Act prohibit physicians from
referring Medicare and Medicaid patients to providers of a broad range of
designated health services with which the physicians or their immediate family
members have ownership or certain other financial arrangements. Certain
exceptions are available for employment agreements, leases, physician
recruitment and certain other physician arrangements. These provisions are known
as the Stark laws and are named for the legislative sponsor, Rep. Pete Stark
(R-CA). A person making a referral, or seeking payment for services referred, in
violation of the Stark laws would be subject to the following sanctions:
- civil money penalties of up to $15,000 for each service;
- assessments equal to twice the dollar value for each service; and/or
- exclusion from participation in the Medicare program, which can subject
the person or entity to exclusion from participation in state health care
programs.
Further, if any physician or entity enters into an arrangement or scheme
that the physician or entity knows or should know has the principal purpose of
assuring referrals by the physician to a particular entity, and the physician
directly makes referrals to such entity, then such physician or entity could be
subject to a civil money penalty of up to $100,000. Many states have adopted or
are considering similar legislative proposals, some of which extend beyond the
Medicaid program, to prohibit the payment or receipt of remuneration for the
referral of patients and physician self-referrals regardless of the source of
the payment for the care.
ENVIRONMENTAL REGULATIONS
Our health care operations generate medical waste that must be disposed of
in compliance with federal, state and local environmental laws, rules and
regulations. Our operations, as well as our purchases and sales of facilities,
also are subject to various other environmental laws, rules and regulations.
HEALTH CARE FACILITY LICENSING REQUIREMENTS
Our health care facilities are subject to extensive federal, state and
local legislation and regulation. In order to maintain their operating licenses,
health care facilities must comply with strict standards concerning medical
care, equipment and hygiene. Various licenses and permits also are required in
order to dispense narcotics, operate pharmacies, handle radioactive materials
and operate certain equipment. Our health care facilities hold all required
governmental approvals, licenses and permits. All licenses, provider numbers and
other permits or approvals required to perform our business operations are held
by our subsidiaries. All of our hospitals are fully accredited by the
Joint Commission on Accreditation of Health Care Organizations.
UTILIZATION REVIEW COMPLIANCE AND HOSPITAL GOVERNANCE
Our health care facilities are subject to and comply with various forms of
utilization review. In addition, under the Medicare prospective payment system,
each state must have a peer review organization to carry out federally mandated
system of review of Medicare patient admissions, treatments and discharges in
hospitals. Medical and surgical services and practices are supervised
extensively by committees of staff doctors at each health care facility, are
overseen by each health care facility's local governing board, the primary
voting members of which are physicians and community members, and are reviewed
by our quality assurance
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personnel. The local governing boards also help maintain standards for quality
care, develop long-range plans, establish, review and enforce practices and
procedures and approve the credentials and disciplining of medical staff
members.
GOVERNMENTAL DEVELOPMENTS REGARDING SALES OF NOT-FOR-PROFIT HOSPITALS
In recent years, the legislatures and attorneys general of several states
have shown a heightened level of interest in transactions involving the sale of
non-profit hospitals. Although the level of interest varies from state to state,
the trend is to provide for increased governmental review, and in some cases
approval, of transactions in which not-for-profit corporations sell a health
care facility. Attorneys general in certain states, including California, have
been especially active in evaluating these transactions.
PROPOSED MEDICAL RECORDS PRIVACY LEGISLATION
The Health Insurance Portability and Accountability Act of 1996 directed
Congress to pass comprehensive health privacy legislation no later than August
21, 1999. In the event Congress failed to pass such legislation, the act
required the Secretary of Health and Human Services to issue regulations
designed to protect the privacy of individually identifiable health information.
Congress failed to pass the legislation, and on October 29, 1999, the Health and
Human Services issued a proposed set of standards to comply with the act's
mandate. The standards will apply to medical records created by health care
providers, hospitals, health plans and health care clearinghouses that are
either transmitted or maintained electronically and the paper printouts created
from these records. The proposed standards:
- increase consumer control over their medical records,
- mandate substantial financial penalties for violation of a patient's
right to privacy, and
- with a few exceptions, require that an individual's health care
information only be used for health purposes.
The proposed standards also require health care providers to implement and
enforce privacy policies to ensure compliance with the standards. The proposed
standards are not yet final, and may be modified prior to finalization. Until
the standards are finalized, we cannot know the extent of our costs for
implementing the requirements imposed by the regulations. We have appointed an
internal task force to study the proposed regulations' potential effects on our
business and to prepare us for compliance with the regulations.
CALIFORNIA SEISMIC STANDARDS
California enacted the Alfred E. Alquist Hospital Facilities Seismic Safety
Act in 1973 and substantially amended the Alquist Act in 1983 and 1995. The Act
requires that the California Building Standards Commission adopt earthquake
performance categories, seismic evaluation procedures, standards and timeframes
for upgrading certain facilities, and seismic retrofit building standards. These
regulations require hospitals to meet seismic performance standards to ensure
that they are capable of providing medical services to the public after an
earthquake or other disaster. The Building Standards Commission completed its
adoption of evaluation criteria and retrofit standards in 1998.
The Alquist Act requires that within three years after the Building
Standards Commission has adopted evaluation criteria and retrofit standards:
- certain hospitals must conduct seismic evaluations and submit these
evaluations to the Office of Statewide Health Planning and Development,
Facilities Development Division for its review and approval;
- hospitals must identify the most critical nonstructural systems that
represent the greatest risk of failure during an earthquake and submit
timetables to Office of Statewide Health Planning and Development,
Facilities Development Division for its review and approval; and
- regulated hospitals must prepare a plan and compliance schedule for each
regulated building demonstrating the steps a hospital will take to bring
the hospital buildings into compliance with the regulations and
standards.
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We will be required to conduct engineering studies of our California
facilities to determine whether and to what extent modifications to our
facilities will be required. If significant modifications are required to comply
with the seismic standards, we could incur substantial capital costs. Compliance
plans, if necessary, must be filed with the State of California by 2002. Any
facilities currently not in compliance with the seismic regulations and
standards must be brought into compliance by 2008.
PROFESSIONAL LIABILITY
As part of our business, we are subject to claims of liability for
events occurring as part of the ordinary course of hospital operations. To
cover these claims, we maintain professional malpractice liability insurance
and general liability insurance in amounts that management believes to be
sufficient for our operations, although some claims may exceed the scope of
the coverage in effect. We also have a tail policy that transfers all risk
for our professional liability, and we maintain umbrella coverage. At various
times in the past, the cost of malpractice and other liability insurance has
risen significantly. Therefore, there can be no assurance that adequate
levels of insurance will continue to be available at a reasonable price.
Through our typical hospital management contract, we attempt to protect
ourselves from such liability by requiring the hospital to maintain certain
specified limits of insurance coverage, including professional liability,
comprehensive general liability, worker's compensation and fidelity insurance,
and by requiring the hospital to name us as an additional insured party on the
hospital's professional and comprehensive general liability policies. We also
maintain certain contingent liability policies designed to cover contingent
exposure Brim Hospitals, Inc. could incur under such management contracts. Our
management contracts generally provide for our indemnification by the hospital
against claims that arise out of hospital operations. However, there can be no
assurance the hospitals will maintain such insurance or that such indemnities
will be available.
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ITEM 2. PROPERTIES
Information with respect to our hospital facilities and other
properties can be found in Item 1 of this report under the captions, "Business -
Owned and Leased Hospitals," and "Business - Properties."
ITEM 3. LEGAL PROCEEDINGS
Our company is, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal
injuries, breach of management contracts or for wrongful restriction of or
interference with physician's staff privileges. In certain of these actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. We currently are not a party to any proceeding which, in
management's opinion, would have a material adverse effect on our
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Nasdaq National Market under the
symbol "PRHC." For 1999 the high and low sales prices for our common stock as
reported by Nasdaq National Market, were as follows:
1998 HIGH LOW
- ------------------- ------ ------
First Quarter $27 1/8 $18 7/8
Second Quarter 29 5/8 23
Third Quarter 37 1/4 25 3/8
Fourth Quarter 36 20 1/4
1999
- -------------------
First Quarter $36 $13
Second Quarter 24 1/2 13 7/16
Third Quarter 20 3/16 10 1/2
Fourth Quarter 23 7/8 10 5/8
As of March 1, 2000, there were approximately 320 record holders of
our common stock.
We historically have retained and currently intend to retain all
earnings to finance the development and expansion of our operations and,
therefore, do not anticipate paying cash dividends or making any other
distributions on our shares of common stock in the foreseeable future.
Furthermore, our credit facilities contain restrictions on our ability to pay
dividends. Our future dividend policy will be determined by our Board of
Directors on the basis of various factors, including our results of
operations, financial condition, business opportunities, capital requirements
and such other factors as the Board of Directors may deem relevant.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of:
- Our predecessor, Brim, Inc., as of and for the year
ended December 31, 1995, and as of December 18, 1996
and for the period January 1, 1996 to December 18,
1996, and
- Our company as of December 31, 1996, 1997, 1998 and
1999 and for the period February 2, 1996 to December
31, 1996 and the years ended December 31, 1997, 1998
and 1999. The selected financial information for the
predecessor and our company has been derived from the
audited consolidated financial statements of the
predecessor and our company.
