10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-51251
(Exact name of registrant as specified in its charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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20-1538254
(I.R.S. Employer
Identification No.) |
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103 Powell Court
Brentwood, Tennessee
(Address of Principal Executive Offices)
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37027
(Zip Code) |
(615) 372-8500
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in the Rule 12b-2
of the Exchange Act). Yes o No þ
As of April 17, 2009, the number of outstanding shares of Common Stock of LifePoint Hospitals,
Inc. was 54,350,815.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share amounts)
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Three Months Ended |
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March 31, |
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2008 |
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2009 |
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(as adjusted) |
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Revenues |
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$ |
685.1 |
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$ |
735.5 |
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Salaries and benefits |
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268.0 |
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286.5 |
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Supplies |
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93.3 |
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99.6 |
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Other operating expenses |
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121.0 |
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132.7 |
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Provision for doubtful accounts |
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80.9 |
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90.2 |
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Depreciation and amortization |
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32.1 |
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35.1 |
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Interest expense, net |
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26.9 |
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25.8 |
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622.2 |
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669.9 |
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Income from continuing operations before income taxes |
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62.9 |
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65.6 |
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Provision for income taxes |
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(24.2 |
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(25.5 |
) |
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Income from continuing operations |
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38.7 |
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40.1 |
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Discontinued operations, net of income taxes: |
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Loss from discontinued operations |
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(1.8 |
) |
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(1.1 |
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Impairment adjustment |
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2.3 |
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Income (loss) from discontinued operations |
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0.5 |
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(1.1 |
) |
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Net income |
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39.2 |
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39.0 |
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Less: Net income attributable to noncontrolling interests |
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(0.5 |
) |
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(0.6 |
) |
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Net income attributable to LifePoint Hospitals, Inc. |
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$ |
38.7 |
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$ |
38.4 |
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Basic earnings (loss) per share attributable to LifePoint Hospitals, Inc. stockholders: |
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Continuing operations |
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$ |
0.71 |
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$ |
0.76 |
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Discontinued operations |
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0.01 |
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(0.02 |
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Net income |
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$ |
0.72 |
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$ |
0.74 |
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Diluted earnings (loss) per share attributable to LifePoint Hospitals, Inc. stockholders: |
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Continuing operations |
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$ |
0.69 |
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$ |
0.74 |
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Discontinued operations |
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0.01 |
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(0.02 |
) |
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Net income |
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$ |
0.70 |
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$ |
0.72 |
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Weighted average shares and dilutive securities outstanding: |
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Basic |
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54.1 |
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52.2 |
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Diluted |
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55.2 |
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53.1 |
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Amounts attributable to LifePoint Hospitals, Inc. stockholders: |
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Income from continuing operations, net of income taxes |
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$ |
38.2 |
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$ |
39.5 |
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Income (loss) from discontinued operations, net of income taxes |
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0.5 |
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(1.1 |
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Net income |
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$ |
38.7 |
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$ |
38.4 |
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See
accompanying notes.
3
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
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December 31, |
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March 31, |
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2008(a) |
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2009 |
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(Unaudited) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
75.7 |
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$ |
44.5 |
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Accounts receivable, less allowances for doubtful accounts of $374.4 and $393.8 at December
31, 2008 and March 31, 2009, respectively |
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315.9 |
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349.5 |
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Inventories |
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69.6 |
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71.7 |
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Assets held for sale |
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21.6 |
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21.7 |
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Prepaid expenses |
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12.0 |
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12.7 |
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Income taxes receivable |
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19.9 |
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Deferred tax assets |
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103.4 |
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107.2 |
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Other current assets |
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19.2 |
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21.5 |
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637.3 |
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628.8 |
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Property and equipment: |
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Land |
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71.1 |
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74.9 |
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Buildings and improvements |
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1,257.2 |
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1,323.2 |
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Equipment |
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737.9 |
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763.8 |
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Construction in progress (estimated cost to complete and equip after March 31, 2009 is $158.2) |
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39.7 |
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48.3 |
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2,105.9 |
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2,210.2 |
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Accumulated depreciation |
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(689.9 |
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(722.5 |
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1,416.0 |
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1,487.7 |
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Deferred loan costs, net |
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31.3 |
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29.4 |
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Intangible assets, net |
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68.8 |
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71.3 |
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Other |
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10.4 |
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4.3 |
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Goodwill |
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1,516.5 |
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1,525.2 |
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Total assets |
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$ |
3,680.3 |
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$ |
3,746.7 |
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LIABILITIES AND EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
92.3 |
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$ |
85.8 |
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Accrued salaries |
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73.2 |
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76.6 |
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Other current liabilities |
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94.5 |
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112.0 |
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Current maturities of long-term debt |
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1.1 |
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1.4 |
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261.1 |
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275.8 |
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Long-term debt |
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1,392.1 |
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1,397.8 |
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Deferred income taxes |
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146.8 |
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146.6 |
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Professional and general liability claims and other liabilities |
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146.2 |
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147.4 |
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Long-term income tax liability |
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59.4 |
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58.0 |
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Total liabilities |
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2,005.6 |
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2,025.6 |
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Redeemable noncontrolling interests |
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12.8 |
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12.8 |
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Equity: |
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LifePoint Hospitals, Inc. stockholders equity: |
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Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued |
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Common stock, $0.01 par value; 90,000,000 shares authorized; 58,787,009 and
59,707,427 shares issued at December 31, 2008 and March 31, 2009,
respectively |
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0.6 |
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0.6 |
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Capital in excess of par value |
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1,219.5 |
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1,227.5 |
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Accumulated other comprehensive loss |
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(28.3 |
) |
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(26.9 |
) |
Retained earnings |
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613.9 |
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652.3 |
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Common stock in treasury, at cost, 5,346,156 and 5,416,412 shares at
December 31, 2008 and March 31, 2009, respectively |
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(147.3 |
) |
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(148.9 |
) |
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Total LifePoint Hospitals, Inc. stockholders equity |
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1,658.4 |
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1,704.6 |
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Noncontrolling interests |
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3.5 |
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3.7 |
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Total equity |
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1,661.9 |
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1,708.3 |
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Total liabilities and equity |
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$ |
3,680.3 |
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$ |
3,746.7 |
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(a) |
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Derived from audited consolidated financial statements, as adjusted
(see Note 2). |
See accompanying notes.
4
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
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Three Months Ended |
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March 31, |
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2008 |
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2009 |
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(as adjusted) |
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Cash flows from operating activities: |
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Net income |
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$ |
39.2 |
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$ |
39.0 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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(Income) loss from discontinued operations |
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(0.5 |
) |
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1.1 |
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Stock-based compensation |
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6.4 |
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5.9 |
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ESOP expense (non-cash portion) |
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1.8 |
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Depreciation and amortization |
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32.1 |
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35.1 |
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Amortization of physician minimum revenue guarantees |
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2.0 |
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3.1 |
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Amortization of convertible debt discounts |
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4.8 |
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5.1 |
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Amortization of deferred loan costs |
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1.8 |
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1.9 |
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Deferred income tax benefit |
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(0.5 |
) |
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(6.0 |
) |
Reserve for professional and general liability claims, net |
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1.2 |
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5.6 |
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Increase (decrease) in cash from operating assets and liabilities, net of
effects from acquisitions and divestitures: |
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Accounts receivable |
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(8.6 |
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(21.4 |
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Inventories and other current assets |
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(3.1 |
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0.3 |
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Accounts payable and accrued expenses |
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2.8 |
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(8.8 |
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Income taxes payable/receivable |
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23.8 |
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31.2 |
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Other |
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1.5 |
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(0.2 |
) |
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Net cash provided by operating activities continuing operations |
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104.7 |
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91.9 |
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Net cash used in operating activities discontinued operations |
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(3.7 |
) |
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(1.5 |
) |
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Net cash provided by operating activities |
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101.0 |
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90.4 |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(32.9 |
) |
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(43.1 |
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Acquisitions, net of cash acquired |
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(78.2 |
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Net cash used in investing activities continuing operations |
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(32.9 |
) |
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(121.3 |
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Net cash used in investing activities discontinued operations |
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(0.5 |
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Net cash used in investing activities |
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(33.4 |
) |
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(121.3 |
) |
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Cash flows from financing activities: |
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Repurchases of common stock |
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(87.6 |
) |
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(1.6 |
) |
Proceeds from exercise of stock options |
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1.7 |
|
Proceeds from employee stock purchase plans |
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0.4 |
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0.4 |
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Distributions to noncontrolling interests |
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(0.3 |
) |
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(0.4 |
) |
Capital lease payments and other |
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(0.3 |
) |
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(0.4 |
) |
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Net cash used in financing activities |
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(87.8 |
) |
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(0.3 |
) |
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Change in cash and cash equivalents |
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(20.2 |
) |
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(31.2 |
) |
Cash and cash equivalents at beginning of period |
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53.1 |
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75.7 |
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Cash and cash equivalents at end of period |
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$ |
32.9 |
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$ |
44.5 |
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Supplemental disclosure of cash flow information: |
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Interest payments |
|
$ |
17.1 |
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$ |
16.2 |
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Capitalized interest |
|
$ |
0.1 |
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$ |
0.3 |
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Income taxes paid, net |
|
$ |
0.9 |
|
|
$ |
0.5 |
|
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|
|
|
|
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|
See accompanying notes.
5
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
For the Three Months Ended March 31, 2009
Unaudited
(In millions)
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LifePoint Hospitals, Inc. Stockholders |
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Accumulated |
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Capital in |
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Other |
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Common Stock |
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Excess of |
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Comprehensive |
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Retained |
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Treasury |
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Noncontrolling |
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Shares |
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Amount |
|
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Par Value |
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Income (loss) |
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Earnings |
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Stock |
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Interests |
|
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Total |
|
Balance at December 31,
2008 (a) |
|
|
53.4 |
|
|
$ |
0.6 |
|
|
$ |
1,219.5 |
|
|
$ |
(28.3 |
) |
|
$ |
613.9 |
|
|
$ |
(147.3 |
) |
|
$ |
3.5 |
|
|
$ |
1,661.9 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.4 |
|
|
|
|
|
|
|
0.6 |
|
|
|
39.0 |
|
Net change in fair value
of interest rate swap,
net of tax provision of
$0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options, including tax
benefits of stock-based
awards and other |
|
|
0.2 |
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Stock activity in
connection with employee
stock purchase plan |
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
Stock-based compensation |
|
|
0.8 |
|
|
|
|
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.9 |
|
Repurchases of common
stock, at cost |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6 |
) |
|
|
|
|
|
|
(1.6 |
) |
Cash distributions to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 |
|
|
54.3 |
|
|
$ |
0.6 |
|
|
$ |
1,227.5 |
|
|
$ |
(26.9 |
) |
|
$ |
652.3 |
|
|
$ |
(148.9 |
) |
|
$ |
3.7 |
|
|
$ |
1,708.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Derived from audited consolidated financial statements, as adjusted
(see Note 2). |
See accompanying notes.
6
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009
Unaudited
Note 1. Basis of Presentation
LifePoint Hospitals, Inc., a Delaware corporation, acting through its subsidiaries, operates
general acute care hospitals in non-urban communities in the United States. Unless the context
otherwise requires, LifePoint and its subsidiaries are referred to herein as LifePoint, the
Company, we, our, or us. At March 31, 2009, on a consolidated basis, the Companys
subsidiaries owned or leased 49 hospitals, including two hospitals that are held for sale, and
serving non-urban communities in 18 states. Unless noted otherwise, discussions in these notes
pertain to the Companys continuing operations.
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring
adjustments) and disclosures considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2009 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2009. For further information, refer
to the consolidated financial statements and notes thereto included in the Companys Annual Report
on Form 10-K for the year ended December 31, 2008.
The majority of the Companys expenses are cost of revenue items. Costs that could be
classified as general and administrative by the Company would include LifePoint corporate
overhead costs, which were $24.2 million and $26.4 million for the three months ended March 31,
2008 and 2009, respectively.
Certain prior year amounts have been reclassified to conform to the current year presentation for
discontinued operations and for the Companys January 1, 2009 adoptions of Statement of Financial
Accounting Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51 (SFAS No. 160) and FSP APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB 14-1), as further discussed in Note 2.
Note 2. New Accounting Standards
SFAS No. 160
Effective January 1, 2009, the Company adopted SFAS No. 160. SFAS No. 160 defines a
noncontrolling interest in a consolidated subsidiary as the portion of the equity (net assets) in a subsidiary not
attributable, directly or indirectly, to a parent and requires noncontrolling interests to be
presented as a separate component of equity in the consolidated balance sheet subject to the
provisions of Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Topic D-98, Classification and Measurement
of Redeemable Securities (EITF Topic D-98). SFAS No. 160 also modifies the presentation of net
income by requiring earnings and other comprehensive income to be attributed to controlling and
noncontrolling interests. The following is a summary of the changes the Company made as a result of the implementation of this standard:
|
|
|
The Company reclassified a portion of its noncontrolling interests from the
mezzanine section of its accompanying condensed consolidated balance sheets to equity. This reclassification totaled $3.5
and $3.7 million as of December 31, 2008 and March 31, 2009, respectively. Certain of
the Companys noncontrolling interests will continue to be classified in the mezzanine
section of its accompanying condensed consolidated balance sheets as these noncontrolling interests contain potential
redeemable units that do not meet the requirements for classification as equity in
accordance with EITF Topic D-98. These redemption features require the delivery of
cash. |
|
|
|
|
Net income attributable to noncontrolling interests is no longer deducted to arrive
at net income. Instead, net income is attributed to the controlling and noncontrolling
interests in the accompanying condensed consolidated statements of operations. As a
result, net income for the three months ended March 31, 2008 increased by $0.5 million
from net income previously reported. These changes had no impact on
the Companys earnings per
share calculations. |
7
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FSP APB 14-1
Effective January 1, 2009, the Company adopted the provisions of FSP APB 14-1. FSP APB 14-1
specifies that issuers of convertible debt instruments should separately account for the liability
and equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate
on the instruments issuance date when interest cost is recognized. The Companys 3 1/2% Convertible
Senior Subordinated Notes due May 15, 2014 (3 1/2% Notes) and its 3 1/4% Convertible
Senior Subordinated Debentures due August 15, 2025 (3 1/4% Debentures) are within the scope of FSP
APB 14-1. Therefore, the Company recorded the debt components of its 3 1/2% Notes and its 3 1/4%
Debentures at fair value as of the date of issuance and began amortizing the resulting discount as
an increase to interest expense over the expected life of the debt. The Company measured the fair
value of the debt components of its 3 1/2% Notes at issuance based on an effective interest rate of
7.375% and its 3 1/4% Debentures at issuance based on an effective interest rate of 6.5%. As a
result, the Company has attributed $162.6 million of the proceeds received in connection with the
original issuances to the conversion feature of both of its convertible debt instruments. This
amount represents the excess proceeds received over the fair value of the debt at the date of
issuance and is included in capital in excess of par value in the accompanying condensed
consolidated balance sheets. Additionally, the Company recognized a deferred income tax liability
for the income tax effect of the adoption of the standard as an adjustment to capital in excess of
par value in the amount of $59.4 million. The implementation of FSP APB 14-1 resulted in a decrease
to the Companys net income and earnings per share for all periods presented. However, there is no
effect on its cash interest payments.