The selected consolidated financial data are qualified by, and should be
read in conjunction with, "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes, appearing elsewhere in this Report.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
| Province
Brim(Predecessor)(1)(2) | (Successor)(1)(2)
--------------------------- | ------------------------------------------------------
Period | Period
Jan. 1, | Feb. 2,
Year Ended 1996 To | 1996 To Year Ended December 31,
December 31, Dec. 18, | Dec. 31, --------------------------------------
1995 1996 | 1996 1997 1998 1999
--------- --------- | --------- --------- -------- --------
|
INCOME STATEMENT DATA: |
Net operating revenue $ 101,214 $ 112,600 | $ 17,255 $ 170,527 $238,855 $346,692
Income (loss) from continuing |
operations 3,369 (5,307) | (1,316) 4,075 10,007 14,501
Net income (loss) 3,105 708 | (1,578) 4,075 10,007 14,501
Net income (loss) to common |
shareholders | (1,750) (1,002) 9,311 14,501
Net income (loss) per share to |
common shareholders- diluted | (0.61) (0.17) 0.68 0.91
Cash dividends declared |
per common share | -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD): |
Total assets 50,888 76,998 | 160,521 176,461 339,377 502,213
Long-term obligations, less |
current maturities 7,161 75,995 | 77,789 83,043 134,301 259,992
Mandatory redeemable preferred |
stock 8,816 31,824 | 46,227 50,162 -- --
Common stockholders' equity (deficit) 15,366 (56,308) | (490) (1,056) 169,191 184,359
(1) Our company was formed on February 2, 1996. On December 18, 1996,
Brim, Inc. completed a leveraged recapitalization. Immediately
thereafter on December 18, 1996, we acquired Brim, Inc. in a
transaction accounted for as a reverse acquisition. Therefore, the
assets and liabilities of Brim, Inc. were recorded at fair value as
required by the purchase method of accounting, and the operations of
Brim, Inc. were reflected in the operations of the combined enterprise
from the date of acquisition. Because we had been in existence for
less than a year at December 31, 1996, and because Brim, Inc. had been
in existence for several years, we are considered the successor to
Brim, Inc.'s operations. The balance sheet data of Brim, Inc. as of
December 18, 1996, represents the historical cost basis of Brim,
Inc.'s assets and liabilities after the leveraged recapitalization,
but prior to the reverse acquisition.
(2) The financial data of the predecessor and successor for the periods
presented are not strictly comparable due to the significant effect
that acquisitions, divestitures and the recapitalization of Brim, Inc
have had on such data. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Impact of
Acquisitions and Divestitures" and Note 3 to the notes to consolidated
financial statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and related notes thereto included elsewhere
in this Report.
OVERVIEW
We are a health care services company focused on acquiring and operating
hospitals in attractive non-urban markets in the United States. As of December
31, 1999, we owned and operated 14 general acute care hospitals in eight states
with a total of 1,282 licensed beds, and managed 48 hospitals in 18 states, plus
Puerto Rico, with a total of 3,584 licensed beds. In addition, in February 2000,
we entered into a long-term lease agreement for the City of Ennis Hospital, a
45-bed acute care facility located in Ennis, Texas.
Our company was founded in February 1996 by Golder, Thoma, Cressey, Rauner
Fund IV, L.P. and Martin S. Rash to acquire and operate hospitals in attractive
non-urban markets. We acquired our first hospital, Memorial Mother Frances
Hospital in Palestine, Texas, in July 1996.
In December 1996, we acquired Brim, Inc. in a transaction accounted for as
a reverse acquisition. Therefore, the assets and liabilities of Brim were
recorded at fair value as required by the purchase method of accounting, and the
operations of Brim were reflected in the operations of the combined enterprise
from the date of acquisition. Because we had been in existence for less than a
year at December 31, 1996, and because Brim had been in existence for several
years, we are considered the successor to Brim's operations.
IMPACT OF ACQUISITIONS AND DIVESTITURES
An integral part of our strategy is to acquire non-urban acute care
hospitals. Because of the financial impact of our recent acquisitions, it is
difficult to make meaningful comparisons between our financial statements for
the fiscal periods presented. In addition, due to the relatively small number of
owned and leased hospitals, each hospital acquisition can materially affect our
overall operating performance. 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 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 near 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. We may also divest
certain hospitals in the future if we determine a hospital no longer fits within
our strategy.
1997 Acquisition
In August 1997, we acquired Colorado River Medical Center in Needles,
California by purchasing certain assets and assuming certain liabilities and
entering into a fifteen-year lease agreement, with three five-year renewal
options, for a purchase price of approximately $6.3 million. The 1997 results of
operations include five months of operations for Colorado River Medical Center.
1998 Acquisitions
In May 1998, we acquired Lake Havasu Regional Medical Center in Lake Havasu
City, Arizona, for approximately $107.5 million. In June 1998, we acquired Elko
General Hospital in Elko, Nevada for a purchase price of approximately $23.3
million. To finance these acquisitions, we borrowed $106.0 million and $22.0
million, respectively, under our revolving credit facility.
The 1998 results of operations include twelve months of operations for the
acquisition in 1997, plus eight months of operations for Lake Havasu Regional
Medical Center and six and one-half months of operations for Elko General
Hospital.
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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
certain assets totaling $4.9 million and assuming certain liabilities and
entering into a ten-year lease agreement, with a five-year renewal option,
totalling $0.8 million.
In April 1999, we acquired the assets of Glades General Hospital in Belle
Glade, Florida totaling $17.2 million and assumed liabilities totaling $4.9
million. To finance this acquisition, we borrowed $13.5 million under our
revolving credit facility.
In June 1999, we acquired the assets totaling $25.7 million and assumed
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 the 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 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.
The 1999 results include twelve months of operations for the acquisitions
in 1997 and 1998, ten months and six days of operations for Eunice Community
Medical Center, eight and one-half months of operations for Glades General
Hospital, seven months of operations for Doctors' Hospital of Opelousas, and
three months of operations for Trinity Valley Medical Center and Minden Medical
Center.
All 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.
Recent Acquisitions
In February 2000, we entered into a long-term lease agreement for the City
of Ennis Hospital in Ennis, Texas by entering into a 30-year lease agreement.
The aggregate rental payments required under the long-term lease total $3.0
million.
GENERAL
The federal Medicare program accounted for approximately 60.3%, 57.8% and
56.2% of hospital patient days in 1997, 1998 and 1999, respectively. The state
Medicaid programs accounted for approximately 13.1%, 11.1% and 12.4% of hospital
patient days in 1997, 1998 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
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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.
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 44.5%,
43.5% and 42.6% of gross patient service revenue in 1997, 1998 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.
Our owned and leased hospitals accounted for 88.8%, 92.3% and 94.2% of our
net operating revenue in 1997, 1998 and 1999, respectively. We currently own
four hospitals in California, which accounted for 40.9%, 33.4% and 22.7% of net
operating revenue in 1997, 1998 and 1999, respectively. This concentration of
results of operations in this market increases the risk that adverse
developments at these facilities, or in the economic, regulatory or industry
environment in California, could have a material adverse effect on our
operations or financial condition.
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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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 consolidated statements of income included elsewhere in this
report. The results of operations for the periods presented include
hospitals from their acquisition dates, as previously discussed.
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
Net operating revenue....................................... 100.0% 100.0% 100.0%
Operating expenses (1)...................................... 86.0 82.4 82.8
----- ----- -----
EBITDA (2).................................................. 14.0 17.6 17.2
Depreciation and amortization............................... 4.4 5.6 5.7
Interest.................................................... 4.8 4.4 4.0
Minority interest........................................... 0.3 0.1 0.0
----- ----- -----
Income before income taxes.................................. 4.5 7.5 7.5
Provision for income taxes.................................. (2.1) (3.3) (3.3)
----- ----- -----
Net income.................................................. 2.4% 4.2% 4.2%
===== ===== =====
- ---------------
(1) Operating expenses represent expenses before interest, minority interest,
income taxes, depreciation and amortization.
(2) EBITDA represents the sum of income before income taxes, interest,
depreciation and amortization, minority interest, and loss (gain) 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 a 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.
EBITDA, however, 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.
Hospital revenues are received primarily from Medicare, Medicaid and
commercial insurance. The percentage of revenues received from the Medicare
program is expected to increase due to the general aging of the population. The
payment rates under the Medicare program for inpatients are based on a
prospective payment system, based upon the diagnosis of a patient. While these
rates are indexed for inflation annually, the increases have historically been
less than actual inflation. In addition, states, insurance companies and
employers are actively negotiating the amounts paid to hospitals as opposed to
their standard rates. The trend toward managed care, including health
maintenance organizations, preferred provider organizations and various other
forms of managed care, may affect the hospitals' ability to maintain their
current rate of net revenue growth.
Net operating revenue is comprised of:
- net patient service revenue from our owned and leased
hospitals;
- management and professional services revenue; and
- other revenue.
Net patient service revenue is reported net of contractual adjustments and
policy discounts. The adjustments principally result from differences between
the hospitals' customary charges and payment rates under the Medicare, Medicaid
and other third-party payor programs. Customary charges generally have
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increased at a faster rate than the rate of increase for Medicare and Medicaid
payments. Operating expenses of the hospitals primarily consist of salaries and
benefits, purchased services, supplies, provision for doubtful accounts and
other operating expenses, principally consisting of utilities, insurance,
property taxes, travel, freight, postage, telephone, advertising, repairs and
maintenance.
Management and professional services revenue is comprised of fees from
management and professional consulting services provided to third-party
hospitals pursuant to management contracts and consulting arrangements.
Management and professional services revenue plus reimbursable expenses totals
less than 6% of consolidated net operating revenue. Operating expenses for the
management and professional services business primarily consist of salaries and
benefits and reimbursable expenses.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net operating revenue increased from $238.9 in 1998 to $346.7 in 1999, an
increase of $107.8 million or 45.1%. Net patient service revenue generated by
hospitals owned during both periods, including Palestine Regional Medical
Center, increased $21.1 million, or 9.9%, resulting from inpatient and
outpatient volume increases, new services and price increases. Cost report
settlements and the filing of cost reports resulted in positive revenue
adjustments of $4.0 million, or 1.8% of net operating revenue, in 1998, and
$0.9 million, on 0.2% of net revenues in 1999. The remaining increase was
primarily attributable to the acquisitions of additional hospitals
in 1998 and 1999.