The following is a summary of the line items impacted by the adoption of FSP APB 14-1 in the
Companys December 31, 2008 accompanying condensed
consolidated balance sheet and accompanying condensed consolidated
statements of operations for the three months ended March 31, 2008 (in millions, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
As Currently |
|
|
Reported |
|
Adjustments |
|
Reported |
Condensed consolidated balance sheet as
of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
1,515.6 |
|
|
$ |
(123.5 |
) |
|
$ |
1,392.1 |
|
Deferred income
taxes |
|
$ |
103.1 |
|
|
$ |
43.7 |
|
|
$ |
146.8 |
|
Capital in excess of par value |
|
$ |
1,116.3 |
|
|
$ |
103.2 |
|
|
$ |
1,219.5 |
|
Retained earnings |
|
$ |
637.3 |
|
|
$ |
(23.4 |
) |
|
$ |
613.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed consolidated statement of
operations for the three months ended
March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net |
|
$ |
22.1 |
|
|
$ |
4.8 |
|
|
$ |
26.9 |
|
Provision for income
taxes |
|
$ |
25.9 |
|
|
$ |
(1.7 |
) |
|
$ |
24.2 |
|
Net income
(loss) |
|
$ |
42.3 |
|
|
$ |
(3.1 |
) |
|
$ |
39.2 |
|
Basic earnings per share
attributable to LifePoint
Hospitals, Inc. stockholders |
|
$ |
0.77 |
|
|
$ |
(0.05 |
) |
|
$ |
0.72 |
|
Diluted earnings per share
attributable to LifePoint
Hospitals, Inc. stockholders |
|
$ |
0.76 |
|
|
$ |
(0.06 |
) |
|
$ |
0.70 |
|
The principal balance, unamortized discount and net carrying balance of the Companys
convertible debt instruments as of December 31, 2008 and March 31, 2009 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
March 31, 2009 |
|
3 1/2% Notes: |
|
|
|
|
|
|
|
|
Principal
balance |
|
$ |
575.0 |
|
|
$ |
575.0 |
|
Unamortized
discount |
|
|
(97.4 |
) |
|
|
(93.7 |
) |
|
|
|
|
|
|
|
Net carrying balance |
|
$ |
477.6 |
|
|
$ |
481.3 |
|
|
|
|
|
|
|
|
8
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
March 31, 2009 |
|
3 1/4% Debentures: |
|
|
|
|
|
|
|
|
Principal
balance |
|
$ |
225.0 |
|
|
$ |
225.0 |
|
Unamortized discount |
|
|
(26.1 |
) |
|
|
(24.7 |
) |
|
|
|
|
|
|
|
Net carrying balance |
|
$ |
198.9 |
|
|
$ |
200.3 |
|
|
|
|
|
|
|
|
The
Company is amortizing the discounts for its 3 1/4% Debentures and 3 1/2% Notes over the
expected life of a similar liability that does not have an associated equity component, in
accordance with FSP APB 14-1. The Company is amortizing the discount
for its 3 1/4
% Debentures through February 2013, which is the first date that the holders of the 3 1/4% Debentures can redeem their
debentures. In addition, the Company is amortizing the discount for
its 3 1/2%
Notes through May 2014, which is the maturity date of these notes.
For the three months ended March 31, 2008 and 2009, the contractual cash interest expense and
non-cash interest expense (discount amortization) for the Companys convertible debt instruments
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2008 |
|
|
2009 |
|
3 1/2% Notes: |
|
|
|
|
|
|
|
|
Contractual cash interest expense |
|
$ |
5.0 |
|
|
$ |
5.0 |
|
Non-cash interest expense (discount amortization) |
|
|
3.5 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
8.5 |
|
|
$ |
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 1/4% Debentures: |
|
|
|
|
|
|
|
|
Contractual cash interest expense |
|
$ |
1.8 |
|
|
$ |
1.8 |
|
Non-cash interest expense (discount amortization) |
|
|
1.3 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
3.1 |
|
|
$ |
3.2 |
|
|
|
|
|
|
|
|
SFAS
No. 141(R), Business Combinations, (SFAS No. 141(R))
On
January 1, 2009, the Company adopted the provisions of SFAS
No. 141(R), which retains the
underlying concepts of SFAS No. 141 in that all business combinations are still required to be
accounted for at fair value under the acquisition method of accounting, but changes the method of
applying the acquisition method in a number of ways. Acquisition costs are no longer considered
part of the fair value of an acquisition and must be expensed as incurred, noncontrolling interests
are valued at fair value at the acquisition date, restructuring costs associated with a business
combination are generally expensed subsequent to the acquisition date and changes in deferred tax
asset valuation allowances and income tax uncertainties after the acquisition date generally will
affect income tax expense.
In April 2009, the FASB issued FSP SFAS 141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies, ( FSP SFAS 141(R)-1) which amends the guidance in SFAS No. 141(R) to require contingent assets acquired
and liabilities assumed in a business combination to be recognized at fair value on the acquisition
date if the fair value can be reasonably estimated during the measurement period. If fair value
cannot be reasonably estimated during the measurement period, the contingent asset or liability
would be recognized in accordance with SFAS No. 5, Accounting for Contingencies, and FASB
Interpretation (FIN) No. 14, Reasonable
Estimation of the Amount of a Loss. Further, FSP
SFAS 141(R)-1 eliminated the specific subsequent accounting guidance for contingent assets and liabilities from
SFAS No. 141(R), without significantly revising the guidance in SFAS No. 141. However, contingent
consideration arrangements of an acquiree assumed by the acquirer in a business combination would
still be initially and subsequently measured at fair value in accordance with SFAS No. 141(R).
FSP SFAS 141(R)-1 was effective for all business combinations occurring on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The Company adopted the
provisions of SFAS No. 141(R) and FSP SFAS 141(R)-1 for business combinations with an acquisition
date on or after January 1, 2009.
9
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SFAS
No. 157, Fair Value Measurements, (SFAS No. 157)
In September 2006, the FASB issued SFAS No. 157, which is intended to increase consistency and
comparability in fair value measurements by defining fair value, establishing a framework for
measuring fair value, and expanding disclosures about fair value measurements. SFAS No. 157 applies
to other accounting pronouncements that require or permit fair value measurements and was effective
for financial statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. In February 2008, the FASB issued FSP SFAS 157-1, Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,
which removes certain leasing transactions from the scope of SFAS No. 157, and FSP SFAS 157-2,
Effective Date of FASB Statement No. 157, which defers the effective date of SFAS No. 157 for one
year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis. In October 2008, the
FASB also issued FSP SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in an inactive market
and illustrates how an entity would determine fair value when the market for a financial asset is
not active. On January 1, 2008, the Company adopted without material impact on its condensed
consolidated financial statements the provisions of SFAS No. 157 related to financial assets and
liabilities and to nonfinancial assets and liabilities measured at fair value on a recurring basis.
On January 1, 2009, the Company adopted without material impact on its condensed consolidated
financial statements the provisions of SFAS No. 157 related to nonfinancial assets and nonfinancial
liabilities that are not required or permitted to be measured at fair value on a recurring basis,
which include those measured at fair value in goodwill impairment testing, indefinite-lived
intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets
measured at fair value for impairment assessment, asset retirement obligations initially measured
at fair value, and those initially measured at fair value in a business combination.
In April 2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, (FSP SFAS 157-4) which provides additional guidance for
estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the
asset or liability have significantly decreased. FSP SFAS 157-4 re-emphasizes that regardless of market
conditions the fair value measurement is an exit price concept as
defined in SFAS No. 157. FSP SFAS 157-4 clarifies and includes additional factors to consider in determining whether there has been a
significant decrease in market activity for an asset or liability and provides additional
clarification on estimating fair value when the market activity for an asset or liability has
declined significantly. The scope of FSP SFAS 157-4 does not include assets and liabilities measured
under level 1 inputs. FSP SFAS 157-4 is applied prospectively to all fair value measurements where
appropriate and will be effective for interim and annual periods ending after June 15, 2009. The
Company will adopt the provisions of FSP SFAS 157-4 effective April 1, 2009, which it does not
expect to have a material impact on its condensed consolidated financial statements.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of
FASB Statement No. 133, (SFAS No. 161)
In
March 2008, the FASB issued SFAS No. 161, which requires entities that use derivative
instruments to provide qualitative disclosures about their objectives and strategies for using such
instruments, as well as any details of credit-risk-related contingent features contained within
derivatives. SFAS No. 161 also requires entities to disclose additional information about the
amounts and location of derivatives located within the financial statements, how the provisions of
SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS No.
133), have been applied, and the impact that hedges have on an entitys financial position,
financial performance, and cash flows. The Company adopted the provisions of SFAS No. 161 effective
January 1, 2009. Since SFAS No. 161 requires only additional disclosures concerning derivatives and
hedging activities, the adoption of SFAS No. 161 did not affect the presentation of the Companys
financial position or results of operations. See Note 8 for the Companys disclosures about its
derivative instrument and hedging activities.
10
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FSP
SFAS No. 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments, (FSP
SFAS No. 107-1 and APB 28-1)
In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (FSP SFAS
No. 107-1 and APB 28-1). FSP SFAS No. 107-1, which amends SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, requires publicly-traded companies, as defined in APB Opinion No. 28, Interim
Financial Reporting, to provide disclosures on the fair value of financial instruments in interim
financial statements. FSP SFAS No. 107-1 and APB 28-1 are effective for interim periods ending after
June 15, 2009. The Company plans to adopt FSP SFAS No. 107-1 and APB 28-1 and provide the additional
disclosure requirements in its June 30, 2009 condensed
consolidated financial statements.
Note 3. Acquisition
Effective February 1, 2009, the Company acquired Rockdale Medical Center (Rockdale), a
138 bed hospital located in Conyers, Georgia, from the Hospital Authority of Rockdale County. The
Company funded the purchase price of Rockdale of $80.0 million plus net working capital with
available cash.
Under the purchase method of accounting, in accordance with SFAS No. 141(R), the purchase
price of Rockdale was allocated to the identifiable assets acquired and liabilities assumed based
upon their estimated fair values as of February 1, 2009. The excess of the purchase price over the
estimated fair value of the identifiable assets acquired and liabilities assumed was recorded as
goodwill. The results of operations of Rockdale are included in the Companys results of operations
beginning February 1, 2009.
The fair values of assets acquired and liabilities assumed at the date of acquisition were as
follows (in millions):
|
|
|
|
|
Accounts receivable |
|
$ |
12.4 |
|
Inventories |
|
|
2.1 |
|
Prepaid expenses and other current assets |
|
|
0.6 |
|
Property and equipment |
|
|
71.4 |
|
Goodwill |
|
|
8.6 |
|
|
|
|
|
Total assets acquired, excluding cash |
|
|
95.1 |
|
|
|
|
|
Accounts payable |
|
|
8.4 |
|
Accrued salaries |
|
|
3.6 |
|
Other current liabilities |
|
|
0.5 |
|
Capital leases |
|
|
1.3 |
|
|
|
|
|
Total liabilities assumed |
|
|
13.8 |
|
|
|
|
|
Net assets acquired |
|
$ |
81.3 |
|
|
|
|
|
The fair values assigned to certain assets acquired and liabilities assumed have been prepared
on a preliminary basis and are subject to change as new facts and circumstances emerge. The Company
is currently assessing the valuation of the accounts receivable acquired and expects to finalize
its analysis during the third quarter of 2009. Once finalized, the Company will adjust the purchase
price allocation to reflect its final assessment.
Note 4. Discontinued Operations
In September 2008, the Companys management committed to sell Doctors Hospital of Opelousas
(Opelousas), a 171 bed facility located in Opelousas, Louisiana, and Starke Memorial Hospital
(Starke), a 53 bed facility located in Knox, Indiana. The Company sold Opelousas effective May 1,
2009 for $14.0 million, excluding working capital. The Company is actively engaged in
negotiations with respect to Starke.
In March 2007, the Company signed a letter of intent to transfer substantially all of the
operating assets and net working capital of Colorado River Medical Center (Colorado River), a 25
bed facility located in Needles, California to the Board of Trustees of Needles Desert Communities
Hospital (the Needles Board of Trustees) and to terminate the existing lease agreement between
the two parties. Effective April 1, 2008, the Company terminated the lease agreement and
transferred Colorado River to the Needles Board of Trustees. In connection with the signing of the
letter of intent in March 2007, the Company recognized an impairment charge of $8.7 million, net of
income taxes, for the year ended December 31, 2007. During the three months ended March 31, 2008,
the Company recognized a favorable impairment adjustment of $2.3 million, net of income taxes, or
$0.04 per diluted share related to the reversal of a portion of the previously recognized
impairment charge for certain net working capital components that were ultimately excluded from the
assets transferred effective April 1, 2008.