Operating expenses increased from $196.8 million, or 82.4% of net operating
revenue, in 1998 to $287.2 million, or 82.8% of net operating revenue in 1999.
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 majority of the increase in operating expenses was attributable to
the acquisition of additional hospitals in 1998 and 1999.
EBITDA increased from $42.1 million, or 17.6% of net operating revenue, in
1998 to $59.5 million, or 17.2% of net operating revenue, in 1999.
Depreciation and amortization expense increased from $13.4 million, or 5.6%
of net operating revenue, in 1998, to $19.7 million, or 5.7% of net operating
revenue in 1999. The increase in depreciation and amortization resulted
primarily from the acquisitions in 1999 and a full year of expense for
acquisitions made in 1998. Interest expense as a percent of net operating
revenue decreased from 4.4% in 1998 to 4.0% in 1999.
Income before provision for income taxes was $25.6 million in 1999,
compared to $17.9 million in 1998, an increase of $7.7 million or 43.0%. The
increase resulted primarily from the acquisition of additional hospitals in 1998
and 1999.
Our provision for income taxes was $11.1 million in 1999, compared to $7.9
million in 1998. These provisions reflect effective income tax rates of 43.5% in
1999 compared to 44.2% in 1998. See Note 8 of the notes to our consolidated
financial statements for information regarding differences between effective tax
rates and statutory rates.
Net income was $14.5 million, or 4.2% of net operating revenue, in 1999,
compared to $10.0 million, or 4.2% of net operating revenue in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net operating revenue increased from $170.5 million in 1997 to $238.9
million in 1998, an increase of $68.4 million or 40.1%. Net patient service
revenue generated by hospitals owned during both periods increased $5.2 million,
or 3.4% in 1998, primarily as a result of higher volumes and price increases,
partially offset by increased managed care and charity care discounts and the
effects of the Balanced Budget Act of 1997. Cost report settlements and the
filing of cost reports during the year resulted in positive revenue
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adjustments of $3.3 million, or 2.2% of net patient service revenue, in 1997 and
$4.0 million, or 1.8% of net patient service revenue, in 1998. The remaining
increase of $63.2 million was primarily attributable to the acquisition of
additional hospitals in 1997 and 1998.
Operating expenses increased from $146.7 million in 1997, to $196.8 million
in 1998, an increase of $50.1 million or 34.2%. Operating expenses were 86.0% of
net operating revenue in 1997, compared to 82.4% in 1998. The increase in
operating expenses of hospitals owned during both periods resulted from volume
increases, increased services and change in case mix, offset by decreased
expenses in home health as a result of the Balanced Budget Act of 1997, and
decreased expenses from the closing of two geriatric psychiatric units. The
majority of the increase in operating expenses was attributable to the
acquisition of additional hospitals in 1997 and 1998.
EBITDA was $23.8 million, or 14.0% of net operating revenue in 1997,
compared to $42.1 million, or 17.6% of net operating revenue in 1998. The
increase is primarily the result of the acquisition of additional hospitals in
1997 and 1998.
Depreciation and amortization expense was $7.6 million, or 4.4% of net
operating revenue in 1997 compared to $13.4 million, or 5.6% of net operating
revenue, in 1998. The increase in depreciation and amortization resulted from
the acquisition of additional hospitals in 1997 and 1998 and increased capital
expenditures. Interest expense as a percent of net operating revenue decreased
from 4.8% in 1997 to 4.4% in 1998.
Income before income taxes was $17.9 million in 1998, compared to $7.7
million in 1997, an increase of $10.2 million. The increase resulted primarily
from the acquisition of additional hospitals in 1998.
Our provision for income taxes was $7.9 million in 1998, compared to $3.7
million in 1997. These provisions reflect effective income tax rates of 44.2% in
1998, compared to 47.2% in 1997. See Note 8 of the notes to our consolidated
financial statements for information regarding differences between effective tax
rates and statutory rates.
Net income was $4.1 million, or 2.4% of net operating revenue in 1997,
compared to $10.0 million, or 4.2% of net operating revenue in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, we had working capital of $64.0 million. The ratio of
current assets to current liabilities was 2.5 to 1.0 at December 31, 1999, and
3.3 to 1.0 at December 31, 1998.
Total long-term obligations increased to $260.0 million at December 31,
1999, from $134.3 million at December 31, 1998. The increase resulted primarily
from the borrowings to finance the acquisition of additional hospitals in 1999.
On September 10, 1999, we increased the size of our credit facility to
$295.0 million, including a $255.3 million revolving line of credit and a $39.7
million end-loaded lease facility. At December 31, 1999, we had $246.3 million
outstanding under our revolving line of credit and $43.4 million available,
which includes availability under the end-loaded lease facility that can be
converted to revolver availability at our option.
Our credit facility contains limitations on our ability to incur additional
indebtedness including contingent obligations, sell material assets, retire,
redeem or otherwise reacquire our capital stock, acquire the capital stock or
assets of another business, and pay dividends. Our credit facility also requires
us to maintain a specified net worth and meet or exceed certain coverage,
leverage, and indebtedness ratios. Indebtedness under our credit facility is
secured by substantially all of our assets. We are required under our credit
facility to pay certain commitment fees, based upon amounts borrowed and
available for borrowing, during the term of our agreement.
Interest rate swap agreements are used to manage our interest rate exposure
under our credit facility. In 1997, we 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, we entered into an
interest rate swap agreement, which effectively converted for a five-year period
$45.0 million of floating-rate borrowings
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to fixed-rate borrowings. We secured a 6.27% fixed interest rate on the 1997
swap agreement, and a 5.625% fixed interest rate on the 1998 swap agreement.
Cash used in operations was $0.8 million in 1997 and $4.1 million in 1998,
and cash provided by operations was $19.0 million in 1999. Cash used in
investing activities was $18.2 million in 1997, $146.4 million in 1998 and
$140.1 million in 1999, relating primarily to acquisitions and capital
expenditures. Net cash provided by financing activities was $12.0 million in
1997, relating primarily to net proceeds from long-term debt and issuance of
preferred stock. Net cash provided by financing activities was $148.5 million in
1998, relating primarily to our initial public offering and our follow-on equity
offering and the application of the proceeds, and net borrowings to finance
acquisitions. Cash provided by financing activities was $119.0 million in 1999,
relating primarily to net borrowings to finance acquisitions.
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 in 1998 and 1999, were $15.5 million and
$20.9 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. With
respect to construction projects, we have started construction of a replacement
facility for Elko General Hospital, currently expected to cost approximately
$30.0 million, and if pre-determined operating levels are achieved, we have
agreed to build replacement facilities for Eunice Community Medical Center,
currently expected to cost approximately $20.0 million, and Glades General
Hospital, currently expected to cost approximately $25.0 million. We cannot
estimate whether and when each hospital will achieve its individual
pre-determined operating levels, but we believe it will take approximately
thirty-six months to complete construction from such date. We have started
construction on an ancillary expansion at Lake Havasu Regional Medical Center,
which is expected to cost approximately $26.0 million. In addition, in
connection with certain acquisitions we have made, we have committed and may
commit in the future to spend specified amounts for capital expenditures.
IMPACT OF YEAR 2000 ISSUES
In prior years, we discussed the nature and progress of our plans to become
Year 2000 ready. In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We expensed approximately
$1.0 million during 1999 in connection with remediating our systems. 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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
28
29
income. We expect to adopt the new statement January 1, 2001, and do not expect
the adoption of this statement to have a significant effect on our results of
operations or financial position.
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 to us rising costs in the form of higher prices.
We generally have been able to offset increases in operating costs by increasing
charges for services, expanding services, and implementing 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, we are
unable to predict our ability to offset or control future cost increases, or our
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.
29
30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk involves interest rate risk. Our interest expense
is sensitive to changes in the general level of U. S. interest rates. To
mitigate the impact of fluctuations in U. S. interest rates, we generally
expect to maintain a substantial percent of its debt as fixed rate in nature by
entering into interest rate swap transactions. The $80.0 million of aggregate
interest rate swap agreements, entered into in 1997 and 1998, are contracts to
exchange periodically fixed and floating interest rate payments over the lives
of the agreements. The floating-rate payments are based on LIBOR and fixed-rate
payments are dependent upon market levels at the time the swap agreement was
consummated. The interest rate swap agreements do not constitute positions
independent of the underlying exposures. We do not hold or issue derivative
instruments for trading purposes and are not a party to any instruments with
leverage features. The swap agreements allow the counterparty a one-time option
at the end of the initial term to cancel the agreement or extend the swaps for
an incremental time period. We are exposed to credit losses in the event of
nonperformance by the counterparties to our financial instruments. The
counterparties are creditworthy financial institutions, and we expect our
counterparties to fully satisfy their contract obligations. We received a
weighted average rate of 5.72%, 5.67% and 5.27%, and paid a weighted average
rate of 6.27%, 6.14% and 5.91% on our interest rate swap agreements, for the
years ended December 31, 1997, 1998 and 1999, respectively.
The carrying amount of our total debt of $134.3 million and $260.0
million at December 31, 1998 and 1999, respectively, approximated fair value.
We had $128.7 million and $249.2 million of variable rate debt outstanding at
December 31, 1998 and 1999, respectively, with interest rate swaps in place to
offset the variability of $80.0 million of this balance in 1998 and 1999. At
this borrowing level, a hypothetical 10% adverse change in interest rates,
considering the effect of the interest rate hedge agreements, would have an
unfavorable impact on our net income and cash flows of approximately $0.3
million in 1998 and $0.7 million in 1999. A hypothetical 10% adverse change in
interest rates on the fixed-rate debt would not have a material impact on the
fair value of such debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the executive officers and directors of our
company is incorporated by reference from our proxy statement relating to
the annual meeting of shareholders to be held on May 25, 2000. Such proxy
statement will be filed with the Commission not later than 120 days subsequent
to December 31, 1999.
Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference from our proxy
statement relating to the annual meeting of shareholders to be held on May 25,
2000.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to the compensation of our executive officers is
incorporated by reference from our proxy statement relating to our annual
meeting of shareholders to be held on May 25, 2000 except that the Comparative
Performance Graph and the Compensation Committee Report on Executive
Compensation included in the proxy statement are expressly not incorporated
herein by reference. Such proxy statement will be filed with the Commission not
later than 120 days subsequent to December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain beneficial
owners of our common stock and management is incorporated by reference from our
proxy statement relating to the annual meeting of shareholders to be held on
May 25, 2000. Such proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days subsequent to December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions between our company and its executive officers and directors is
incorporated by reference from our Proxy Statement relating to the annual
meeting of shareholders to be held on May 25, 2000. Such proxy statement will
be filed with the Securities and Exchange Commission not later than 120 days
subsequent to December 31, 1999.
31
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PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) and (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
Our Consolidated Financial Statements and Financial Statement Schedule required
to be included in Part II, Item 8 are indexed on Page F-1 and submitted as a
separate section of this Report.
(a)(3) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
2.1 Agreement and Plan of Merger, dated as of December 16, 1996,
between Brim, Inc. and Carryco, Inc. (a)
2.2 Plan and Agreement of Merger, dated as of December 17, 1996,
between Brim, Inc., Principal Hospital Company and Principal
Merger Company (a)
2.3 Agreement and Plan of Merger, dated as of November 27, 1996,
between Brim, Inc., Brim Senior Living, Inc., Encore Senior
Living, L.L.C. and Lee Zinsli (a)
2.4 Amended and Restated Agreement and Plan of Merger, dated as of
January 15, 1998, between Principal Hospital Company and
Province Healthcare Company (a)
3.1 Amended and Restated Certificate of Incorporation of Province
Healthcare Company (a)
3.2 Amended and Restated Bylaws of Province Healthcare Company (a)
4.1 Form of Common Stock Certificate (a)
10.1 Investment Agreement, dated as of November 21, 1996, between
Brim, Inc., Golder, Thoma, Cressey, Rauner Fund IV, L.P. and
Principal Hospital Company (a)
10.2 First Amendment to Investment Agreement, dated as of December
17, 1996, between Brim, Inc., GTCR Fund IV, L.P. and Principal
Hospital Company (a)
32
33
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.3 Form of Investment Agreement Counterpart (a)
10.4 Employment Agreement, dated as of December 17, 1996, by and
between A.E. Brim and Brim, Inc. (a)
10.5 Stockholders Agreement, dated as of December 17, 1996, by and
among Brim, Inc., GTCR Fund IV, L.P., Leeway & Co., First
Union Corporation of Virginia, AmSouth Bancorporation, Martin
S. Rash, Richard D. Gore, Principal Hospital Company and
certain other stockholders (a)
10.6 First Amendment to Stockholders Agreement, dated as of July
14, 1997, by and among Province Healthcare Company, GTCR Fund
IV, L.P., Martin S. Rash, Richard D. Gore and certain other
stockholders (a)
10.7 Registration Agreement, dated as of December 17, 1996, by and
among Brim, Inc., Principal Hospital Company, GTCR Fund IV,
L.P., Leeway & Co., First Union Corporation of Virginia,
AmSouth Bancorporation and certain other stockholders (a)
10.8 Senior Management Agreement, dated as of December 17, 1996,
between Brim, Inc., Martin S. Rash, GTCR Fund IV, L.P., Leeway
& Co. and Principal Hospital Company (a)
10.9 First Amendment to Senior Management Agreement, dated as of
July 14, 1997, between Province Healthcare Company, Martin S.
Rash and GTCR Fund IV, L.P. (a)
10.10 Senior Management Agreement, dated as of December 17, 1996,
between Brim, Inc., Richard D. Gore, GTCR Fund IV, L.P.,
Leeway & Co. and Principal Hospital Company (a)
10.11 First Amendment to Senior Management Agreement, dated as of
July 14, 1997, between Province Healthcare Company, Richard D.
Gore and GTCR Fund IV, L.P. (a)
10.12 Lease Agreement, dated December 16, 1985, as amended, by and
between Union Labor Hospital Association and Brim Hospitals,
Inc. (a)
10.13 Lease Agreement, dated October 1, 1996, by and between County
of Starke, State of Indiana, and Principal Knox Company (a)
33
34
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.14 Lease Agreement, dated December 1, 1993, by and between Palo
Verde Hospital Association and Brim Hospitals, Inc. (a)
10.15 Lease Agreement, dated May 15, 1986, as amended, by and
between Fort Morgan Community Hospital Association and Brim
Hospitals, Inc. (a)
10.16 Lease Agreement, dated April 24, 1996, as amended, by and
between Parkview Regional Hospital, Inc. and Brim Hospitals,
Inc. (a)
10.17 Lease Agreement and Annex, dated June 30, 1997, by and between
The Board of Trustees of Needles Desert Communities Hospital
and Principal-Needles, Inc. (a)
10.18 Corporate Purchasing Agreement, dated April 21, 1997, between
Aligned Business Consortium Group and Principal Hospital
Company (a)
10.19 Principal Hospital Company 1997 Long-Term Equity Incentive
Plan (a)
10.20 Lease Agreement, dated December 17, 1996, between Brim, Inc.
and Encore Senior Living, L.L.C. (a)
10.21 First Amendment to Securities Purchase Agreement, dated as of
December 31, 1997, between Principal Hospital Company and
Leeway & Co. (a)
10.22 Second Amendment to Senior Management Agreement, dated as of
October 15, 1997, between Province Healthcare Company, Martin
S. Rash and GTCR Fund IV, L.P. (a)
10.23 Second Amendment to Senior Management Agreement, dated as of
October 15, 1997, between Province Healthcare Company, Richard
D. Gore and GTCR Fund IV, L.P. (a)
10.24 Second Amendment to Stockholders Agreement, dated as of
December 31, 1997, between Province Healthcare Company, GTCR
Fund IV, L.P., Martin S. Rash, Richard D. Gore and certain
other stockholders (a)
10.25 Asset Acquisition Agreement and Escrow Instructions, dated
March 22, 1994, between THC-Seattle, Inc., Community
Psychiatric Centers, Brim Fifth Avenue, Inc. and Brim
Hospitals, Inc. (a)
34
35
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.26 Bill of Sale and Assignment, dated July 9, 1997, by Nationwide
Health Properties, Inc. in favor of Brim Hospitals, Inc. (a)
10.27 Asset Purchase Agreement, dated July 12, 1996, between
Memorial Hospital Foundation-Palestine, Inc. and Palestine
Principal Healthcare Limited Partnership (a)
10.28 Agreement of Limited Partnership, dated July 17, 1996, between
Principal Hospital Company, Palestine-Principal, Inc. and
Mother Frances Hospital Regional Healthcare Center. (a)
10.29 Lease Agreement, dated as of March 30, 1998, between First
Security Bank, National Association, as Owner Trustee, and
Province Healthcare Company, as Lessee (b)
10.30 Amended and Restated Credit Agreement, dated as of March 30,
1998, among Province Healthcare Company, First Union National
Bank, as Agent and Issuing Bank, and various lenders thereto
(b)
10.31 Participation Agreement, dated as of March 30, 1998, 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
Holders, various banks party thereto, as Lenders, and First
Union National Bank, as Agent (b)
10.32 First Amendment to Credit Agreement and Waiver, dated as of
November 20, 1998, among Province Healthcare Company, First
Union National Bank, as Agent and Issuing Bank, and various
lenders thereto (e)
10.33 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
parties thereto (j)
10.34 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 (j)
35
36
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.35 Asset Purchase Agreement, dated April 29, 1998, between
Province Healthcare Company, PHC-Lake Havasu, Inc. and
Samaritan Health System (c)
10.36 Asset Purchase Agreement, dated June 8, 1998, between Province
Healthcare Company and the County of Elko (d)
10.37 Amendment to the Province Healthcare Company 1997 Long-Term
Equity Incentive Plan, effective March 24, 1998 (f)
10.38 Second Amendment to the Province Healthcare Company 1997
Long-Term Equity Incentive Plan, effective March 31, 1999 (g)
10.39 Province Healthcare Company Employee Stock Purchase Plan,
effective March 24, 1998 (f)
10.40 Asset Purchase Agreement, dated as of March 24, 1999, among
Palm Beach County Health Care District, PHC-Belle Glade, Inc.
and Province Healthcare Company (i)
10.41 Asset Purchase Agreement, dated June 1, 1999, among Doctors'
Hospital of Opelousas Limited Partnership, Columbia/HCA
Healthcare Corporation, PHC-Opelousas, L.P. and Province
Healthcare Company (h)
10.42 Asset Sale Agreement, dated July 23, 1999, between Tenet
Healthcare Corporation and Province Healthcare Company (k)
10.43 Amendment No. 1 to Asset Sale Agreement, dated September 29,
1999, between Tenet Healthcare Corporation and Province
Healthcare Company (k)
21.1 Subsidiaries of the Registrant *
23.1 Consent of Ernst & Young LLP *
27.1 Financial Data Schedule - 1999 (for SEC use only) *
27.2 Financial Data Schedule - 1998 (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
36
37
(b) Incorporated by reference to the exhibits filed with the Registrant's
Quarterly Report on Form 10-Q, for the quarterly period ended March 31,
1998, Commission File No. 0-23639
(c) Incorporated by reference to the exhibits filed with the Registrant's
Current Report on Form 8-K, dated May 14, 1998, Commission File No.