11
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The
results of operations, net of income taxes, of Opelousas, Starke and Colorado River, as
well as the Companys other previously disposed facilities, are reflected in the accompanying
condensed consolidated financial statements as discontinued operations in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Interest expense was allocated to discontinued operations based on the ratio of disposed net
assets to the sum of total net assets of the Company plus the Companys total outstanding debt. The
Company allocated to discontinued operations interest expense of $0.3 million for both the three
month periods ended March 31, 2008 and 2009.
The
revenues, loss before income taxes, and net loss, excluding impairment
adjustment of discontinued operations for the three months ended March 31, 2008 and 2009 were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2008 |
|
2009 |
Revenues |
|
$ |
16.1 |
|
|
$ |
10.8 |
|
Loss before income tax benefits |
|
$ |
(2.9 |
) |
|
$ |
(1.7 |
) |
Net loss |
|
$ |
(1.8 |
) |
|
$ |
(1.1 |
) |
Note 5. Repurchases of Common Stock
In November 2007, the Companys Board of Directors authorized the repurchase of up to $150.0
million of outstanding shares of the Companys common stock either in the open market or through
privately negotiated transactions, subject to market conditions, regulatory constraints and other
factors. During the three months ended March 31, 2008, the Company repurchased approximately 3.0
million shares for an aggregate purchase price, including commissions, of approximately $75.4
million at an average purchase price of $25.15 per share. The Companys stock repurchase program
expired on November 26, 2008. As of March 31, 2009, under the repurchase program, the Company had
repurchased in the aggregate, approximately 5.2 million shares at an aggregate purchase price,
including commissions, of approximately $144.9 million with an average purchase price of $27.55 per
share. These shares have been designated by the Company as treasury stock.
In addition to the program to repurchase common stock, the Company redeems shares from
employees upon vesting of the Companys Amended and Restated 1998 Long-Term Incentive Plan (LTIP)
and Management Stock Purchase Plan (MSPP) stock awards for minimum statutory tax withholding
purposes. The Company redeemed approximately 0.1 million shares of certain vested LTIP and MSPP
shares for an aggregate price of approximately $1.6 million during the three months ended March 31,
2009. There were no shares redeemed during the three months ended March 31, 2008. These shares
have been designated by the Company as treasury stock.
Note 6. Goodwill and Intangible Assets
Goodwill
SFAS
No. 142, Goodwill and Other Intangible Assets, requires goodwill and
intangible assets with indefinite lives to be tested at least annually for impairment and if
certain events or changes in circumstances indicate that an impairment loss may have been incurred,
on an interim basis. The Companys business comprises a single operating reporting unit for
impairment test purposes. For the purposes of these analyses, the Companys estimates of fair value
are based on a combination of the income approach, which estimates the fair value of the Company
based on its future discounted cash flows, and the market approach, which estimates the fair value
of the Company based on comparable market prices.
12
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As a result of recent economic events and a decline in the Companys stock price, the Company
performed goodwill impairment testing as of September 30, 2008
and December 31, 2008. The Company determined that a goodwill impairment charge was not required and will continue
to monitor the relationship of its fair value to its book value as economic events and changes to
its stock price occur.
Contract-Based Physician Minimum Revenue Guarantees
The Company has committed to provide certain financial assistance pursuant to recruiting
agreements, or physician minimum revenue guarantees, with various physicians practicing in the
communities it serves. In consideration for a physician relocating to one of its communities and
agreeing to engage in private practice for the benefit of the respective community, the Company may
advance certain amounts of money to a physician to assist in establishing his or her practice.
The Company accounts for its physician minimum revenue guarantees in accordance with the
provisions of FASB Staff Position No. FIN 45-3, Application of FASB Interpretation No. 45 to
Minimum Revenue Guarantees Granted to a Business or Its Owners
(FSP FIN 45-3). In accordance with the provisions of FSP FIN
45-3, the Company records a contract-based intangible asset and a related guarantee liability for
new physician minimum revenue guarantees. The contract-based intangible asset is amortized to other
operating expenses, in the accompanying condensed consolidated statements of operations, over the
period of the physician contract, which typically ranges from four to five years. As of December
31, 2008 and March 31, 2009, the Companys liability for contract-based physician minimum revenue
guarantees was $22.2 million and $23.5 million, respectively. These amounts are included in other
current liabilities in the Companys accompanying condensed consolidated balance sheets.
Non-Competition Agreements
The Company has entered into non-competition agreements with certain physicians and other
individuals which are amortized on a straight-line basis over the term of the agreements.
Certificates of Need
The construction of new facilities, the acquisition or expansion of existing facilities and
the addition of new services and certain equipment at the Companys facilities may be subject to
state laws that require prior approval by state regulatory agencies. These certificates of need
laws generally require that a state agency determine the public need and give approval prior to the
construction or acquisition of facilities or the addition of new services. The Company operates
hospitals in certain states that have adopted certificate of need laws. If the Company fails to
obtain necessary state approval, the Company will not be able to expand its facilities, complete
acquisitions or add new services at its facilities in these states. These intangible assets have
been determined to have indefinite lives and, accordingly, are not amortized.
Summary of Intangible Assets
The following table provides information regarding the Companys intangible assets, which are
included in the accompanying condensed consolidated balance sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Net |
|
Class of Intangible Asset |
|
Amount |
|
|
Amortization |
|
|
Total |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Contract-based physician minimum revenue guarantees: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
66.4 |
|
|
$ |
(16.2 |
) |
|
$ |
50.2 |
|
Additions, net of terminations |
|
|
5.9 |
|
|
|
|
|
|
|
5.9 |
|
Amortization expense |
|
|
|
|
|
|
(3.1 |
) |
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
72.3 |
|
|
$ |
(19.3 |
) |
|
$ |
53.0 |
|
|
|
|
|
|
|
|
|
|
|
Non-competition agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
20.2 |
|
|
$ |
(8.1 |
) |
|
$ |
12.1 |
|
Amortization expense |
|
|
|
|
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
20.2 |
|
|
$ |
(8.4 |
) |
|
$ |
11.8 |
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of need: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 and March 31, 2009 |
|
$ |
6.5 |
|
|
$ |
|
|
|
$ |
6.5 |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
93.1 |
|
|
$ |
(24.3 |
) |
|
$ |
68.8 |
|
Additions, net of terminations |
|
|
5.9 |
|
|
|
|
|
|
|
5.9 |
|
Amortization expense |
|
|
|
|
|
|
(3.4 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
99.0 |
|
|
$ |
(27.7 |
) |
|
$ |
71.3 |
|
|
|
|
|
|
|
|
|
|
|
13
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7. Stock-Based Compensation
The Company issues stock options and other stock-based awards (nonvested stock, restricted
stock, and deferred stock units) to key employees and directors under its LTIP, Outside Directors
Stock and Incentive Compensation Plan (ODSICP) and MSPP. The Company accounts for its stock-based
awards in accordance with the provisions of SFAS No. 123(R), Share-Based Payment (SFAS No.
123(R)). In accordance with SFAS No. 123(R), the Company recognizes compensation expense based on
the estimated grant date fair value of each stock-based award.
Stock Options
The Company estimated the fair value of stock options granted during the three months ended
March 31, 2008 and 2009 using the Hull-White II (HW-II) lattice option valuation model and a
single option award approach. The Company is amortizing the fair value on a straight-line basis
over the requisite service period of the awards, which is the vesting period of three years. The
Company granted stock options to purchase 1,076,750 and 783,800 shares of the Companys common
stock to certain key employees under the LTIP during the three months ended March 31, 2008 and
2009, respectively. The stock options that were granted during the three months ended March 31,
2008 and 2009 vest 33.3% on each grant anniversary date over three years of continued employment.
The following table shows the weighted average assumptions the Company used to develop the
fair value estimates under its HW-II option valuation model and the resulting estimates of
weighted-average fair value per share of stock options granted during the three months ended March
31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2008 |
|
2009 |
Expected volatility |
|
|
32.0 |
% |
|
|
40.0 |
% |
Risk free interest rate (range) |
|
|
1.97% - 3.74 |
% |
|
|
0.22% - 2.87 |
% |
Expected dividends |
|
|
|
|
|
|
|
|
Average expected term (years) |
|
|
5.3 |
|
|
|
5.4 |
|
Fair value per share of stock options granted |
|
$ |
8.06 |
|
|
$ |
7.66 |
|
The total intrinsic value of stock options exercised during the three months ended March 31,
2009 was $2.2 million. The Company received $1.7 million in cash from stock option exercises during
the three months ended March 31, 2009. The actual tax benefit realized for the tax deductions from
stock option exercises totaled $0.9 million for the three months ended March 31, 2009. There were
an immaterial number of options exercised during the three months ended March 31, 2008.
As of March 31, 2009, there was $11.7 million of total estimated unrecognized compensation
cost related to stock option compensation arrangements. Total estimated unrecognized compensation
cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize
that cost over a weighted average period of 1.6 years.
14
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Stock-Based Awards
The fair value of other stock-based awards is determined based on the closing price of the
Companys common stock on the day prior to the grant date.
Stock-based compensation expense for the Companys other
stock-based awards is recorded
equally over the vesting periods ranging from six months to five years.
During the three months ended March 31, 2008 and 2009, the Company granted 457,491 and 765,906
shares, respectively, of nonvested stock awards under the LTIP to certain key employees. All of the
nonvested stock awards granted during the three months ended March 31, 2008 cliff-vest three years from the grant
date. Of the 765,906 nonvested shares granted during the three months ended March 31, 2009,
358,406 ratably vest over the three year period from the grant date; 307,500 cliff-vest three years
from the grant date; 50,000 cliff-vest four years from the grant date; and 50,000 cliff-vest five
years from the grant date. The fair market value at the date of grant of the 457,491 and 765,906
shares of nonvested stock awards was $25.79 and $20.80 per share, respectively.
Of the nonvested stock awards granted under the LTIP during the three months ended March 31,
2008 and 2009, 247,500 and 307,500 shares, respectively, are performance-based. In addition to
requiring continuing service of an employee, the vesting of these nonvested stock awards is
contingent upon the satisfaction of certain financial goals, specifically related to the
achievement of budgeted annual revenues and earnings targets within a three-year period. Under the
LTIP, if these goals are achieved, the nonvested stock awards will cliff-vest three years after the
grant date. The fair value for each of these nonvested stock awards was determined based on the
closing price of the Companys common stock on the day prior to the grant date and assumes that the
performance goals will be achieved. If these performance goals are not met, no compensation expense
will be recognized and any previously recognized compensation expense will be reversed.
As of March 31, 2009, there was $24.7 million of total estimated unrecognized compensation
cost related to other stock-based awards granted under the LTIP, ODSICP and MSPP. Total estimated
unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The
Company expects to recognize that cost over a weighted average period of 2.1 years.
Summary
The following table summarizes the Companys total stock-based compensation expense as well as
the total recognized tax benefits related thereto for the three months ended March 31, 2008 and
2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
Other stock-based awards |
|
$ |
4.3 |
|
|
$ |
4.0 |
|
Stock options |
|
|
2.1 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
6.4 |
|
|
$ |
5.9 |
|
|
|
|
|
|
|
|
Tax benefits on stock-based compensation expense |
|
$ |
2.6 |
|
|
$ |
2.5 |
|
|
|
|
|
|
|
|
The Company did not capitalize any stock-based compensation cost during the three months ended
March 31, 2008 and 2009. As of March 31, 2009, there was $36.4 million of total estimated
unrecognized compensation cost related to all of the Companys stock compensation arrangements.
Total estimated unrecognized compensation cost may be adjusted for future changes in estimated
forfeitures. The Company expects to recognize that cost over a weighted-average period of 1.9
years.
15
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8. Interest Rate Swap
On June 1, 2006, the Company entered into an interest rate swap agreement with Citibank, N.A.
(Citibank) as counterparty. The interest rate swap agreement, as amended, was effective as of
November 30, 2006 and has a maturity date of May 30, 2011. The interest rate swap agreement
requires the Company to make quarterly fixed rate payments to Citibank calculated on a notional
amount as set forth in the table below at an annual fixed rate of 5.585% while Citibank is
obligated to make quarterly floating payments to the Company based on the three-month LIBOR on the
same referenced notional amount. Notwithstanding the terms of the interest rate swap transaction,
the Company is ultimately obligated for all amounts due and payable under its Credit Agreement, as
amended and restated, supplemented or otherwise modified from time to time (the Credit
Agreement), entered into on April 15, 2005, with Citicorp North America, Inc., as administrative
agent and the lenders party thereto, Bank of America, N.A., CIBC World Markets Corp., SunTrust Bank
and UBS Securities LLC, as co-syndication agents and Citigroup Global Markets Inc., as sole lead
arranger and sole book runner.
|
|
|
|
|
|
|
Notional Amount |
Date Range |
|
(In millions) |
November 30, 2007 to November 28, 2008 |
|
$ |
750.0 |
|
November 28, 2008 to November 30, 2009 |
|
|
600.0 |
|
November 30, 2009 to November 30, 2010 |
|
|
450.0 |
|
November 30, 2010 to May 30, 2011 |
|
|
300.0 |
|
The Company entered into the interest rate swap agreement to mitigate the floating interest
rate risk on a portion of its outstanding borrowings under its Credit Agreement. SFAS No. 133
requires companies to recognize all derivative instruments as either assets or liabilities at fair
value in a companys balance sheets. In accordance with SFAS No. 133, the Company designates its
interest rate swap as a cash flow hedge. For derivative instruments that are designated and qualify
as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income (OCI) and reclassified into earnings in the same period
or periods during which the hedged transactions affects earnings. Gains and losses on the
derivative representing either hedge ineffectiveness or hedge components excluded from the
assessment of effectiveness are recognized in current earnings.
The Company assesses the effectiveness of its interest rate swap on a quarterly basis. The
Company completed its quarterly assessment during the three months ended March 31, 2009 and
determined that its cash flow hedge was effective during the three months ended March 31, 2009.
The Company completed its quarterly assessment during the three months ended March 31, 2008 and
determined that its cash flow hedge was partially ineffective because
the notional amount of the interest rate swap in effect during the
period exceeded the Companys outstanding borrowings under its variable rate debt Credit
Agreement.
At December 31, 2008 and March 31, 2009, the fair value and line item caption of our interest
rate swap derivative instrument was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location |
|
December 31, 2008 |
|
|
March 31, 2009 |
|
Derivative
designated as a
hedging instrument
under SFAS No. 133: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Professional and general liability claims and other liabilities |
|
$ |
45.0 |
|
|
$ |
43.0 |
|
|
|
|
|
|
|
|
|
|
|
|
The
following table shows the effect of our interest rate swap derivative instrument qualifying and designated as a
hedging instrument in cash flow hedges for the three months ended March 31, 2008 and 2009 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of gain (loss) |
|
|
Amount of gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
recognized in Income on |
|
|
recognized in Income on |
|
|
|
Amount of gain (loss) |
|
|
Derivative (Ineffective |
|
|
Derivative (Ineffective |
|
|
|
recognized in OCI on |
|
|
Portion and Amount |
|
|
Portion and Amount |
|
|
|
Derivative (Effective |
|
|
Excluded from |
|
|
Excluded from |
|
|
|
Portion) |
|
|
Effectiveness Testing) |
|
|
Effectiveness Testing) |
|
|
|
2008 |
|
|
2009 |
|
|
|
|
|
2008 |
|
|
2009 |
|
Derivative in SFAS No. 133 cash flow
hedging relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
(11.8 |
) |
|
$ |
1.4 |
|
|
Interest expense, net |
|
$ |
(0.6 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value
Since the Companys interest rate swap is not traded on a market exchange, the fair value is
determined using a valuation model that is a discounted cash flow analysis on the expected cash
flows. This cash flow analysis reflects the contractual terms of the interest rate swap agreement,
including the period to maturity, and uses observable market-based inputs, including the
three-month LIBOR forward interest rate curve. The fair value of the Companys interest rate swap
agreement is determined by netting the discounted future fixed cash payments and the discounted
expected variable cash receipts. The variable cash receipts are based on the expectation of future
interest rates based on the observable market three-month LIBOR forward interest rate curve and the
notional amount being hedged. In addition, the Company incorporates credit valuation adjustments
to appropriately reflect both its own nonperformance or credit risk and Citibanks nonperformance
or credit risk in the fair value measurements. The interest rate swap agreement exposes the Company
to credit risk in the event of non-performance by Citibank. However, the Company does not
anticipate non-performance by Citibank. The majority of the inputs used to value its interest rate
swap agreement, including the three-month LIBOR forward interest rate curve and market perceptions
of the Companys credit risk used in the credit valuation adjustments, are observable inputs
available to a market participant. As a result, the Company has determined that the interest rate
swap valuation is classified in Level 2 of the fair value hierarchy,
in accordance with SFAS No. 157.
Note 9. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share
for the three months ended March 31, 2008 and 2009 (dollars and shares in millions, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
Numerator for basic and diluted earnings per share attributable to LifePoint Hospitals,
Inc.: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
38.7 |
|
|
$ |
40.1 |
|
Less: Net income attributable to noncontrolling interests |
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
Income from
continuing operations attributable to LifePoint Hospitals, Inc. stockholders |
|
|
38.2 |
|
|
|
39.5 |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
0.5 |
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
Net income attributable to LifePoint Hospitals, Inc. |
|
$ |
38.7 |
|
|
$ |
38.4 |
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average
shares outstanding basic |
|
|
54.1 |
|
|
|
52.2 |
|
Effect of
dilutive securities: stock options and other stock-based awards |
|
|
1.1 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding diluted |
|
|
55.2 |
|
|
|
53.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to LifePoint Hospitals, Inc. stockholders: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.71 |
|
|
$ |
0.76 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
0.72 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to LifePoint Hospitals, Inc. stockholders: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.69 |
|
|
$ |
0.74 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
(0.02 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
0.70 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
The Companys 31/2% Notes and 31/4% Debentures are
included in the calculation of diluted earnings per share whether or not the contingent
requirements have been met for conversion using the treasury stock method if the conversion price
of $51.79 and $61.22, respectively, is less than the average market price of the Companys common
stock for the period. Upon conversion, the par value is settled in cash, and only the conversion
premium is settled in shares of the Companys common stock. The impact of the
31/4% Debentures and 31/2% Notes have been excluded
because the effects would have been anti-dilutive for the three months ended March 31, 2008 and
2009.
17
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10. Contingencies
Legal Proceedings and General Liability Claims
The 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, medical malpractice, breach of
contracts, wrongful restriction of or interference with physicians staff privileges and employment
related claims. In certain of these actions, plaintiffs request payment for damages, including
punitive damages that may not be covered by insurance. The Company is currently not a party to any
pending or threatened proceeding, which, in managements opinion, would have a material adverse
effect on the Companys business, financial condition or results of operations.
Physician Commitments
The Company has committed to provide certain financial assistance pursuant to recruiting
agreements with various physicians practicing in the communities it serves. In consideration for a
physicians relocating to one of its communities and agreeing to engage in private practice for the
benefit of the respective community, the Company may advance certain amounts of money to a
physician, normally over a period of one year, to assist in establishing the physicians practice.
The Company has committed to advance a maximum amount of approximately $55.2 million at March 31,
2009. The actual amount of such commitments to be subsequently advanced to physicians is estimated
at $23.5 million and often depends upon the financial results of a physicians private practice
during the guarantee period. Generally, amounts advanced under the recruiting agreements may be
forgiven pro rata over a period of 36 to 48 months contingent upon the physician continuing to
practice in the respective community. Pursuant to the Companys standard physician recruiting
agreement, any breach or non-fulfillment by a physician under the physician recruiting agreement
gives the Company the right to recover any payments made to the physician under the agreement.
Capital Expenditure Commitments
The Company is reconfiguring some of its facilities to accommodate patient services more
effectively and is restructuring existing surgical capacity in some of its hospitals to permit
additional patient volume and a greater variety of services. The Company has incurred approximately
$48.3 million in uncompleted projects as of March 31, 2009, which is included as construction in
progress in the Companys accompanying condensed consolidated balance sheet. At March 31, 2009, the
Company had projects under construction with an estimated cost to complete and equip of
approximately $158.2 million. The Company is subject to annual capital expenditure commitments in
connection with several of its facilities.
Acquisitions
The Company has historically acquired businesses with prior operating histories. Acquired
companies may have unknown or contingent liabilities, including liabilities for failure to comply
with healthcare laws and regulations, medical and general professional liabilities, workers
compensation liabilities, previous tax liabilities and unacceptable business practices. Although
the Company institutes policies designed to conform practices to its standards following completion
of acquisitions, there can be no assurance that the Company will not become liable for past
activities that may later be asserted to be improper by private plaintiffs or government agencies.
Although the Company generally seeks to obtain indemnification from prospective sellers covering
such matters, there can be no assurance that any such matter will be covered by indemnification, or
if covered, that such indemnification will be adequate to cover potential losses and fines.
18
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
We recommend that you read this discussion together with our unaudited condensed consolidated
financial statements and related notes included elsewhere in this report, as well as our 2008
Annual Report on Form 10-K. Unless otherwise indicated, all relevant financial and statistical
information included herein relates to our continuing operations, inclusive of the operations of
Rockdale Medical Center (Rockdale). The results of operations of Rockdale are included in
our results of operations beginning February 1, 2009.
We make forward-looking statements in this report, other reports and in statements we file
with the Securities and Exchange Commission and/or release to the public. In addition, our senior
management makes forward-looking statements orally to analysts, investors, the media and others.
Broadly speaking, forward-looking statements include projections of our revenues; net income;
earnings per share; capital expenditures; cash flows; debt repayments; interest rates; operating
statistics and data or other financial items; descriptions of plans or objectives of our management
for future operations; services or growth plans including acquisitions, divestitures, business
strategies and initiatives; interpretations of Medicare and Medicaid laws and regulations and their
effect on our business; and descriptions of assumptions underlying or relating to any of the
foregoing.
In this report, for example, we make forward-looking statements, including statements
discussing our expectations about: future financial performance and condition; future liquidity and
capital resources; future cash flows; existing and future debt and equity structure; our strategic
goals; future acquisitions and dispositions; our business strategy and operating philosophy,
including the manner in which potential acquisitions or divestitures are evaluated; costs of
providing care to our patients; changes in interest rates; our compliance with new and existing
laws and regulations; the performance of counterparties to our
agreements; industry and general economic trends; reimbursement changes; patient volumes
and related revenues; future capital expenditures; the impact of changes in our critical accounting
estimates; claims and legal actions relating to professional liabilities and other matters; the
impact and applicability of new accounting standards; and physician recruiting and retention.
Forward-looking statements discuss matters that are not historical facts. Because they discuss
future events or conditions, forward-looking statements often include words such as can, could,
may, should, believe, will, would, expect, project, estimate, anticipate, plan,
intend, target, continue or similar expressions. Do not unduly rely on forward-looking
statements, which give our expectations about the future and are not guarantees. Forward-looking
statements speak only as of the date they are made. We do not undertake any obligation to update
our forward-looking statements to reflect events or circumstances after the date of this document
or to reflect the occurrence of unanticipated events.
There are several factors, some beyond our control that could cause results to differ
significantly from our expectations. Some of these factors are described in Part I, Item 1A. Risk
Factors of our Annual Report on Form 10-K for the year ended December 31, 2008. Any factor
described in our Annual Report on Form 10-K for the year ended December 31, 2008 could by itself,
or together with one or more factors, adversely affect our business, results of operations and/or
financial condition. There may be factors not described in our Annual Report on Form 10-K that
could also cause results to differ from our expectations.
Overview
We operate general acute care hospitals in non-urban communities in the United States. At
March 31, 2009, we owned or leased through our subsidiaries 49 hospitals, having a total of 5,824
licensed beds, and serving communities in 18 states. Two of these hospitals were held for sale and
classified as discontinued operations in our condensed consolidated financial statements, and seven
were owned by third parties and leased by our subsidiaries. Effective February 1, 2009, we acquired
Rockdale, a 138 bed acute care hospital located in Conyers, Georgia. The results of operations of
Rockdale are included in our results of operations beginning February 1, 2009.
19
We generate revenues primarily through hospital services offered at our facilities. We
generated $685.1 million and $735.5 million in revenues from continuing operations during the three
months ended March 31, 2008 and 2009, respectively. For the three months ended March 31, 2008 and
2009, we derived 42.4% and 41.1%, respectively, of our revenues from the Medicare and Medicaid
programs. Payments made to our hospitals pursuant to the Medicare and Medicaid programs for
services rendered rarely exceed our costs for such services. As a result, we rely largely on
payments made by private or commercial payors, together with certain limited services provided to
Medicare recipients, to generate an operating profit.
Our hospitals typically provide the range of medical and surgical services commonly available
in hospitals in non-urban markets, although the services provided at any specific hospital depend
on factors such as community need for the service, whether physicians necessary to operate the
service line safely are members of the medical staff of that hospital, whether the service might be
economically viable, and any contractual or certificate of need obligations that might exist.
Competitive and Regulatory Environment
The environment in which our hospitals operate is extremely competitive. We face competition
from other acute care hospitals, including larger tertiary hospitals located in larger markets
and/or affiliated with universities; specialty hospitals that focus on one or a small number of
very lucrative service lines but that are not required to operate emergency departments;
stand-alone centers at which surgeries or diagnostic tests can be performed; and physicians on the
medical staffs of our hospitals. In many cases, our competitors focus on the service lines that
offer the highest margins. By doing so, our competitors can potentially draw the best-paying
business out of our hospitals. This, in turn, can reduce the overall operating profit of our
hospitals as we are often obligated to offer service lines that operate at a loss or that have much
lower profit margins. We continue to see growth in a general shift of lower acuity procedures to
outpatient settings. We have also seen the shift of increasingly complex procedures from the
inpatient to the outpatient setting.
The competition from physicians on the medical staffs of our hospitals can be especially
challenging. Within their offices, physicians may provide a vast range of services that might
otherwise be provided in acute care hospitals. Physicians also have a high level of influence with
respect to where their patients receive healthcare services and have the sole authority to order
tests. As a result of declining reimbursements to physicians, and as a result of these unique
competitive advantages, we believe that physicians often provide high margin services in their
offices to patients whose insurance plans pay reimbursement rates much higher than those set by
Medicare or Medicaid. This trend has likely offset to some extent our efforts to improve equivalent
admission rates at many of our hospitals.
Our hospitals also face extreme competition in their efforts to recruit and retain physicians
on their medical staffs. It is widely recognized that the U.S. has a shortage of physicians in
certain practice areas, including specialists such as cardiologists and orthopedists, in various
areas of the country.
The environment in which our hospitals operate is highly regulated and the penalties for
noncompliance are severe. We are required to comply with extensive, extremely complicated and
overlapping government regulations at the federal, state and local levels. These regulate every
aspect of how our hospitals conduct their operations, from what service lines must be offered in
order to be licensed as an acute care hospital, to whether our hospitals may employ physicians to
how (and whether) our hospitals may receive payments pursuant to the Medicare and Medicaid
programs. The failure to comply with these laws and regulations can result in severe penalties
including criminal penalties and civil sanctions, and the loss of our ability to receive
reimbursements through the Medicare and Medicaid programs.
Not only are our hospitals heavily regulated, the rules, regulations and laws to which they
are subject often change, with little or no notice, and they are often interpreted and applied
differently by various regulatory agencies with authority to enforce such requirements. Each change
or conflicting interpretation may require our hospitals to make changes in their facilities,
equipment, personnel or services, and may also require that standard operating policies and
procedures be re-written and re-implemented. The cost of complying with such laws is a significant
component of our overall expenses. Further, this expense has grown in recent periods due to the
requirements of new regulations and the severity of the penalties
associated with non-compliance, and
management believes compliance expenses will continue to grow in the foreseeable future.