0-23639
(d) Incorporated by reference to Exhibit 10.26 filed with the Registrant's
Registration Statement on Form S-1, Registration No. 333-56663
(e) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K, for the year ended December 31, 1998,
Commission File No. 0-23639
(f) Incorporated by reference to the exhibits filed with the Registrant's
Proxy Statement on Schedule 14A, dated May 11, 1998, Commission File No.
0-23639
(g) Incorporated by reference to the exhibits filed with the Registrant's
Proxy Statement on Schedule 14A, dated May 20, 1999, Commission File No.
0-23639
(h) Incorporated by reference to the exhibits filed with the Registrant's
Current Report on Form 8-K, dated June 17, 1999, Commission File No.
0-23639
(i) Incorporated by reference to the exhibits filed with the Registrant's
Amendment to Current Report on Form 8-K/A, dated June 25, 1999,
Commission File No. 0-23639
(j) Incorporated by reference to the exhibits filed with the Registrant's
Quarterly Report filed on Form 10-Q, for the quarterly period ended
September 30, 1999, Commission File No. 0-23639
(k) Incorporated by reference to the exhibits filed with the Registrant's
Current Report on Form 8-K, dated October 18, 1999, Commission File No.
0-23639
(*) Filed herewith
37
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Brenda B. Rector
Brenda B. Rector
Vice President and Controller
POWER OF ATTORNEY
The undersigned directors of Province Healthcare Company, a
Delaware corporation, do hereby constitute and appoint Martin S. Rash the lawful
attorney and agent with full power and authority to do any and all acts and
things and to execute any and all instruments which said attorney and agent
determine may be necessary or advisable or required to enable said corporation
to comply with the Securities Exchange Act of 1934, as amended, and any rules or
regulations or requirements of the Securities and Exchange Commission in
connection with this Annual Report on Form 10-K. Without limiting the generality
of the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned directors in the capacities
indicated below to this Annual Report on Form 10-K or amendments or supplements
thereto, and each of the undersigned hereby ratifies and confirms all that said
attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Martin S. Rash Chairman of the Board, President, March 8, 2000
Martin S. Rash Chief Executive Officer and Director
/s/ Richard D. Gore Vice Chairman of the Board, March 8, 2000
Richard D. Gore Chief Financial Officer and Director
/s/ A. E. Brim Director March 3, 2000
A. E. Brim
/s/ Winfield C. Dunn Director March 3, 2000
Winfield C. Dunn
/s/ Joseph P. Nolan Director March 8, 2000
Joseph P. Nolan
/s/ Bruce V. Rauner Director March 8, 2000
Bruce V. Rauner
/s/ David L. Steffy Director March 5, 2000
David L. Steffy
38
39
PROVINCE HEALTHCARE COMPANY
FORM 10-K - ITEM 8 AND ITEM 14 (A) (1) AND (2)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following financial statements are included as a separate section of this
report:
Report of Independent Auditors......................................................F-2
Consolidated Balance Sheets At December 31, 1998 and 1999...........................F-3
Consolidated Statements of Income for the Years Ended December 31, 1997,
1998 and 1999..................................................................F-4
Consolidated Statements of Changes in Common Stockholders' Equity
for Years Ended December 31, 1997, 1998 and 1999...............................F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997,
1998 and 1999..................................................................F-6
Notes to Consolidated Financial Statements..........................................F-7
The following financial statement schedule is included as a separate
section of this report.
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore, have been
omitted.
F-1
40
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Province Healthcare Company
We have audited the accompanying consolidated balance sheets of
Province Healthcare Company and subsidiaries as of December 31, 1998 and 1999,
and the related consolidated statements of income, changes in common
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Province
Healthcare Company and subsidiaries as of December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Nashville, Tennessee
February 22, 2000
F-2
41
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 2,113 $ --
Accounts receivable, less allowance
for doubtful accounts of $9,033 in 1998
and $16,494 in 1999 53,126 88,866
Inventories 7,083 11,122
Prepaid expenses and other 10,211 6,534
-------- --------
Total current assets 72,533 106,522
Property, plant and equipment, net 112,114 186,129
Cost in excess of net assets acquired, net 142,017 193,904
Other 12,713 15,658
-------- --------
154,730 209,562
-------- --------
$339,377 $502,213
======== ========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,786 $ 14,927
Accrued salaries and benefits 8,655 10,790
Accrued expenses 4,583 14,558
Current maturities of long-term obligations 1,797 2,223
-------- --------
Total current liabilities 21,821 42,498
Long-term obligations, less current maturities 134,301 259,992
Third-party settlements 3,502 4,597
Other liabilities 9,862 9,997
Minority interest 700 770
-------- --------
148,365 275,356
Common stockholders' equity:
Common stock--$0.01 par value;
25,000,000 shares authorized; issued and outstanding
15,704,578 shares and 15,742,048 shares at
December 31, 1998 and 1999, respectively 157 157
Additional paid-in-capital 162,926 163,593
Retained earnings 6,108 20,609
-------- --------
169,191 184,359
-------- --------
$339,377 $502,213
======== ========
See accompanying notes.
F-3
42
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
--------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Net patient service revenue $ 149,296 $ 217,364 $323,319
Management and professional services 11,517 11,885 13,319
Reimbursable expenses 6,674 6,520 6,668
Other 3,040 3,086 3,386
--------- --------- --------
Net operating revenue 170,527 238,855 346,692
Expenses:
Salaries, wages and benefits 66,172 94,970 139,183
Reimbursable expenses 6,674 6,520 6,668
Purchased services 23,242 28,250 39,454
Supplies 16,574 24,252 38,931
Provision for doubtful accounts 12,812 17,839 25,572
Other operating expenses 16,318 19,149 30,222
Rentals and leases 4,888 5,777 7,201
Depreciation and amortization 7,557 13,409 19,734
Interest expense 8,121 10,555 13,901
Minority interest 329 155 166
Loss on sale of assets 115 45 11
--------- --------- --------
Total expenses 162,802 220,921 321,043
--------- --------- --------
Income before income taxes 7,725 17,934 25,649
Income taxes 3,650 7,927 11,148
--------- --------- --------
Net income 4,075 10,007 14,501
Preferred stock dividends and accretion (5,077) (696) --
--------- --------- --------
Net income (loss) to common shareholders $ (1,002) $ 9,311 $ 14,501
========= ========= ========
Basic earnings per common share:
Net income (loss) to common shareholders $ (0.17) $ 0.70 $ 0.92
========= ========= ========
Diluted earnings per common share:
Net income (loss) to common shareholders $ (0.17) $ 0.68 $ 0.91
========= ========= ========
See accompanying notes.
F-4
43
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
RETAINED
COMMON STOCK PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ------- -------- -------- ---------
Balance at December 31, 1996 5,370,500 $ 1,680 $ -- $ (2,170) $ (490)
Issuance of stock 960,114 436 -- -- 436
Preferred stock dividends
and accretion -- -- -- (5,077) (5,077)
Net income -- -- -- 4,075 4,075
---------- ------- -------- -------- ---------
Balance at December 31, 1997 6,330,614 2,116 -- (3,172) (1,056)
Reincorporation -- (2,053) 2,053 -- --
Conversion of junior preferred
stock and initial public
offering of common stock 6,679,154 67 95,285 (31) 95,321
Issuance of stock from
follow-on stock offering 2,685,500 27 65,500 -- 65,527
Exercise of stock options 9,310 -- 88 -- 88
Preferred stock dividends
and accretion -- -- -- (696) (696)
Net income -- -- -- 10,007 10,007
---------- ------- -------- -------- ---------
Balance at December 31, 1998 15,704,578 157 162,926 6,108 169,191
Exercise of stock options 26,648 -- 241 -- 241
Stock option compensation expense -- -- 53 -- 53
Income tax benefit from stock options
exercised -- -- 126 -- 126
Issuance of common stock from
employee stock purchase plan 10,822 -- 247 -- 247
Net income -- -- -- 14,501 14,501
---------- ------- -------- -------- ---------
Balance at December 31, 1999 15,742,048 $ 157 $163,593 $ 20,609 $ 184,359
========== ======= ======== ======== ---------
See accompanying notes.
F-5
44
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- --------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 4,075 $ 10,007 $ 14,501
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 7,557 13,409 19,734
Provision for doubtful accounts 12,812 17,839 25,572
Deferred income taxes 4,677 862 1,428
Provision for professional liability 36 (54) (1,597)
Loss on sale of assets 115 45 11
Other -- -- (357)
Changes in operating assets and liabilities, net of
effects from acquisitions and disposals:
Accounts receivable (20,885) (33,775) (51,886)
Inventories (712) (1,524) (1,396)
Prepaid expenses and other (3,833) (3,472) 4,372
Other assets (2,256) (4,716) (4,810)
Accounts payable and accrued expenses (2,449) (401) 12,464
Accrued salaries and benefits 860 (1,582) (234)
Third-party settlements (1,924) (1,178) 1,095
Other liabilities 1,089 391 145
-------- --------- ---------
Net cash provided by (used in) operating activities (838) (4,149) 19,042
INVESTING ACTIVITIES
Purchase of property, plant and equipment (15,557) (15,545) (20,890)
Purchase of acquired companies, net of cash received (2,673) (130,842) (119,236)
-------- --------- ---------
Net cash used in investing activities (18,230) (146,387) (140,126)
FINANCING ACTIVITIES
Proceeds from long-term debt 12,000 248,042 186,045
Repayments of debt (4,143) (204,638) (67,562)
Issuance of common stock 436 142,682 488
Issuance of preferred stock 3,705 -- --
Repurchase of common stock -- (14,884) --
Redemption of senior preferred stock -- (22,739) --
-------- --------- ---------
Net cash provided by financing activities 11,998 148,463 118,971
-------- --------- ---------
Net decrease in cash and cash equivalents (7,070) (2,073) (2,113)
Cash and cash equivalents at beginning of period 11,256 4,186 2,113
-------- --------- ---------
Cash and cash equivalents at end of period $ 4,186 $ 2,113 $ --
======== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period $ 7,143 $ 9,260 $ 13,253
======== ========= =========
Income taxes paid during the period $ 5,639 $ 5,055 $ 9,410
======== ========= =========
ACQUISITIONS
Assets acquired $ 6,811 $ 133,683 $ 131,912
Liabilities assumed (4,138) (2,841) (12,676)
-------- --------- ---------
Cash paid, net of cash acquired $ 2,673 $ 130,842 $ 119,236
======== ========= =========
NONCASH TRANSACTIONS
Dividends and accretion $ 5,077 $ 696 $ --
======== ========= =========
See accompanying notes.