20
The hospital industry is also enduring a period where the costs of providing care are rising
faster than reimbursement rates. This places a premium on efficient operation, the ability to
reduce or control costs and the need to leverage the benefits of our organization across all of our
hospitals.
The regulatory, enforcement and reimbursement environment could change substantially during
2009. President Obama has said that healthcare reform is among his administrations highest
priorities, but the details and timing of any such reform are unknown.
Business Strategy
We seek to fulfill our mission of Making Communities Healthier® by striving to improve the
quality and types of healthcare services available in our communities, provide physicians with a
positive environment in which to practice medicine, with access to necessary equipment and
resources, develop and provide a positive work environment for employees, expand each hospitals
role as a community asset, and improve each hospitals financial performance. We expect our
hospitals to be the place where patients want to come for care, where physicians want to practice
medicine and where employees want to work.
In many of our markets, a significant portion of patients who require the services available
at acute care hospitals leave our markets to receive such care. This fact may present an
opportunity for growth, and we are working with the hospitals in communities where this phenomenon
exists to implement new or better implement existing strategies.
We believe that growth opportunities remain in our existing markets. Growth at our hospitals
is dependent in part on how successful our hospitals are in their efforts to recruit physicians to
their respective medical staffs, whether such physicians are active members of such medical staffs
over a long period of time and whether and to what extent members of our hospitals medical staffs
admit patients to our hospitals. During 2008, we refined our recruiting process in an effort to
better identify and focus on those physicians most likely to desire to practice in our communities
and to better tailor our communications to the physicians who want to practice in non-urban
communities. During the first quarter of 2009, we have continued to strive to improve our
recruiting and retention efforts including centralizing at our corporate office many of the
recruiting functions and efforts that have in the past been performed by vendors on a contract
basis.
The quality of healthcare services provided at our hospitals and perceived quality of such
services, are increasingly important factors to patients when deciding where to seek care and to
physicians when deciding where to practice. Because in virtually every case the core measure scores
ascribed to our hospitals are determined based on the practice behaviors of the physicians on our
medical staffs, we have implemented new strategies to work with medical staff members to improve
scores at all of our hospitals, especially those that are below our average and managements
expectation.
Additionally, we believe that growth can also be achieved as we add new service lines in our
existing markets, invest in new technologies desired by physicians and patients, and demonstrate
the quality of the care provided in our facilities. For the past two years, we have undertaken
redesigned operating reviews of our hospitals to pinpoint new service lines or technologies that
could reduce the outmigration of patients leaving our markets to receive health care services.
Where needed service lines have been identified, we have focused on recruiting the physicians
necessary to correctly operate such service lines. For example, our hospitals have responded to
physician interest in requests for hospitalists by introducing or strengthening hospitalist
programs where appropriate. Our hospitals have taken other steps, such as structured efforts to
solicit input from medical staff members and to promptly respond to legitimate unmet physicians
needs, to limit or offset the impact of outmigration and to grow.
While responsibly managing our operating expenses, we have also made significant, targeted
investments at our hospitals to add new technologies, modernize facilities and expand the services
available. These investments should assist in our efforts to attract and retain physicians, to
offset outmigration of patients and to make our hospitals more desirable to our employees and
potential patients.
21
We also continue to strive to improve our operating performance by improving on our revenue
cycle processes, making an even higher level of purchases through our group purchasing
organization, operating more efficiently and effectively, and working to appropriately standardize
our policies, procedures and practices across all of our affiliated hospitals. We also believe that
our position as the sole acute care hospital in virtually all of our communities has allowed us,
and will continue to allow us, in many cases to negotiate preferred reimbursement rates with
commercial insurance payors.
Additional Growth
Effective February 1, 2009, we acquired Rockdale, a 138 bed acute care hospital located in
Conyers, Georgia (approximately 25 miles outside of Atlanta, Georgia). During 2008, Rockdale
generated net revenues of approximately $120 million, which are not included in our financial
results. Rockdales revenue for the two months we owned the hospital during the first quarter of
2009 was $21.1 million. We believe that, through group purchasing efforts and the implementation of
other initiatives, Rockdales operating performance will improve during the remainder of 2009 and
subsequent years.
The acquisition of Rockdale is consistent with our stated goal of seeking to acquire one to
three complimentary hospitals a year. Our intention is to acquire well-positioned hospitals in
growing areas of the U.S. that we believe are fairly priced and that could benefit from our
management and strategic initiatives. We believe that this growth by strategic acquisition can
supplement the growth we believe we can generate organically in our existing markets.
Revenue Sources
Our hospitals generate revenues by providing healthcare services to our patients. Depending
upon the patients medical insurance coverage, we are paid for these services by governmental
Medicare and Medicaid programs, commercial insurance, including managed care organizations, and
directly by the patient. The amounts we are paid for providing healthcare services to our patients
vary depending upon the payor. Governmental payors generally pay significantly less than the
hospitals customary charges for the services provided.
Revenues from governmental payors, such as Medicare and Medicaid, are controlled by complex
rules and regulations that stipulate the amount a hospital is paid for providing healthcare
services. Our compliance with these rules and regulations requires an extensive effort to ensure we
remain eligible to participate in these governmental programs. In addition, these rules and
regulations are subject to frequent changes as a result of legislative and administrative action on
both the federal and the state levels. For these reasons, revenues from governmental programs
change frequently and require us to monitor regularly the environment in which these governmental
programs operate.
Revenues from HMOs, PPOs and other private insurers are subject to contracts and other
arrangements that require us to discount the amounts we customarily charge for healthcare services.
These discounted arrangements often limit our ability to increase charges in response to increasing
costs. We actively negotiate with these payors in an effort to maintain or increase the pricing of
our healthcare services. Insured patients are generally not responsible for any difference between
customary hospital charges and the amounts received from commercial insurance payors. However,
insured patients are responsible for payments not covered by insurance, such as exclusions,
deductibles and co-payments.
Self-pay revenues are primarily generated through the treatment of uninsured patients. Our
hospitals have experienced an increase in self-pay revenues during recent years.
22
Other Events
On February 25, 2009, we announced that our Board of Directors had amended and restated the
Rights Agreement by and between us and American Stock Transfer & Trust Company, LLC as Rights
Agent, which was adopted on April 15, 2005 (the Existing Rights Agreement). Among other changes,
the Amended and Restated Agreement, dated as of February 25, 2009 (the Amended Rights Agreement)
extends the current term to February 25, 2019, adjusts the exercise price of the preferred stock
purchase rights associated with our common stock (the Rights) and amends the definition of Beneficial Owner and Beneficially Own to clarify
that a person will be deemed to beneficially own any securities that are the subject of specified
derivative transactions.
As a result of the Boards adoption of the Amended Rights Agreement, each of the Rights, which
were previously distributed to our common shareholders under the Existing Rights Agreement,
entitles the holder, if and when the Rights become exercisable, to buy one one-thousandth of a
share of our Series A Junior Participating Preferred Stock for $125.00. Initially, the Rights will
be represented by our Common Stock certificates and will not be exercisable.
The Amended Rights Agreement is designed to deter coercive takeover tactics and to prevent an
acquiror from gaining control of the Company without offering a fair price to all of our
stockholders. The Rights will not prevent a takeover, but should encourage anyone seeking to
acquire us to negotiate with our Board of Directors prior to attempting a takeover.
If any person or group becomes the beneficial owner of 15% or more of our common stock (which,
as provided in the Amended Rights Agreement, includes stock referenced in derivative transactions
and securities), then each Right not owned by such holder will entitle its holder to purchase, at
the Rights then-current exercise price, common shares having a market value of twice the Rights
then-current exercise price. In addition, if, after any person has become a 15% or more
stockholder, we are involved in a merger or other business combination transaction with another
person, each Right will entitle its holder (other than such 15% or more stockholder) to purchase,
at the Rights then-current exercise price, common shares of the acquiring company having a value
of twice the Rights then-current exercise price.
23
Results of Operations
The following definitions apply throughout the remaining portion of Managements Discussion
and Analysis of Financial Condition and Results of Operations:
Acquisition. Represents the results of Rockdale, which we acquired effective February 1, 2009.
Admissions. Represents the total number of patients admitted (in the facility for a period in
excess of 23 hours) to our hospitals and used by management and investors as a general measure of
inpatient volume.
bps. Basis point change.
Continuing operations. Continuing operations information includes the results of our Same-hospital
operations, our Acquisition and our corporate office and excludes the results of our hospitals that
are held for sale and disposed of.
Effective tax rate. Provision for income taxes as a percentage of income from continuing operations
before income taxes less net income attributable to noncontrolling interests.
Emergency room visits. Represents the total number of hospital-based emergency room visits.
Equivalent admissions. Management and investors use equivalent admissions as a general measure of
combined inpatient and outpatient volume. We compute equivalent admissions by multiplying
admissions (inpatient volume) by the outpatient factor (the sum of gross inpatient revenue and
gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue). The
equivalent admissions computation equates outpatient revenue to the volume measure (admissions)
used to measure inpatient volume resulting in a general measure of combined inpatient and
outpatient volume.
Net revenue days outstanding. We compute net revenue days outstanding by dividing our accounts
receivable net of allowance for doubtful accounts, by our revenue per day. Our revenue per day is
calculated by dividing our quarterly revenues, including revenues for held for sale / disposed of
hospitals, by the number of calendar days in the quarter.
Medicare case mix index. Refers to the acuity or severity of illness of an average Medicare patient
at our hospitals.
N/A. Not applicable.
Outpatient surgeries. Outpatient surgeries are those surgeries that do not require admission to our
hospitals.
Same-hospital. Same-hospital information includes the results of the same 46 hospitals operated
during the three months ended March 31, 2008 and 2009, and excludes the results of our Acquisition
and our hospitals that are held for sale and disposed of.
24
Operating Results Summary
The following table presents summaries of results of operations for the three months ended
March 31, 2008 and 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Revenues |
|
|
Amount |
|
|
Revenues |
|
Revenues |
|
$ |
685.1 |
|
|
|
100.0 |
% |
|
$ |
735.5 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
268.0 |
|
|
|
39.1 |
|
|
|
286.5 |
|
|
|
38.9 |
|
Supplies |
|
|
93.3 |
|
|
|
13.6 |
|
|
|
99.6 |
|
|
|
13.5 |
|
Other operating expenses |
|
|
121.0 |
|
|
|
17.7 |
|
|
|
132.7 |
|
|
|
18.1 |
|
Provision for doubtful accounts |
|
|
80.9 |
|
|
|
11.8 |
|
|
|
90.2 |
|
|
|
12.3 |
|
Depreciation and amortization |
|
|
32.1 |
|
|
|
4.7 |
|
|
|
35.1 |
|
|
|
4.8 |
|
Interest expense, net |
|
|
26.9 |
|
|
|
3.9 |
|
|
|
25.8 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
622.2 |
|
|
|
90.8 |
|
|
|
669.9 |
|
|
|
91.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
62.9 |
|
|
|
9.2 |
|
|
|
65.6 |
|
|
|
8.9 |
|
Provision for income taxes |
|
|
(24.2 |
) |
|
|
(3.5 |
) |
|
|
(25.5 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
38.7 |
|
|
|
5.7 |
|
|
|
40.1 |
|
|
|
5.5 |
|
Less: Net income attributable to noncontrolling interests |
|
|
(0.5 |
) |
|
|
(0.1 |
) |
|
|
(0.6 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to
LifePoint Hospitals, Inc. |
|
$ |
38.2 |
|
|
|
5.6 |
% |
|
$ |
39.5 |
|
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2008 and 2009
Revenues
The following table shows our revenues and the key drivers of our revenues for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
Increase |
|
% Increase |
|
|
2008 |
|
2009 |
|
(Decrease) |
|
(Decrease) |
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(dollars in
millions) |
|
$ |
685.1 |
|
|
$ |
735.5 |
|
|
$ |
50.4 |
|
|
|
7.4 |
% |
Admissions |
|
|
51,114 |
|
|
|
49,519 |
|
|
|
(1,595 |
) |
|
|
(3.1 |
) |
Equivalent admissions |
|
|
97,270 |
|
|
|
98,394 |
|
|
|
1,124 |
|
|
|
1.2 |
|
Revenues per equivalent admission |
|
$ |
7,042 |
|
|
$ |
7,475 |
|
|
$ |
433 |
|
|
|
6.1 |
|
Medicare case mix index |
|
|
1.27 |
|
|
|
1.31 |
|
|
|
0.04 |
|
|
|
3.1 |
|
Average length of stay (days) |
|
|
4.4 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
Inpatient surgeries |
|
|
13,907 |
|
|
|
13,818 |
|
|
|
(89 |
) |
|
|
(0.6 |
) |
Outpatient surgeries |
|
|
35,270 |
|
|
|
36,559 |
|
|
|
1,289 |
|
|
|
3.7 |
|
Emergency room visits |
|
|
228,060 |
|
|
|
226,688 |
|
|
|
(1,372 |
) |
|
|
(0.6 |
) |
Outpatient factor |
|
|
1.90 |
|
|
|
1.99 |
|
|
|
0.09 |
|
|
|
4.7 |
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
Increase |
|
% Increase |
|
|
2008 |
|
2009 |
|
(Decrease) |
|
(Decrease) |
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(dollars in
millions) |
|
$ |
685.1 |
|
|
$ |
714.4 |
|
|
$ |
29.3 |
|
|
|
4.3 |
% |
Admissions |
|
|
51,114 |
|
|
|
48,035 |
|
|
|
(3,079 |
) |
|
|
(6.0 |
) |
Equivalent admissions |
|
|
97,270 |
|
|
|
95,782 |
|
|
|
(1,488 |
) |
|
|
(1.5 |
) |
Revenues per equivalent admission |
|
$ |
7,042 |
|
|
$ |
7,459 |
|
|
$ |
417 |
|
|
|
5.9 |
|
Medicare case mix index |
|
|
1.27 |
|
|
|
1.29 |
|
|
|
0.02 |
|
|
|
1.6 |
|
Average length of stay (days) |
|
|
4.4 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
Inpatient surgeries |
|
|
13,907 |
|
|
|
13,359 |
|
|
|
(548 |
) |
|
|
(3.9 |
) |
Outpatient surgeries |
|
|
35,270 |
|
|
|
35,233 |
|
|
|
(37 |
) |
|
|
(0.1 |
) |
Emergency room visits |
|
|
228,060 |
|
|
|
220,056 |
|
|
|
(8,004 |
) |
|
|
(3.5 |
) |
Outpatient factor |
|
|
1.90 |
|
|
|
1.99 |
|
|
|
0.09 |
|
|
|
4.7 |
|
The following table shows the sources of our revenues by payor for the periods presented,
expressed as a percentage of total revenues, including adjustments to estimated reimbursement
amounts:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
Medicare |
|
|
32.7 |
% |
|
|
30.9 |
% |
Medicaid |
|
|
9.7 |
|
|
|
10.2 |
|
HMOs, PPOs and other private insurers |
|
|
43.2 |
|
|
|
43.7 |
|
Self-Pay |
|
|
11.3 |
|
|
|
12.5 |
|
Other |
|
|
3.1 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
The table above is inclusive of certain changes we have made to our historical practices
regarding sources of revenues. Specifically, we previously classified uninsured discounts as
revenue deductions for HMOs, PPOs and other private insurers. We changed the classification of
uninsured discounts to revenue deductions for self-pay revenues effective in our June 30, 2008
quarterly report on Form 10-Q for all periods previously reported. This change had no impact on our
historical results of operations. Generally, these reclassifications reduced self-pay as a
percentage of total revenues and increased HMOs, PPOs, and other private insurers as a percentage
of total revenues. We have determined that it is more appropriate to apply uninsured discounts as
revenue deductions against self-pay revenues rather than against HMOs, PPOs and other private
insurers revenues. The sources of our revenues are further described in Overview Revenue Sources above.