F-6
45
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION
Province Healthcare Company (the "Company") was founded on February 2,
1996, and is engaged in the business of owning, leasing and managing hospitals
in non-urban communities, principally in the northwestern and southwestern
United States.
2. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, its majority-owned subsidiaries and partnerships in which the Company
or one of its subsidiaries is a general partner and has a controlling interest.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the 1999 presentation. These reclassifications had no
effect on net income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with an original
maturity of three months or less when acquired. The Company places its cash in
financial institutions that are federally insured and limits the amount of
credit exposure with any one financial institution.
PATIENT ACCOUNTS RECEIVABLE
The Company's primary concentration of credit risk is patient accounts
receivable, which consist of amounts owed by various governmental agencies,
insurance companies and private patients. The Company manages the receivables by
regularly reviewing its accounts and contracts and by providing appropriate
allowances for uncollectible amounts. Significant concentrations of gross
patient accounts receivable at December 31, 1998 and 1999, consist of
receivables from
F-7
46
Medicare of 35% and 25%, respectively, and Medicaid of 12% and 10%,
respectively. Concentration of credit risk relating to accounts receivable is
limited to some extent by the diversity and number of patients and payors.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Routine
maintenance and repairs are charged to expense as incurred. Expenditures that
increase values, change capacities or extend useful lives are capitalized.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets, which range from 3 to 40 years. Amortization of equipment
under capital leases is included in the provision for depreciation.
INTANGIBLE ASSETS
Intangible assets arising from the accounting for acquired businesses
are amortized using the straight-line method over the estimated useful lives of
the related assets which range from 5 years for management contracts to 15 to 35
years for cost in excess of net assets acquired.
At December 31, 1998 and 1999, cost in excess of net assets acquired
totaled $147,654,000 and $204,957,000, respectively, and accumulated
amortization totaled $5,637,000 and $11,053,000, respectively. The carrying
value of cost in excess of net assets acquired is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
cost in excess of net assets acquired will not be recoverable based on
undiscounted cash flows of the related assets, the Company writes down the cost
in excess of net assets acquired to estimated fair value.
OTHER ASSETS
Deferred loan costs are included in other noncurrent assets and are
amortized over the term of the related debt by the interest method. At December
31, 1998 and 1999, deferred loan costs totaled $4,487,000 and $5,242,000,
respectively, and accumulated amortization totaled $1,637,000 and $2,384,000,
respectively.
RISK MANAGEMENT
The Company maintains self-insured medical and dental plans for
employees. Claims are accrued under these plans as the incidents that give rise
to them occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, including claim settlement expenses, in accordance with an average
lag time and past experience. The Company has entered into a
F-8
47
reinsurance agreement with an independent insurance company to limit its losses
on claims. Under the terms of this agreement, the insurance company will
reimburse the Company a maximum of $900,000 on any individual claim. These
reimbursements are included in salaries, wages and benefits in the accompanying
consolidated statements of income.
At December 31, 1999, the Company purchased a tail policy in the
commercial insurance market to transfer all risk for its professional liability.
OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist primarily of insurance liabilities,
supplemental deferred compensation liability, and deferred income taxes.
PATIENT SERVICE REVENUE
Net patient service revenue is reported as services are rendered at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Estimated settlements under
third-party reimbursement agreements are accrued in the period the related
services are rendered and adjusted in future periods as final settlements are
determined.
MANAGEMENT AND PROFESSIONAL SERVICES
Management and professional services is comprised of fees from
management and professional services provided to third-party hospitals pursuant
to management contracts and consulting arrangements. The base fees associated
with the hospital management contracts are determined in the initial year of the
contract on an individual hospital basis. In certain contracts, the Company is
entitled to a yearly bonus based on the performance of the managed hospital. The
base fee, which is fixed, is based on a fair market wage and is not dependent on
any bonus structure. The management contracts are adjusted yearly based on an
agreed upon inflation indicator. The reimbursable expenses relate to salaries
and benefits of Company employees that serve as executives at the managed
hospitals. The salaries and benefits of these employees are legal obligations
of, and are paid by, the Company and are reimbursed by the managed hospitals.
Fees are recognized as revenue as services are performed. The Company does not
maintain any ownership interest in and does not fund operating losses or
guarantee any minimum income for managed hospitals. The Company does not have
any guarantees to these hospitals, except for one managed hospital for which the
Company has guaranteed the hospital's long-term debt of $500,000.
STOCK BASED COMPENSATION
The Company, from time to time, grants stock options for a fixed number
of common shares to employees. The Company accounts for employee stock option
grants in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and accordingly, recognizes no compensation
expense for the stock option grants when the exercise
F-9
48
price of the options equals, or is greater than, the market price of the
underlying stock on the date of grant.
INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap agreements as a means of
managing its interest rate exposure. The differential to be paid or received is
recognized over the life of the agreement as an adjustment to interest expense.
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, and does
not expect the adoption of the Statement to have a significant effect on its
results of operations or financial position.
3. ACQUISITIONS
COLORADO RIVER MEDICAL CENTER
In August 1997, the Company acquired Colorado River Medical Center by
purchasing certain assets totaling $6,811,000 and assuming certain liabilities
and entering into a capital lease agreement totaling $4,138,000. Cost in excess
of net assets acquired in the acquisition totaled approximately $1,007,000 and
is being amortized over 15 years.
LAKE HAVASU SAMARITAN REGIONAL HOSPITAL
In May 1998, the Company acquired Lake Havasu Samaritan Regional
Hospital in Lake Havasu City, Arizona, for approximately $107,467,000. To
finance this acquisition, the Company borrowed $106,000,000 under its revolving
credit facility. Cost in excess of net assets acquired in the acquisition
totaled approximately $76,474,000 and is being amortized over 35 years. The
Company has started construction on an ancillary expansion, which is expected to
cost approximately $26,000,000.
ELKO GENERAL HOSPITAL
In June 1998, the Company acquired Elko General Hospital in Elko,
Nevada, for a purchase price of approximately $24,854,000, including the final
working capital settlement in 1999 of $1,603,000. To finance this
acquisition, the Company borrowed $22,000,000 under its revolving credit
facility. Cost in excess of net assets acquired in the acquisition totaled
approximately $17,727,000 and is being amortized over 35 years. The Company has
started construction on a replacement facility that is expected to cost
approximately $30,000,000.
F-10
49
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 totaling $4,899,000 and assuming certain
liabilities and entering into a ten-year lease agreement with a five-year
renewal option, totaling $767,000. Cost in excess of net assets acquired in the
acquisition totaled approximately $2,885,000 and is being amortized over 15
years.
GLADES GENERAL HOSPITAL
In April 1999, the Company acquired assets totaling $17,151,000 and
assumed liabilities totaling $4,926,000 of Glades General Hospital ("Glades") in
Belle Glade, Florida. To finance this acquisition, the Company borrowed
$13,500,000 under its revolving credit facility. Cost in excess of net assets
acquired in the acquisition totaled approximately $8,920,000 and is being
amortized over 35 years.
DOCTORS' HOSPITAL OF OPELOUSAS
In June 1999, the Company acquired assets totaling $25,715,000 and
assumed liabilities totaling $2,753,000 of Doctors' Hospital of Opelousas
("Opelousas"), in Opelousas, Louisiana. To finance this acquisition, the Company
borrowed $22,000,000 under its revolving credit facility. Cost in excess of net
assets acquired in the acquisition totaled approximately $5,069,000 and is being
amortized over 35 years. The allocation of the purchase price has been
determined based upon currently available information and is subject to further
refinement pending final working capital settlement.
TRINITY VALLEY MEDICAL CENTER AND MINDEN MEDICAL CENTER
In October 1999, the Company acquired assets totaling $82,544,000 and
assumed liabilities totaling $4,230,000 of Trinity Valley Medical Center
("Trinity") in Palestine, Texas and Minden Medical Center ("Minden") in Minden,
Louisiana. To finance the acquisition, the Company borrowed $77,000,000 under
its revolving credit facility. Trinity 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 $37,118,000 and is
being amortized over 35 years. The allocation of the purchase price has been
determined based upon currently available information and is subject to further
refinement pending final working capital settlement.
OTHER INFORMATION
In accordance with its stated policy, management of the Company
evaluates all acquisitions independently to determine the appropriate
amortization period for cost in excess of net assets acquired. Each evaluation
includes an analysis of factors such as historic and projected financial
performance, evaluation of the estimated useful lives of buildings and fixed
assets acquired, the indefinite lives of certificates of need and licenses
acquired, the competition within local markets, and lease terms where
applicable.
F-11
50
The foregoing acquisitions were accounted for using the purchase method
of accounting. The operating results of the acquired companies have been
included in the accompanying consolidated statements of income from the
respective dates of acquisition.
The following pro forma information reflects the operations of the
entities acquired in 1997, 1998 and 1999, as if the respective transactions had
occurred as of the first day of the fiscal year immediately preceding the year
of the acquisitions (in thousands, except per share data):
1997 1998 1999
--------- -------- --------
Net operating revenue $ 258,406 $400,160 $415,277
Net income (loss) to common shareholders (6,049) 8,356 15,201
Basic net income (loss) per share to common shareholders (1.05) 0.63 0.97
Diluted net income (loss) per share common shareholders (1.05) 0.61 0.95
The pro forma results of operations do not purport to represent what the
Company's results 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.