Revenues for the three months ended March 31, 2009 were $735.5 million, an increase of $50.4
million or 7.4% over the same period last year. Of this increase,
$21.1 million, or 41.9%, is attributable to our Acquisition.
Additionally, our revenues increased primarily as the result of an increase
in our revenues per equivalent admission. Same-hospital revenue per equivalent admission
increased 5.9% to $7,459 during the three months ended March 31, 2009, compared to $7,042 for the
same period last year. This increase is largely a result of changes in the acuity of our patients;
service mix changes related to volume growth in higher reimbursement outpatient diagnostic
services, including CTs, MRIs and cardiac catheterization; the impact of favorable commercial
pricing, inclusive of improvement in third party payor contracting; and benefits associated with
Medicares hospital market basket updates.
Same-hospital revenues during the three months ended March 31, 2009 were negatively impacted
by declines in admissions and equivalent admissions. Same-hospital equivalent admissions of 95,782
for the three months ended March 31, 2009, declined 1.5% as compared to the same period last year.
This decline is the result of fewer admissions partially attributable to the leap year impact in
2008 plus lower flu-related admissions as compared to those that occurred during February and March
of 2008. We continued to experience declines in our inpatient surgeries and emergency room visits
as well as a shift from inpatient admissions to outpatient observations for a portion of our
patient population. Same-hospital equivalent admission declines were partially offset by an
increased outpatient factor of 1.99 compared to 1.90 in the same period last year.
26
Expenses
Salaries and Benefits
The following table summarizes our salaries and benefits, man-hours per equivalent admission
and salaries and benefits per equivalent admission for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2008 |
|
Revenues |
|
2009 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Salaries and
benefits (dollars in millions) |
|
$ |
268.0 |
|
|
|
39.1 |
% |
|
$ |
286.5 |
|
|
|
38.9 |
% |
|
$ |
18.5 |
|
|
|
6.9 |
% |
Man-hours per equivalent admission |
|
|
90.3 |
|
|
|
N/A |
|
|
|
90.5 |
|
|
|
N/A |
|
|
|
0.2 |
|
|
|
0.2 |
% |
Salaries and benefits per equivalent
admission |
|
$ |
2,736 |
|
|
|
N/A |
|
|
$ |
2,891 |
|
|
|
N/A |
|
|
$ |
155 |
|
|
|
5.7 |
% |
For the three months ended March 31, 2009, our salaries and benefits expense increased to
$286.5 million or 6.9% as compared to $268.0 million for the same period last year. Of this
increase, $9.1 million, or 49.2%, is attributable to our Acquisition. Additionally, our salaries
and benefits expense increased for the three months ended March 31, 2009 as compared to the same
period last year as a result of annual compensation increases for our employees, higher benefit
expenses plus the impact of an increasing number of employed physicians. Increases in our salaries
and benefits expense were partially offset by improvements in our contract labor component. As we
continue to employ an increasing number of medical professionals including physicians, we
anticipate that salaries and benefits as a percentage of revenues will increase in future periods.
Supplies
The following table summarizes our supplies and supplies per equivalent admission for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2008 |
|
Revenues |
|
2009 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Supplies (dollars in millions) |
|
$ |
93.3 |
|
|
|
13.6 |
% |
|
$ |
99.6 |
|
|
|
13.5 |
% |
|
$ |
6.3 |
|
|
|
6.8 |
% |
Supplies per equivalent admission |
|
$ |
957 |
|
|
|
N/A |
|
|
$ |
1,009 |
|
|
|
N/A |
|
|
$ |
52 |
|
|
|
5.4 |
% |
For the three months ended March 31, 2009, our supplies expense increased to $99.6 million or
6.8% as compared to $93.3 million for the same period last year. Of this increase, $3.3 million,
or 52.4%, is attributable to our Acquisition. Additionally, our supplies per equivalent admission
increased 5.4% to $1,009 as compared to $957 for the same period last year. Supplies per equivalent
admission increased as a result of a higher utilization of more expensive supplies in areas such as orthopedics, cardiac devices
and spine and bone. These increases were partially offset by period over period declines in our
pharmacy costs and laboratory supply expenses. As a percentage of revenues, our supplies expense
decreased to 13.5% for the three months ended March 31, 2009 as compared to 13.6% for the same
period last year, as a result of our continuing efforts to effectively manage our supply costs and
increased synergies based on our participation in a group purchasing organization.
27
Other Operating Expenses
The following table summarizes our other operating expenses for the periods presented (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2008 |
|
|
Revenues |
|
|
2009 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Professional fees |
|
$ |
15.7 |
|
|
|
2.3 |
% |
|
$ |
16.6 |
|
|
|
2.3 |
% |
|
$ |
0.9 |
|
|
|
5.7 |
% |
Utilities |
|
|
12.0 |
|
|
|
1.8 |
|
|
|
12.8 |
|
|
|
1.7 |
|
|
|
0.8 |
|
|
|
6.1 |
|
Repairs and maintenance |
|
|
13.7 |
|
|
|
2.0 |
|
|
|
15.6 |
|
|
|
2.1 |
|
|
|
1.9 |
|
|
|
14.3 |
|
Rents and leases |
|
|
6.2 |
|
|
|
0.9 |
|
|
|
7.3 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
17.8 |
|
Insurance |
|
|
9.8 |
|
|
|
1.4 |
|
|
|
12.1 |
|
|
|
1.6 |
|
|
|
2.3 |
|
|
|
24.1 |
|
Physician recruiting |
|
|
4.5 |
|
|
|
0.7 |
|
|
|
6.3 |
|
|
|
0.9 |
|
|
|
1.8 |
|
|
|
41.1 |
|
Contract services |
|
|
33.9 |
|
|
|
4.9 |
|
|
|
35.5 |
|
|
|
4.8 |
|
|
|
1.6 |
|
|
|
4.7 |
|
Non-income taxes |
|
|
9.9 |
|
|
|
1.4 |
|
|
|
10.4 |
|
|
|
1.4 |
|
|
|
0.5 |
|
|
|
4.8 |
|
Other |
|
|
15.3 |
|
|
|
2.3 |
|
|
|
16.1 |
|
|
|
2.3 |
|
|
|
0.8 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
121.0 |
|
|
|
17.7 |
% |
|
$ |
132.7 |
|
|
|
18.1 |
% |
|
$ |
11.7 |
|
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, our other operating expenses increased to $132.7
million or 9.7% as compared to $121.0 million for the same period last year. Of this increase,
$3.1 million, or 26.5%, is attributable to our Acquisition. Of the remaining $8.6 million increase
in other operating expenses, the majority was primarily the result of increases in professional
fees, repairs and maintenance, insurance and physician recruiting.
As a shortage of physicians continues to become more acute, we have experienced increasing
professional fees in areas such as radiology, anesthesiology and emergency room physician coverage.
Also, an increasing number of physicians are demanding that our hospitals retain hospitalists. We
expect this trend to continue and that professional fees as a percentage of revenues will climb in
future periods.
Our repairs and maintenance expense increased primarily as a result of the higher cost of
maintaining equipment as warranties expire, increases in certain equipment service contracts and a
number of repair projects at many of our hospitals.
The increase in our insurance expense during the three months ended March 31, 2009, as
compared to the same period last year, was the result of an increase in our professional and
general liability claims reserves. During the three months ended March 31, 2009, our professional
and general liability claims expense increased as compared to the same period last year as we
increased our estimated exposure on certain potential and outstanding claims.
Finally, our physician recruiting expense increased primarily as a result of an increase in
the amortization expense associated with a greater number of physician minimum revenue guarantees
outstanding and an increase in recruiting fees paid. To attract and retain qualified physicians,
hospitals in small communities are increasingly required to guarantee that these physicians will
meet or exceed negotiated minimum income levels. We expect to experience an increasing number of
physician minimum revenue guarantee arrangements and, accordingly, we anticipate higher recruiting
fees and increases to the amortization expense associated with the physician minimum revenue
guarantee intangible asset during the remainder of 2009.
28
Provision for Doubtful Accounts
The following table summarizes our provision for doubtful accounts and related key indicators
for the periods presented (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2008 |
|
Revenues |
|
2009 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Provision for doubtful accounts |
|
$ |
80.9 |
|
|
|
11.8 |
% |
|
$ |
90.2 |
|
|
|
12.3 |
% |
|
$ |
9.3 |
|
|
|
11.6 |
% |
Related key indicators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charity care write-offs |
|
$ |
13.5 |
|
|
|
0.8 |
% |
|
$ |
12.4 |
|
|
|
0.7 |
% |
|
$ |
(1.1 |
) |
|
|
(7.8 |
)% |
Self-pay revenues, net of charity
care write-offs and uninsured
discounts |
|
$ |
77.6 |
|
|
|
11.3 |
% |
|
$ |
92.3 |
|
|
|
12.5 |
% |
|
$ |
14.7 |
|
|
|
18.9 |
% |
Our provision for doubtful accounts increased by $9.3 million, or 11.6% to $90.2 million for
the three months ended March 31, 2009 as compared to the same period last year. This increase was primarily
the result of our Acquisition and an increase in our self-pay revenues. This increase was partially
offset by an increase in both up-front cash collections and cash collections related to our insured
receivables for the three months ended March 31, 2009, as compared to the same period last year.
The provision for doubtful accounts relates principally to self-pay amounts due from patients. The
provision and allowance for doubtful accounts are critical accounting estimates and are further
discussed in Part II, Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Critical Accounting Estimates, in our 2008 Annual Report on Form 10-K.
Depreciation and Amortization
For the three months ended March 31, 2009, our depreciation and amortization expense increased
to $35.1 million or 9.4% as compared to $32.1 million for the same period last year. Of this
increase, $0.8 million, or 26.7%, is attributable to our Acquisition. Additionally, our
depreciation and amortization expense increased largely as a result of capital improvement projects
completed during 2008, normal replacement costs of facilities and equipment and the amortization of
separately identifiable intangible assets such as non-compete agreements.
Interest Expense
Our interest expense of $25.8 million, or 3.5% of revenues, for the three months ended March
31, 2009, was $1.1 million less than the $26.9 million or 3.9% of revenues, for the same period last
year. The decrease in interest expense for the three months ended
March 31, 2009 as compared to
the same period last year was largely attributable to declines in interest rates that favorably
impacted our interest expense on our Term B loans. Specifically, as the notional amount of our
interest rate swap declined to $600.0 million on November 28, 2008, a larger amount of our total
outstanding debt became subject to floating interest rates that are lower than the same period last
year. As a result of a recently issued accounting pronouncement, FSP APB 14-1, we recognized additional interest expense on our convertible debt
instruments of approximately $4.8 million and $5.1 million for the three months ended March 31,
2008 and 2009, respectively. For a further discussion of the impact of our adoption of FSP APB
14-1, please refer to Note 2 to our accompanying condensed
consolidated financial statements
included elsewhere in this report. For a further discussion of our debt and corresponding interest
rates, see Liquidity and Capital Resources Debt.
Provision for Income Taxes
The provision for income taxes was $25.5 million, or 3.4% of revenues for the three months
ended March 31, 2009, as compared to $24.2 million, or 3.5%
of revenues for the same period last
year. The effective tax rate increased slightly to 39.2% for the three months ended March 31, 2009
compared to 38.8% reported for the prior period last year. This increase in the effective tax rate
to 39.2% was largely due to the absence of favorable adjustments to
the income tax provision in the same
period last year. Specifically, during the three months ended
March 31, 2008, we recognized certain restructuring benefits and
a reduction in our valuation allowance against our
deferred tax assets. The $1.3 million increase was largely due to higher pretax book income for
the three months ended March 31, 2009 as compared to the same period last year.
29
Net income attributable to noncontrolling interests
Net
income attributable to noncontrolling interests was $0.5 million and $0.6 million for the three months
ended March 31, 2008 and 2009, respectively. Net income attributable to noncontrolling represents the allocable portion of
income or loss of our less than 100% owned entities that we control to which the noncontrolling
interests holders are entitled based upon their portion of certain of the subsidiaries that they
own.
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity are cash flows provided by our operations and our debt
borrowings. We believe that our internally generated cash flows and the amounts available under our
debt agreements will be adequate to service existing debt, finance internal growth, expend funds on
capital expenditures and fund certain small to mid-size hospital acquisitions.
The following table presents summarized cash flow information for the three months ended March
31, 2008 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
Net cash flows provided by continuing operations |
|
$ |
104.7 |
|
|
$ |
91.9 |
|
Less: Purchase of property and equipment |
|
|
(32.9 |
) |
|
|
(43.1 |
) |
|
|
|
|
|
|
|
Free operating cash flow |
|
|
71.8 |
|
|
|
48.8 |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
|
|
|
|
(78.2 |
) |
Proceeds from exercise of stock options |
|
|
|
|
|
|
1.7 |
|
Repurchases of common stock |
|
|
(87.6 |
) |
|
|
(1.6 |
) |
Other |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
Cash flows from operations used in discontinued operations |
|
|
(3.7 |
) |
|
|
(1.5 |
) |
Cash flows from investing activities used in discontinued operations |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
$ |
(20.2 |
) |
|
$ |
(31.2 |
) |
|
|
|
|
|
|
|
The non-GAAP metric of free operating cash flow is an important liquidity measure for us. Our
computation of free operating cash flow consists of net cash flows provided by continuing
operations less cash flows used for the purchase of property and equipment. Our cash flows provided
by continuing operating activities during the three months ended March 31, 2009 were negatively
impacted by an increase in our cash payments for accounts payable and accrued expenses as
compared to the three months ended March 31, 2008. Additionally, our cash flows provided by continuing operations was lower for the three months ended
March 31, 2009 as a larger percentage of our revenues were
incurred later in the quarter during the three months ended
March 31, 2009 as compared to the same period last year. As a
result, we anticipate higher cash collections of our first quarter
revenues during the three months ended June 30, 2009 as compared
to the same period last year.
We believe that free operating cash flow is useful to investors and management as a measure of
the ability of our business to generate cash and to repay and incur additional debt. Computations
of free operating cash flow may differ from company to company. Therefore, free operating cash flow
should be used as a complement to, and in conjunction with, our
condensed consolidated statements of cash
flows presented in our condensed consolidated financial statements included elsewhere in this report.
30
Capital Expenditures
We have also made significant, targeted investments at our hospitals to add new technologies,
modernize facilities and expand the services available. These investments should assist in our
efforts to attract and retain physicians, to offset outmigration of patients and to make our
hospitals more desirable to our employees and potential patients.
The following table reflects our capital expenditures for the three months ended March 31,
2008 and 2009 indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
Capital projects |
|
$ |
20.5 |
|
|
$ |
29.3 |
|
Routine |
|
|
12.1 |
|
|
|
11.5 |
|
Information systems |
|
|
0.3 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
$ |
32.9 |
|
|
$ |
43.1 |
|
|
|
|
|
|
|
|
Depreciation expense |
|
$ |
31.8 |
|
|
$ |
34.8 |
|
|
|
|
|
|
|
|
Ratio of capital expenditures to depreciation expense |
|
|
103.5 |
% |
|
|
123.9 |
% |
|
|
|
|
|
|
|
We have a formal and intensive review procedure for the authorization of capital expenditures.
The most important financial measure of acceptability for a discretionary capital project is
whether its projected discounted cash flow return on investment exceeds our projected cost of
capital for that project. We expect to continue to invest in information systems, modern
technologies, emergency room and operating room expansions, the construction of medical office
buildings for physician expansion and the reconfiguration of the flow of patient care.
Debt
An
analysis and roll-forward of our long-term debt, including current
portion, for the three months ended March 31, 2009
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Proceeds from |
|
|
Payments of |
|
|
Convertible Debt |
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
Borrowings |
|
|
Borrowings |
|
|
Discounts |
|
|
Other (a) |
|
|
2009 |
|
Senior Secured Credit Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term B Loans |
|
$ |
706.4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
706.4 |
|
Revolving Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Province
7½% Senior
Subordinated Notes |
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.1 |
|
3¼% Debentures |
|
|
225.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225.0 |
|
3½% Notes |
|
|
575.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575.0 |
|
Unamortized
discounts on 3¼% Debentures and 3½% Notes |
|
|
(123.5 |
) |
|
|
|
|
|
|
|
|
|
|
5.1 |
|
|
|
|
|
|
|
(118.4 |
) |
Capital leases |
|
|
4.2 |
|
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
1.3 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,393.2 |
|
|
$ |
|
|
|
$ |
(0.4 |
) |
|
$ |
5.1 |
|
|
$ |
1.3 |
|
|
$ |
1,399.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the assumption of capital lease obligations in connection with the Companys
acquisition of Rockdale effective February 1, 2009. |
31
We use leverage, or our total debt to total capitalization ratio, to make financing decisions.
The following table illustrates our financial statement leverage and the classification of our debt
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
Increase |
|
|
|
2008 |
|
|
2009 |
|
|
(Decrease) |
|
Current portion of long-term debt |
|
$ |
1.1 |
|
|
$ |
1.4 |
|
|
$ |
0.3 |
|
Long-term debt |
|
|
1,392.1 |
|
|
|
1,397.8 |
|
|
|
5.7 |
|
Unamortized discounts of convertible debt instruments (a) |
|
|
123.5 |
|
|
|
118.4 |
|
|
|
(5.1 |
) |
|
|
|
|
|
|
|
|
|
|
Total debt, excluding unamortized discounts of
convertible debt instruments |
|
|
1,516.7 |
|
|
|
1,517.6 |
|
|
|
0.9 |
|
Total LifePoint Hospitals, Inc. stockholders equity (a) |
|
|
1,658.4 |
|
|
|
1,704.6 |
|
|
|
46.2 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
3,175.1 |
|
|
$ |
3,222.2 |
|
|
$ |
47.1 |
|
|
|
|
|
|
|
|
|
|
|
Total debt to total capitalization |
|
|
47.8 |
% |
|
|
47.1 |
% |
|
|
(0.7 |
)% |
|
|
|
|
|
|
|
|
|
|
Percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt, excluding unamortized discounts of
convertible debt instruments (a) |
|
|
53.4 |
% |
|
|
53.5 |
% |
|
|
|
|
Variable rate debt (b) |
|
|
46.6 |
|
|
|
46.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt |
|
|
46.8 |
% |
|
|
46.9 |
% |
|
|
|
|
Subordinated debt, excluding unamortized discounts of
convertible debt instruments (a) |
|
|
53.2 |
|
|
|
53.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Effective January 1, 2009, we adopted the provisions of FSP APB 14-1. The adoption of FSP APB
14-1 required us to retrospectively restate prior periods to separately reflect the liability
and equity components of our convertible debt instruments and to recognize interest expense
for the related debt at our market rate of borrowing for non-convertible debt instruments as
opposed to the explicit rate of our convertible debt instruments. Please refer to Note 2 to
our accompanying condensed consolidated financial statements included elsewhere in this report
for an additional discussion of the impact the adoption of FSP APB 14-1 had on our total debt
and stockholders equity. |
|
(b) |
|
The above calculation does not consider the effect of our interest rate swap. Our interest
rate swap mitigates a portion of our floating rate risk on our outstanding variable rate
borrowings which converts our variable rate debt to an annual fixed rate of 5.585%. Our
interest rate swap decreases our variable rate debt as a percentage of our outstanding debt
from 46.6% to 7.0% as of December 31, 2008 and from 46.5% to 7.0% as of March 31, 2009. Please
refer to Note 8 to our accompanying consolidated financial
statements included elsewhere in this
report for a discussion of our
interest rate swap agreement. |
32
Capital Resources
Senior Secured Credit Facilities
Terms
Our credit agreement with Citicorp North America, Inc. (CITI), as administrative agent, and
a syndicate of lenders (the Credit Agreement), as amended, provides for secured term A loans up
to $250.0 million (the Term A Loans), term B loans up to $1,450.0 million (the Term B Loans)
and revolving loans of up to $350.0 million (the Revolving Loans). In addition, the Credit
Agreement provides that we may request additional tranches of Term B Loans up to $400.0 million and
additional tranches of Revolving Loans up to $100.0 million, subject to Lender approval. The Term B
Loans mature on April 15, 2012 and are scheduled to be repaid beginning June 30, 2011 in four equal
installments totaling $706.4 million. The Term A Loans and Revolving Loans both mature on April 15,
2010. The Credit Agreement is guaranteed on a senior secured basis by our subsidiaries with certain
limited exceptions. The Term B Loans are subject to additional mandatory prepayments with a certain
percentage of excess cash flow as specifically defined in the Credit Agreement. Additionally, the
Credit Agreement provides for the issuance of letters of credit up to $75.0 million. Issued letters
of credit reduce the amounts available under our Revolving Loans.
Letters of Credit and Availability
As of March 31, 2009, we had $36.8 million in letters of credit outstanding that were related
to the self-insured retention level of our general and professional liability insurance and
workers compensation programs as security for payment of claims. Under the terms of the Credit
Agreement, Revolving Loans available for borrowing were $413.2 million as of March 31, 2009,
including the $100.0 million available under the additional tranche. Under the terms of the Credit
Agreement, the amount of Term A Loans and Term B Loans available for borrowing was $250.0 million
and $400.0 million, respectively, as of March 31, 2009, all of which is available under the
additional tranches.
Interest Rates
Interest on the outstanding balances of the Term B Loans is payable, at our option, at CITIs
base rate (the alternate base rate or ABR) plus a margin of 0.625% and/or at an adjusted London
Interbank Offered Rate (Adjusted LIBOR) plus a margin of 1.625%. Interest on the Revolving Loans
is payable at ABR plus a margin for ABR Revolving Loans or Adjusted LIBOR plus a margin for
eurodollar Revolving Loans. The margin on ABR Revolving Loans ranges from 0.25% to 1.25% based on
the total leverage ratio being less than 2.00:1.00 to greater than 4.50:1.00. The margin on the
eurodollar Revolving Loans ranges from 1.25% to 2.25% based on the total leverage ratio being less
than 2.00:1.00 to greater than 4.50:1.00.
As of March 31, 2009, the applicable annual interest rate under the Term B Loans was 2.89%,
which was based on the 90-day Adjusted LIBOR plus the applicable margin. The 90-day Adjusted LIBOR
was 1.26% at March 31, 2009. The weighted-average applicable annual interest rate for the three
months ended March 31, 2009 under the Term B Loans was 3.53%.
33
Covenants
The Credit Agreement requires us to satisfy certain financial covenants, including a minimum
interest coverage ratio and a maximum total leverage ratio, as set forth in the Credit Agreement.
The minimum interest coverage ratio can be no less than 3.50:1.00 for all periods ending after
December 31, 2005. These calculations are based on the trailing four quarters. The maximum total
leverage ratios cannot exceed 4.00:1.00 for the periods ending on March 31, 2009 through December
31, 2009 and 3.75:1.00 for the periods ending thereafter. In addition, on an annualized basis, we
are limited with respect to amounts we may spend on capital expenditures. Such amounts cannot
exceed 10.0% of revenues for all years ending after December 31, 2006.
The financial covenant requirements and ratios are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level at |
|
|
Requirement |
|
March 31, 2009 |
Minimum Interest Coverage Ratio |
|
≥ |
3.50:1.00 |
|
|
|
5.95 |
|
Maximum Total Leverage Ratio |
|
≤ |
4.00:1.00 |
|
|
|
3.13 |
|
In addition, the Credit Agreement contains customary affirmative and negative covenants, which
among other things, limit our ability to incur additional debt, create liens, pay dividends, effect
transactions with our affiliates, sell assets, pay subordinated debt, merge, consolidate, enter
into acquisitions and effect sale leaseback transactions.
Our Credit Agreement does not contain provisions that would accelerate the maturity date of
the loans under the Credit Agreement upon a downgrade in our credit rating. However, a downgrade in
the our credit rating could adversely affect our ability to obtain other capital sources in the
future and could increase our cost of borrowings.
31/2% Convertible Senior Subordinated Notes due May 15, 2014
Our 31/2% Notes bear interest at the rate of 31/2% per year, payable
semi-annually on May 15 and November 15. The 31/2% Notes are convertible prior to March
15, 2014 under the following circumstances: (1) if the price of our common stock reaches a
specified threshold during specified periods; (2) if the trading price of the 31/2%
Notes is below a specified threshold; or (3) upon the occurrence of specified corporate
transactions or other events. On or after March 15, 2014, holders may convert their
31/2% Notes at any time prior to the close of business on the scheduled trading day
immediately preceding May 15, 2014, regardless of whether any of the foregoing circumstances has
occurred.
Subject to certain exceptions, we will deliver cash and shares of our common stock upon
conversion of each $1,000 principal amount of our 31/2% Notes as follows: (i)
an amount in cash (the principal return) equal to the sum of, for each of the 20 volume-weighted
average price trading days during the conversion period, the lesser of the daily conversion value
for such volume-weighted average price trading day and $50; and (ii) a number of shares
in an amount equal to the sum of, for each of the 20 volume-weighted average price trading
days during the conversion period, any excess of the daily conversion value above $50. Our ability
to pay the principal return in cash is subject to important limitations imposed by the Credit
Agreement and other credit facilities or indebtedness we may incur in the future. If we do not make
any payments we are obligated to make under the terms of the 31/2% Notes,
holders may declare an event of default.
The initial conversion rate is 19.3095 shares of our common stock per $1,000 principal amount
of the 31/2% Notes (subject to certain events). This represents an initial conversion
price of approximately $51.79 per share of the Companys common stock. In addition, if certain
corporate transactions that constitute a change of control occur prior to maturity, we will
increase the conversion rate in certain circumstances.
Upon the occurrence of a fundamental change (as specified in the indenture), each holder of
the 31/2% Notes may require us to purchase some or all of the 31/2% Notes at
a purchase price in cash equal to 100% of the principal amount of the 31/2% Notes
surrendered, plus any accrued and unpaid interest.
34
The
indenture for the
31/2% Notes does not contain any financial covenants or any
restrictions on the payment of dividends, the incurrence of senior or secured debt or other
indebtedness, or the issuance or repurchase of securities by us. The indenture contains no
covenants or other provisions to protect holders of the
31/2% Notes in the event of a
highly leveraged transaction or other events that do not constitute a fundamental change.