The Company has minority ownership in various health care related
businesses. These investments are accounted for by the equity method. The
assets, liabilities and results of operations of these businesses are not
material to the consolidated financial statements.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
DECEMBER 31,
-------------------------
1998 1999
--------- ---------
Land $ 12,448 $ 16,109
Leasehold improvements 3,392 9,162
Buildings and improvements 61,176 108,844
Equipment 42,385 72,481
--------- ---------
119,401 206,596
Less allowances for depreciation and amortization (15,242) (26,878)
--------- ---------
104,159 179,718
Construction-in-progress (estimated cost to complete
at December 31, 1999--$35,058) 7,955 6,411
--------- ---------
$ 112,114 $ 186,129
========= =========
F-12
51
Assets under capital leases were $17,374,000 and $19,344,000, net of
accumulated amortization of $3,957,000 and $6,082,000 at December 31, 1998 and
1999, respectively. Interest is capitalized in connection with construction
projects at the Company's facilities. The capitalized interest is recorded as
part of the asset to which it relates and is amortized over the asset's
estimated useful life. In 1998 and 1999, respectively, $288,000 and $410,000 of
interest cost was capitalized.
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
DECEMBER 31,
------------------------
1998 1999
--------- ---------
Revolving credit agreement $ 127,000 $ 246,300
Other debt obligations 1,652 7,288
--------- ---------
128,652 253,588
Obligations under capital leases (see Note 10) 7,446 8,627
--------- ---------
136,098 262,215
Less current maturities (1,797) (2,223)
--------- ---------
$ 134,301 $ 259,992
========= =========
On September 10, 1999, the Company increased the size of its credit
facility to $295,000,000, including a revolving line of credit of $255,300,000
and an end-loaded lease facility of $39,700,000. At December 31, 1999, the
Company had $246,300,000 outstanding under its revolving line of credit and
$43,400,000 available, which includes availability under the end-loaded
lease-facility that can be converted to revolver availability at the Company's
option.
The loans under the Credit Agreement bear interest, at the Company's
option, at the adjusted base rate or at the adjusted LIBOR rate. The interest
rate ranged from 6.21% to 9.00% during 1999. The Company pays a commitment fee,
which varies from one-quarter to one-half of one percent of the unused portion,
depending on the Company's compliance with certain financial ratios. The Company
may prepay the principal amount outstanding under the revolving credit agreement
at any time before the maturity date of March 30, 2003.
The Credit Agreement contains limitations on the Company's ability to
incur additional indebtedness (including contingent obligations), sell material
assets, retire, redeem or otherwise reacquire its capital stock, acquire the
capital stock or assets of another business, and pay dividends. The Credit
Agreement also requires the Company to maintain a specified net worth and meet
or exceed certain coverage, leverage, and indebtedness ratios. Indebtedness
under the Credit Agreement is secured by substantially all assets of the
Company.
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
$35,000,000 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 $45,000,000 of floating-rate borrowings to
fixed-rate
F-13
52
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.
Aggregate maturities of long-term obligations at December 31, 1999,
excluding capital leases, are as follows (in thousands):
2000 $ 737
2001 55,222
2002 100,819
2003 95,875
2004 935
--------
$253,588
========
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In May 1997, the Company declared a three-for-one stock split of the
outstanding common stock and common stock options and warrant. All common share
and per share data included in the accompanying consolidated financial
statements and footnotes have been restated to reflect this stock split.
In February 1998, the Company merged with a wholly-owned subsidiary in
order to change its jurisdiction of incorporation to Delaware and change its
name to Province Healthcare Company. In the merger, the Company exchanged 1.83
shares of its no par common stock for each share of the subsidiary's $0.01 par
value common stock. All common share and per share data included in the
consolidated financial statements and footnotes have been restated to reflect
this reincorporation. As a result of the reincorporation, $2,053,000 was
reclassified from common stock to additional paid-in-capital upon conversion
from no par to $0.01 par value Common Stock.
In February 1998, the Company closed its initial public offering of
5,405,000 shares of common stock at an offering price of $16.00 per share. In
connection with the offering, the Series B redeemable junior preferred stock was
converted into common stock at the public offering price of the common stock.
The net proceeds from the offering were used to redeem the outstanding balance
of the Series A redeemable senior preferred stock plus accrued dividends, reduce
the balance of the outstanding term and revolving credit loans, and repurchase a
portion of the common stock which was issued upon conversion of the Series B
redeemable junior preferred stock.
In July 1998, the Company completed its public offering of 2,685,500
shares of common stock at an offering price of $26.00 per share. The net
proceeds from the offering of approximately $65,700,000 were used primarily to
reduce debt.
F-14
53
STOCK OPTIONS
The Company follows Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, when the exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
In March 1997, the Company's Board of Directors approved the 1997
Long-Term Equity Incentive Plan (the "Plan"). Under the Plan, options to
purchase shares may be granted to officers, employees, and directors. The
options have a maximum term of ten years and generally vest in five equal annual
installments. Options are generally granted at not less than market price on the
date of grant.
The following is a summary of option transactions during 1997, 1998 and 1999:
Number of Option
Options Price Range
------- ------------------
Balance at January 1, 1997 -- $ -- $ --
Options granted 286,907 4.58 4.58
Options exercised -- -- --
Options forfeited (8,252) 4.58 4.58
----------
Balance at December 31, 1997 278,655 4.58 4.58
Options granted 633,868 16.00 28.06
Options exercised (9,310) 4.58 16.00
Options forfeited (119,013) 4.58 16.00
----------
Balance at December 31, 1998 784,200 4.58 28.06
Options granted 631,440 14.25 16.13
Options exercised (26,648) 4.58 26.00
Options forfeited (85,493) 4.58 26.00
----------
Balance at December 31, 1999 1,303,499
==========
F-15
54
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------------------------------ -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ---- ------ ----------- ------
$ 4.58-$4.58 210,488 7.2 $ 4.58 115,318 $ 4.58
14.25-14.25 90,933 9.5 14.25 90,933 14.25
15.13-15.13 357,706 9.2 15.13 -- --
16.00-16.00 363,116 8.1 16.00 82,406 16.00
16.13-16.13 149,656 9.7 16.13 -- --
21.00-21.00 80,600 8.8 21.00 16,120 21.00
26.00-26.00 43,000 8.4 26.00 8,600 26.00
28.06-28.06 8,000 8.9 28.06 1,600 28.06
------------ --------- ----- ------- -------- -------
$4.58-$28.06 1,303,499 8.6 $14.52 314,977 $ 11.90
============ ========= ===== ====== ======= =======
At December 31, 1997 and 1998, respectively, 37,736 and 88,333 options
were exercisable. At December 31, 1999, the Company had options representing
1,269,559 shares available for future grant.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, Accounting for Stock Based Compensation, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1997, 1998 and 1999,
respectively: risk-free interest rate of 6.41%, 5.28% and 5.51%; dividend yield
of 0%; volatility factor of the expected market price of the Company's common
stock of .563, .640 and .756; and a weighted-average expected life of the option
of 5 years. The estimated weighted average fair values of shares granted during
1997, 1998 and 1999, using the Black-Scholes option pricing model, were $2.90,
$12.80 and $9.97, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands, except for per share
information):
F-16
55
1997 1998 1999
---------- ---------- ----------
Pro forma net income (loss) to common shareholders $ (1,131) $ 8,592 $ 12,681
Pro forma net income (loss) per share to common
shareholders:
Basic (0.20) 0.64 0.81
Diluted (0.20) 0.63 0.79
EMPLOYEE STOCK PURCHASE PLAN
In May 1998 the Company's Board adopted, and in June 1998 the stockholders
approved, the Province Healthcare Company Employee Stock Purchase Plan (the
"ESSP"). Under the Plan, employees may purchase shares of common stock at 85% of
market price on the first day of the year or 85% of the market price on the last
day of the year, whichever is lower. The shares are purchased each year with
funds withheld from employees through payroll deductions from January 1 through
December 31. A total of 250,000 shares of Common Stock have been reserved for
issuance under the ESSP. Participation in the Plan commenced June 1, 1998.
Shares issued under the Plan totaled -0- and 10,822 in 1998 and 1999,
respectively.
7. PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
- Medicare--Inpatient acute care services rendered to Medicare
program beneficiaries are paid at prospectively determined rates
per diagnosis related group ("DRG"). These DRG rates vary
according to a patient classification system that is based on
clinical, diagnostic, and other factors. Inpatient nonacute
services, certain outpatient services and medical education costs
related to Medicare beneficiaries are paid based on a cost
reimbursement methodology subject to various cost limits. The
Company is reimbursed for cost-based services at a tentative rate,
with final settlement determined after submission of annual cost
reports by the Company and audits thereof by the Medicare fiscal
intermediary. The Company's classification of patients under the
Medicare program and the appropriateness of their admission are
subject to an independent review. The majority of the Company's
Medicare cost reports have been audited by the Medicare fiscal
intermediary through December 31, 1996.
- Medicaid--Inpatient services rendered to the recipients under the
Medi-Cal program (California's medicaid program) are reimbursed
either under contracted rates or reimbursed for cost reimbursable
items at a tentative rate with final settlement determined after
submission of annual cost reports by the Company and audits
thereof by Medi-Cal. The Company owns or leases four hospitals in
California, and its Medi-Cal cost reports have been audited by the
Medi-Cal fiscal intermediary
F-17
56
through December 31, 1996. The Medicaid programs of the other
states in which the Company owns or leases hospitals are
prospective payment systems which generally do not have
retroactive cost report settlement procedures.
- Other--The Company also has entered into payment agreements with
certain commercial insurance carriers, health maintenance
organizations and preferred provider organizations. The basis for
payment to the Company under these agreements includes
prospectively determined rates per discharge, discounts from
established charges, and prospectively determined daily rates.
Approximately 73.4%, 68.9% and 68.6% of gross patient service revenue
for the years ended December 31, 1997, 1998 and 1999, respectively, are from
participation in the Medicare and state-sponsored Medicaid programs.
The Company owns or leases four hospitals in California, which accounted
for 40.9% of net operating revenue in 1997 and 33.4% in 1998 and 22.7% in 1999.
Final determination of amounts earned under the Medicare and Medicaid
programs often occur in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Differences between original estimates and subsequent revisions (including final
settlements) are included in the statements of income in the period in which the
revisions are made, and resulted in increases in net patient service revenue of
$3,257,000, $4,050,000 and $892,000 in 1997, 1998 and 1999, respectively.
8. INCOME TAXES
The provision for income taxes consists of the following amounts (in
thousands):
1997 1998 1999
------- -------- -------
Current:
Federal $ (829) $ 5,556 $ 7,397
State (198) 1,509 1,773
------- -------- -------
(1,027) 7,065 9,170
Deferred:
Federal 3,776 905 1,830
State 901 (43) 148
------- -------- -------
4,677 862 1,978
------- -------- -------
$ 3,650 $ 7,927 $11,148
======= ======== =======
F-18
57
The differences between the Company's effective income tax rate of
47.2%, 44.2%, and 43.5% for 1997, 1998 and 1999, respectively, and the statutory
federal income tax rate of 34.0% for 1997, and 35.0% for 1998 and 1999 are as
follows (in thousands):
1997 1998 1999
------- ------- -------
Statutory federal rate $ 2,627 $ 6,277 $ 8,977
State income taxes, net of
federal income tax benefit 464 953 1,248
Amortization of goodwill 577 594 594
Other (18) 103 329
------- ------- -------
$ 3,650 $ 7,927 $11,148
======= ======= =======
F-19
58
The components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
DECEMBER 31,
--------------------
1998 1999
------- -------
Deferred tax assets--current:
Accrued vacation liability $ 1,061 $ 1,555
Accrued liabilities 457 42
------- -------
Deferred tax assets--current 1,518 1,597
Deferred tax liabilities--current:
Accounts and notes receivable (136) (443)
Accrued liabilities -- (200)
------- -------
Deferred tax liabilities-current (136) (643)
------- -------
Net deferred tax assets--current $ 1,382 $ 954
======= =======
Deferred tax assets--noncurrent:
Net operating losses $ 520 $ 795
Accrued liabilities 670 33
Other 162 170
------- -------
1,352 998
Less valuation allowance (286) (286)
------- -------
Deferred tax assets--noncurrent 1,066 712
Deferred tax liabilities--noncurrent:
Property, plant and equipment (5,224) (4,845)
Management contracts (284) (188)
Goodwill (1,249) (2,920)
------- -------
Deferred tax liabilities--noncurrent (6,757) (7,953)
------- -------
Net deferred tax liabilities--noncurrent $(5,691) $(7,241)
======= =======
Total deferred tax assets $ 2,870 $ 2,595
======= =======
Total deferred tax liabilities $ 6,893 $ 8,596
======= =======
Total valuation allowance $ 286 $ 286
======= =======
In the accompanying consolidated balance sheets, net current deferred
tax assets and net noncurrent deferred tax liabilities are included in prepaid
expenses and other, and other liabilities, respectively.
The Company had Federal net operating loss carryforwards (NOLs) of
approximately $714,000 at December 31, 1998 and 1999 related to a subsidiary.
These NOLs will expire beginning in 2009. Due to restrictions on the use of the
NOLs, management believes there is a risk they may expire unused, and
accordingly, has established a valuation reserve against the tax benefit of the
NOLs. Management believes it is more likely than not that the remaining deferred
tax assets, will ultimately be realized through future taxable income from
operations.
During 1997, the Internal Revenue Service finalized its examination of
the predecessor company's federal income tax returns for the 1993 and 1994
years. Finalization of the examination had no impact on the financial condition
or results of operations of the Company.
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59
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 impact on the financial condition or results
of operations of the Company.
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
1997 1998 1999
------- -------- -------
Numerator for basic and diluted income
(loss) per share to common shareholders:
Net income $ 4,075 $ 10,007 $14,501
Less preferred stock dividends (5,077) (696) --
------- -------- -------
Net income (loss) to common shareholders $(1,002) $ 9,311 $14,501
======= ======== =======
Denominator:
Denominator for basic income (loss) per
share to common shareholders--
weighted-average shares 5,787 13,344 15,726
Effect of dilutive securities:
Stock rights 336 -- --
Warrants 189 -- --
Employee stock options 149 328 286
------- -------- -------
Denominator for diluted income (loss)
per share to common shareholders--
adjusted weighted-average shares 6,461 13,672 16,012
======= ======== =======
Basic net income (loss) per share to common shareholders $ (0.17) $ 0.70 $ 0.92
======= ======== =======
Diluted net income (loss) per share to common shareholders $ (0.17) $ 0.68 $ 0.91
======= ======== =======
Diluted loss per share amounts for 1997 have been calculated using the
same denominator as used in the basic loss per share calculation, as the
inclusion of dilutive securities in the denominator would have an anti-dilutive
effect.
10. LEASES
During 1998, the Company entered into a five-year $35,000,000 End -
Loaded Lease Financing (the "ELLF") agreement which was increased to $39,700,000
on September 10, 1999, to provide a financing option for future construction of
medical office buildings on the campuses of its owned/leased hospitals, and may
be used for the construction of a replacement facility at one of its owned
hospitals. The interest rate and facility fee rate are substantially the same as
the Company's revolving line of credit (see Note 5). All lease payments are
guaranteed by the Company. At December 31, 1999, $34,400,000 was available under
the ELLF agreement.
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60
The Company leases various buildings, office space and equipment. The
leases expire at various times and have various renewal options. These leases
are classified as either capital leases or operating leases based on the terms
of the respective agreements.
Future minimum payments at December 31, 1999, by year and in the
aggregate, under capital leases and noncancellable operating leases with terms
of one year or more consist of the following (in thousands):
CAPITAL OPERATING
LEASES LEASES
------ ------
2000 $ 2,076 $5,883
2001 2,085 4,703
2002 1,595 3,918
2003 1,378 3,521
2004 930 3,214
Thereafter 3,457 11,287
------- -------
Total minimum lease payments 11,521 $32,526
=======
Amount representing interest (2,894)
-------
Present value of net minimum lease payments
(including $1,486 classified as current) $ 8,627
=======
11. LITIGATION
The Company is involved in litigation arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
these matters will be resolved without material adverse effect on the Company's
consolidated financial position or results of operations.
12. RETIREMENT PLANS
The Company sponsors defined contribution employee benefit plans which
cover substantially all employees. Employees may contribute a percentage of
eligible compensation subject to Internal Revenue Service limits. The plans call
for the Company to make matching contributions, based on either a percentage of
employee contributions or a discretionary amount as determined by the Company.
Contributions by the Company to the plans totaled $988,000, $1,340,000 and
$1,865,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
The Company sponsors a nonqualified supplemental deferred compensation
plan for selected management employees. As determined by the Board of Directors,
the Plan provides a benefit of 1% to 3% of the employee's compensation. The
participant's amount is fully vested, except in those instances where the
participant's employment terminates for any reason other than retirement, death
or disability, in which case the participant forfeits a portion of the
employer's contribution depending on length of service. Plan expenses totaled
$98,000,
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61
$197,000, and $167,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents -- The carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value.
Accounts Receivable and Accounts Payable -- The carrying amount reported
in the balance sheets for accounts receivable and accounts payable approximates
fair value.
Long-Term Obligations -- The carrying amount reported in the balance
sheets for long-term obligations approximates fair value. The fair value of the
Company's long-term obligations is estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Interest rate swap agreements -- The fair value of the Company's
interest rate swap agreements is $1,908,000 at December 31, 1999, based on
quoted market prices for similar debt issues.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1998,
and 1999 is summarized below (in thousands, except per share data):
Quarter
--------------------------------------
First Second Third Fourth
------- ------- ------- --------
1998
Net operating revenue $47,851 $56,632 $67,271 $ 67,100
Income before income taxes 4,047 3,811 4,550 5,525
Net income 2,275 2,134 2,531 3,067
Net income to common shareholders 1,579 2,134 2,531 3,067
Basic net income per share to
common shareholders 0.17 0.16 0.17 0.20
Diluted net income per share to
common shareholders 0.16 0.16 0.16 0.19
1999
Net operating revenue 73,247 81,225 85,682 106,539
Income before income taxes 7,195 5,854 5,352 7,248
Net income 4,065 3,307 3,024 4,105
Basic net income per share to
common shareholders 0.26 0.21 0.19 0.26
Diluted net income per share to
common shareholders 0.25 0.21 0.19 0.26
F-23
62
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Col. A Col. B Col. C Col. D Col. E
------ ------- ------ ------ ------
Additions
-------------------------
(1)
Charged to
Balance at Charged Other (2) Balance at
Beginning to Costs Accounts- Deductions End
Description of Period and Expenses Describe Describe of Period
- ----------- ---------- ------------ ---------- ---------- ----------
For the year ended December 31, 1997
Allowance for doubtful accounts $4,477 $12,812 $ -- $(12,540) $ 4,749
For the year ended December 31, 1998
Allowance for doubtful accounts 4,749 17,839 2,353 (15,908) 9,033
For the year ended December 31, 1999
Allowance for doubtful accounts 9,033 25,572 6,866 (24,977) 16,494
(1) Allowances as a result of acquisitions, and working capital settlement
for a prior year acquisition.
(2) Uncollectible accounts written off, net of recoveries.
S-1