31/4% Convertible Senior Subordinated Debentures due August 15, 2025
Our
31/4%
Debentures bear interest at the rate of
31/4% per year,
payable semi-annually on February 15 and August 15. The
31/4% Debentures are convertible
(subject to certain limitations imposed by the Credit Agreement) under the following circumstances:
(1) if the price of the our common stock reaches a specified threshold during the specified
periods; (2) if the trading price of the
31/4% Debentures is below a specified
threshold; (3) if the
31/4% Debentures have been called for redemption; or (4) if
specified corporate transactions or other specified events occur. Subject to certain exceptions, we
will deliver cash and shares of our common stock, as follows: (i) an amount in cash (the principal
return) equal to the lesser of (a) the principal amount of
the
31/4% Debentures
surrendered for conversion and (b) the product of the conversion rate and the average price of our
common stock, as set forth in the indenture governing the securities (the conversion value); and
(ii) if the conversion value is greater than the principal return, an amount in shares of our
common stock. Our ability to pay the principal return in cash is subject to important limitations
imposed by the Credit Agreement and other indebtedness we may incur in the future. Based on the
terms of the Credit Agreement, in certain circumstances, even if any of the foregoing conditions to
conversion have occurred, the
31/4% Debentures will not be convertible, and holders of
the
31/4% Debentures will not be able to declare an event of default under the
31/4% Debentures.
The
initial conversion rate for the
31/4% Debentures is 16.3345 shares of our
common stock per $1,000 principal amount of
31/4% Debentures (subject to adjustment in
certain events). This is equivalent to a conversion price of $61.22 per share of common stock. In
addition, if certain corporate transactions that constitute a change of control occur on or prior
to February 20, 2013, we will increase the conversion rate in certain circumstances, unless such
transaction constitutes a public acquirer change of control and we elect to modify the conversion
rate into public acquirer common stock.
On
or after February 20, 2013, we may redeem for cash some or all
of the
31/4%
Debentures at any time at a price equal to 100% of the principal
amount of the
31/4%
Debentures to be purchased, plus any accrued and unpaid interest. Holders may require us to
purchase for cash some or all of the
31/4% Debentures on February 15, 2013, February 15,
2015 and February 15, 2020 or upon the occurrence of a fundamental change, at 100% of the principal
amount of the
31/4% Debentures to be purchased, plus any accrued and unpaid interest.
The
indenture for the
31/4% Debentures does not contain any financial covenants or
any restrictions on the payment of dividends, the incurrence of senior or secured debt or other
indebtedness, or the issuance or repurchase of securities by us. The indenture contains no
covenants or other provisions to protect holders of the
31/4% Debentures in the event of
a highly leveraged transaction or fundamental change.
Interest Rate Swap
We
have an interest rate swap agreement with Citibank, N.A.
(Citibank) as counterparty that requires us
to make quarterly fixed rate payments to Citibank calculated on a notional amount at an annual fixed rate of 5.585% while Citibank is obligated to make quarterly
floating payments to us based on the three-month LIBOR on the same
referenced notional amount. We have designated our interest rate swap as a cash flow hedge instrument, which is recorded
in our consolidated balance sheets at its fair value in accordance with Statement of Financial Accounting Standards (SFAS) No.
157, Fair Value Measurements (SFAS No. 157) based on the amount at which it could be settled,
which is referred to in SFAS No. 157 as the exit price. The exit price is based upon observable
market assumptions and appropriate valuation adjustments for credit risk. We have categorized our
interest rate swap as Level 2 in accordance with SFAS No. 157. Please refer to Note 8 to our accompanying condensed consolidated
financial statements included elsewhere in this report for a further
discussion of our interest rate swap agreement.
35
Liquidity and Capital Resources Outlook
We
expect the level of capital expenditures in 2009 to be consistent
with capital expenditures
incurred in 2008. We have large projects in process at a number of our facilities. We are
reconfiguring some of our hospitals to more effectively accommodate patient services and are
restructuring existing surgical capacity in some of our hospitals to permit additional patient
volume and a greater variety of services. At March 31, 2009, we had projects under construction
with an estimated additional cost to complete and equip of approximately $158.2 million. We anticipate funding these expenditures
through cash provided by operating activities, available cash and borrowings available under our
credit arrangements.
Our business strategy contemplates the selective acquisition of additional hospitals and other
healthcare service providers, and we regularly review potential acquisitions. These acquisitions
may, however, require additional financing. We regularly evaluate opportunities to sell additional
equity or debt securities, obtain credit facilities from lenders or restructure our long-term debt
or equity for strategic reasons or to further strengthen our financial
position. The sale of additional equity or convertible debt securities could result in
additional dilution to our stockholders.
We believe that cash generated from our operations and borrowings available under our credit
arrangements will be sufficient to meet our working capital needs, the purchase prices for any
potential facility acquisitions, planned capital expenditures and other expected operating needs
over the next twelve months and into the foreseeable future prior to the maturity dates of our
outstanding debt. We anticipate working on maturity date extensions for our Term A Loans and Revolving Loans
during 2009.
Contractual Obligations
We have various contractual obligations, which are recorded as liabilities in our condensed
consolidated financial statements. Other items, such as certain purchase commitments and other
executory contracts, are not recognized as liabilities in our condensed consolidated financial
statements but are required to be disclosed. For example, we are required to make certain minimum
lease payments for the use of property under certain of our operating lease agreements. During the
three months ended March 31, 2009, there were no material changes in our contractual obligations as
presented in our 2008 Annual Report on Form 10-K.
36
Off-Balance Sheet Arrangements
We had standby letters of credit outstanding of approximately $36.8 million as of March 31,
2009, all of which relates to the self-insured retention levels of our professional and general
liability insurance and workers compensation programs as security for the payment of claims.
Critical Accounting Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles requires us to make estimates and assumptions that affect reported amounts and related
disclosures. We consider an accounting estimate to be critical if:
|
|
|
it requires assumptions to be made that were uncertain at the time the estimate was
made; and |
|
|
|
|
changes in the estimate or different estimates that could have been made could have a
material impact on our consolidated results of operations or financial condition. |
Our critical accounting estimates are more fully described in our Annual Report on Form 10-K
for the year ended December 31, 2008 and continue to include the following areas:
|
|
|
Revenue recognition/Allowance for contractual discounts; |
|
|
|
|
Allowance for doubtful accounts and provision for doubtful accounts; |
|
|
|
|
Goodwill impairment analysis; |
|
|
|
|
Professional and general liability claims; |
|
|
|
|
Accounting for stock-based compensation; and |
|
|
|
|
Accounting for income taxes. |
Recently Issued Accounting Pronouncements
Please
refer to Note 2 to our accompanying condensed consolidated financial statements
included elsewhere in this report for a discussion of the impact of recently issued accounting
pronouncements.
Contingencies
Please
refer to Note 10 to our accompanying condensed consolidated financial statements
included elsewhere in this report for a discussion of our material financial contingencies,
including:
|
|
|
Legal proceedings and general liability claims; |
|
|
|
|
Physician commitments; |
|
|
|
|
Capital expenditure commitments; and |
|
|
|
|
Acquisitions. |
37
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rates
The following discussion relates to our exposure to market risk based on changes in interest
rates:
Outstanding Debt
We have an interest rate swap to manage our exposure to changes in interest rates. The
interest rate swap converts a portion of our indebtedness to a fixed rate with a notional amount of
$600.0 million at March 31, 2009 at an annual fixed rate of 5.585%. Accordingly, we are slightly
exposed to market risk related to fluctuations in interest rates. The notional amount of the swap
agreement represents a balance used to calculate the exchange of cash flows and is not an asset or
liability. Any market risk or opportunity associated with this swap agreement is offset by the
opposite market impact on the related debt. Our interest rate swap agreement exposes us to credit
risk in the event of non-performance by Citibank. However, we do not anticipate non-performance by
Citibank.
As
of March 31, 2009, we had outstanding debt, excluding
$118.4 million of unamortized discounts on our convertible
debt instruments, of $1,517.6 million, 46.5%, or $706.4 million, of which was
subject to variable rates of interest. However, our interest rate swap decreases our variable rate
debt as a percentage of our outstanding debt from 46.5% to 7.0% as of March 31, 2009.
Our Term B Loans, 31/2% Notes and 31/4% Debentures
were the only long-term debt instruments where the carrying amounts differed from their fair value
as of December 31, 2008 and March 31, 2009. The carrying amount and fair value of these instruments
as of December 31, 2008 and March 31, 2009 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount |
|
Fair Value |
|
|
December
31, |
|
March 31, |
|
December 31, |
|
March 31, |
|
|
2008 |
|
2009 |
|
2008 |
|
2009 |
Term B Loans |
|
$ |
706.4 |
|
|
$ |
706.4 |
|
|
$ |
586.3 |
|
|
$ |
651.7 |
|
31/2% Notes, excluding unamortized discount |
|
$ |
575.0 |
|
|
$ |
575.0 |
|
|
$ |
387.3 |
|
|
$ |
411.1 |
|
31/4% Debentures, excluding unamortized discount |
|
$ |
225.0 |
|
|
$ |
225.0 |
|
|
$ |
162.0 |
|
|
$ |
168.8 |
|
The fair values of our Term B Loans, 31/4% Debentures and
31/2%
Notes were based on the quoted prices at December 31, 2008 and
March 31, 2009.
Cash Balances
Certain of our outstanding cash balances are invested overnight with high credit quality
financial institutions. We do not hold direct investments in auction rate securities,
collateralized debt obligations, structured investment vehicles or mortgage-backed securities. We
do not have significant exposure to changing interest rates on invested cash at March 31, 2009. As
a result, the interest rate market risk implicit in these investments at March 31, 2009, if any, is
low.
Item 4. Controls and Procedures.
We carried out an evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of the period covered
by this report pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective in ensuring that information required to be disclosed by us (including our
consolidated subsidiaries) in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported on a timely basis.
There has been no change in our internal control over financial reporting during the three
months ended March 31, 2009 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
38
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
We are, from time to time, subject to claims and suits arising in the ordinary course of
business, including claims for damages for personal injuries, medical malpractice, breach of
contracts, wrongful restriction of or interference with physicians staff privileges and employment
related claims. In certain of these actions, plaintiffs request payment for damages, including
punitive damages that may not be covered by insurance. We are currently not a party to any pending
or threatened proceeding, which, in managements opinion, would have a material adverse effect on
our business, financial condition or results of operations.
Item 1A. Risk Factors.
There have been no material changes in our risk factors from those disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table summarizes our share repurchase activity by month for the three months
ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Dollar Value |
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
of Shares that |
|
|
|
|
|
|
|
Weighted |
|
|
Part of a |
|
|
May Yet be |
|
|
|
Total Number |
|
|
Average |
|
|
Publicly |
|
|
Purchased |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Announced |
|
|
Under the |
|
Period |
|
Purchased |
|
|
per Share |
|
|
Program |
|
|
Program |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
January 1, 2009 to January 31, 2009(a) |
|
|
2,236 |
|
|
$ |
22.84 |
|
|
|
|
|
|
$ |
|
|
February 1, 2009 to February 28, 2009(a) |
|
|
68,020 |
|
|
$ |
22.77 |
|
|
|
|
|
|
$ |
|
|
March 1, 2009 to March 31, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
70,256 |
|
|
$ |
22.77 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
These relate to shares redeemed for tax withholding purposes upon
vesting of certain previously granted stock awards under the LTIP and
MSPP plans. |
39
Item 6. Exhibits.
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Amended and Restated Certificate of Incorporation (incorporated
by reference from exhibits to the Registration Statement on Form
S-8 filed on April 19, 2005, File No. 333-124093). |
|
|
|
3.2
|
|
Second Amended and Restated Bylaws (incorporated by reference
from exhibits to the LifePoint Hospitals, Inc. Current Report on
Form 8-K dated October 16, 2006, File No. 000-51251). |
|
|
|
3.3
|
|
Amendment No. 1 to the Second Amended and Restated Bylaws of
LifePoint Hospitals, Inc. (incorporated by reference from
exhibits to the LifePoint Hospitals, Inc. Current Report on Form
8-K dated May 20, 2008, File No. 000-51251). |
|
|
|
4.1
|
|
Amended and Restated Rights Agreement (incorporated by reference
from exhibits to the LifePoint Hospitals, Inc. Current Report on
Form 8-K dated February 25, 2009, File No. 000-51251). |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer of LifePoint
Hospitals, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer of LifePoint
Hospitals, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer of LifePoint
Hospitals, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer of LifePoint
Hospitals, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
LifePoint Hospitals, Inc.
|
|
|
By: |
/s/ Michael S. Coggin
|
|
|
|
Michael S. Coggin |
|
|
|
Chief Accounting Officer
(Principal Accounting Officer) |
|
|
Date:
May 4, 2009
41
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Amended and Restated Certificate of Incorporation (incorporated
by reference from exhibits to the Registration Statement on Form
S-8 filed on April 19, 2005, File No. 333-124093). |
|
|
|
3.2
|
|
Second Amended and Restated Bylaws (incorporated by reference
from exhibits to the LifePoint Hospitals, Inc. Current Report on
Form 8-K dated October 16, 2006, File No. 000-51251). |
|
|
|
3.3
|
|
Amendment No. 1 to the Second Amended and Restated Bylaws of
LifePoint Hospitals, Inc. (incorporated by reference from
exhibits to the LifePoint Hospitals, Inc. Current Report on Form
8-K dated May 20, 2008, File No. 000-51251). |
|
|
|
4.1
|
|
Amended and Restated Rights Agreement (incorporated by reference
from exhibits to the LifePoint Hospitals, Inc. Current Report on
Form 8-K dated February 25, 2009, File No. 000-51251). |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer of LifePoint
Hospitals, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer of LifePoint
Hospitals, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer of LifePoint
Hospitals, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer of LifePoint
Hospitals, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |