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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-55824
PROSPECTUS
3,200,000 SHARES
LIFEPOINT LOGO
COMMON STOCK
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We are offering 3,200,000 shares. The U.S. underwriters are offering
2,560,000 shares in the U.S. and Canada and the international managers are
offering 640,000 shares outside the U.S. and Canada.
Our shares are quoted on the Nasdaq National Market under the symbol
"LPNT." On March 22, 2001, the last sale price for our common stock as reported
on the Nasdaq National Market was $30 3/16 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
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PER SHARE TOTAL
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Public offering price.................................. $29.00 $92,800,000
Underwriting discount.................................. $1.45 $4,640,000
Proceeds, before expenses, to LifePoint................ $27.55 $88,160,000
The U.S. underwriters may also purchase up to an additional 384,000 shares
from us at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an additional 96,000 shares
from us.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery on or about March 28,
2001.
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MERRILL LYNCH & CO. CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
SUNTRUST EQUITABLE SECURITIES
UBS WARBURG LLC
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The date of this prospectus is March 22, 2001.
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LIFEPOINT MAP
[Map of the United States identifying 21 hospitals located in seven states]
TABLE OF CONTENTS
PAGE
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Prospectus Summary.............................. 3
Risk Factors.................................... 9
Forward-Looking Statements...................... 16
Use of Proceeds................................. 17
Dividend Policy................................. 17
Price Range of Common Stock..................... 18
Capitalization.................................. 19
Selected Consolidated Financial and Other
Operating Data................................ 20
Unaudited Pro Forma Condensed Consolidated
Financial Statements.......................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
PAGE
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Business........................................ 35
Management...................................... 51
Principal Stockholders.......................... 53
Description of Capital Stock.................... 55
Material United States Federal Income and Estate
Tax Considerations for Non-United States
Holders....................................... 59
Underwriting.................................... 62
Legal Matters................................... 65
Experts......................................... 65
Where You Can Find Additional Information....... 65
Incorporation of Certain Information by
Reference..................................... 66
Index to Financial Statements................... F-1
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PROSPECTUS SUMMARY
This summary highlights selected information appearing elsewhere in this
prospectus and may not contain all of the information that is important to you.
This prospectus includes information about the shares we are offering, as well
as information regarding our business and detailed financial data. We encourage
you to read this prospectus in its entirety. Unless otherwise indicated, all
information in this prospectus assumes that the underwriters do not exercise
their over-allotment options. In this prospectus, "LifePoint," "our company,"
"we," "us" and "our" refer to LifePoint Hospitals, Inc. and its subsidiaries.
ABOUT OUR COMPANY
WHO WE ARE
We operate 21 general, acute care hospitals with an aggregate of 1,988
licensed beds in growing, non-urban communities. In all but one of our
communities, our hospital is the only provider of acute care hospital services.
Our hospitals are located in Alabama, Florida, Kansas, Kentucky, Tennessee, Utah
and Wyoming. For the year ended December 31, 2000, we generated $557.1 million
in net revenues and EBITDA of $105.8 million.
THE NON-URBAN HEALTHCARE MARKET
We believe that growing, non-urban healthcare markets are attractive
because of the following factors:
- LESS COMPETITION. Non-urban communities have smaller populations with
fewer hospitals and other healthcare service providers. We believe that
the smaller populations and the relative significance of the one or two
acute care hospitals in these markets discourage the entry of new
providers.
- MORE FAVORABLE PAYMENT ENVIRONMENT. Non-urban hospitals can often
negotiate reimbursement rates with managed care plans that are more
favorable, in general, than those available in urban markets. Moreover,
when compared to acute care hospitals in urban markets, acute care
hospitals in non-urban markets generally receive a lower percentage of
their revenues from managed care payors, such as HMOs and PPOs.
- COMMUNITY FOCUS. We believe that non-urban areas generally view the
local hospital as an integral part of the community.
- ACQUISITION OPPORTUNITIES. Not-for-profit and governmental entities own
most non-urban hospitals. These entities typically have limited access to
capital and sometimes lack management resources. As a result, we believe
that many non-urban hospitals are attractive acquisition candidates.
OPERATING PHILOSOPHY
We are committed to operating acute care hospitals in growing, non-urban
markets. As a result, we adhere to an operating philosophy that is focused on
the unique patient and provider needs and opportunities in these communities.
This philosophy includes a commitment to:
- improving the quality and scope of available healthcare services;
- providing physicians a positive environment in which to practice
medicine, with access to necessary equipment and resources;
- providing an outstanding work environment for employees;
- recognizing and expanding the hospital's role as a community asset; and
- continuing to improve each hospital's financial performance.
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BUSINESS STRATEGY
We manage our hospitals in accordance with our operating philosophy and
have developed the following strategies tailored for each of our markets:
- EXPAND BREADTH OF SERVICE AND ATTRACT COMMUNITY PATIENTS. We strive to
increase revenues by improving the quality and broadening the scope of
healthcare services available at our facilities. We believe these actions
will encourage patients to seek care at our hospitals rather than at
competing facilities in other communities.
- STRENGTHEN PHYSICIAN RECRUITING AND RETENTION. We seek to enhance the
quality of care available locally by recruiting and retaining physicians
for our non-urban communities. We continue to recruit physicians from a
broad range of specialties targeted to the needs of each community.
- RETAIN AND DEVELOP STABLE MANAGEMENT. We seek to retain the executive
teams at our hospitals to enhance medical staff relations and maintain
continuity of relationships within the community.
- IMPROVE MANAGED CARE POSITION. We strive to improve our revenues from
managed care plans by negotiating facility-specific contracts with these
payors on terms appropriate for smaller, non-urban markets. When we
operated as a division of HCA -- The Healthcare Company (formerly
Columbia/HCA Healthcare Corporation), we did not have the ability to
negotiate facility-specific managed care agreements and were often tied
to arrangements more favorable to HCA's urban hospitals.
- IMPROVE EXPENSE MANAGEMENT. We seek to control costs by, among other
things, reducing labor costs, improving labor productivity, controlling
supply expenses and reducing uncollectible revenues. We believe that as
our company grows, we will likely benefit from our ability to spread
fixed administrative costs over a larger base of operations.
- ACQUIRE OTHER HOSPITALS. We continue to pursue a disciplined acquisition
strategy and seek to identify and acquire attractive hospitals in
growing, non-urban markets.
As a result of these initiatives, during the year ended December 31, 2000,
we increased our revenues 8.1% and increased EBITDA 35.4% compared to the year
ended December 31, 1999. In addition, we increased EDITDA margins to 19.0%
during the year ended December 31, 2000 compared to 15.2% during the year ended
December 31, 1999, and we decreased our leverage ratio to 2.7x as of December
31, 2000 from 3.3x as of December 31, 1999.
OUR FORMATION
We were formed as a division of HCA in November 1997 to operate general,
acute care hospitals in non-urban communities. We became an independent,
publicly-traded company on May 11, 1999 when HCA distributed all outstanding
shares of our common stock to its stockholders.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 103 Powell Court, Suite 200,
Brentwood, Tennessee 37027, and our telephone number is 615-372-8500. Our World
Wide Web address is www.lifepointhospitals.com. Information in the website is
not part of this prospectus and should not be considered part of this
prospectus.
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THE OFFERING
Common stock offered by LifePoint:
U.S. offering.......................... 2,560,000 shares
International offering................. 640,000 shares
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Total............................. 3,200,000 shares
Shares outstanding after the offering....... 37,909,504 shares(a)
Use of proceeds............................. Our net proceeds from this offering will be
approximately $86.7 million. We intend to
use these net proceeds to repay a portion of
the outstanding indebtedness under our bank
credit agreement or, subject to obtaining
the consent of our senior lenders, repay a
portion of the outstanding indebtedness
under our bank credit agreement and redeem a
portion of our senior subordinated notes.
Risk factors................................ See "Risk Factors" and other information
included in this prospectus for a discussion
of factors you should carefully consider
before deciding to invest in shares of our
common stock.
Nasdaq National Market symbol............... LPNT
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(a) Excludes 4,321,974 shares reserved for issuance under our stock option
plans, of which options to purchase 3,339,748 shares at a weighted average
option price of $11.73 have been issued as of December 31, 2000. The number
of shares outstanding after the offering also excludes 171,026 shares
reserved for issuance under stock purchase plans. The share amount does
include 2,237,375 shares which have not yet been allocated to employees
under our Employee Stock Ownership Plan. This number also assumes that the
underwriters' over-allotment option is not exercised. If the underwriters
exercise their over-allotment option in full, we will issue and sell an
additional 480,000 shares.
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SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL AND OTHER OPERATING DATA
The following table contains our summary historical and pro forma condensed
consolidated financial data for each of the fiscal years in the three year
period ended December 31, 2000. You should read this table together with the
consolidated financial statements and the related notes included later in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We derived the historical financial data as of and for the three years
ended December 31, 2000 from our audited consolidated financial statements.
The summary pro forma information is unaudited and does not purport to
represent what our results actually would have been if these events had occurred
at the date indicated, nor does this information purport to project our results
for any future period. Dollars are in millions, except per share amounts.
YEAR ENDED DECEMBER 31,
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PRO FORMA
1998 1999 2000 2000(A)
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SUMMARY OF OPERATIONS:
Revenues........................................ $ 498.4 $ 515.2 $ 557.1 $ 557.1
Salaries and benefits......................... 220.8 217.4 224.2 224.2
Supplies...................................... 62.0 64.2 67.0 67.0
Other operating expenses...................... 117.2 117.3 118.1 118.1
Provision for doubtful accounts............... 41.6 38.2 42.0 42.0
Depreciation and amortization................. 28.3 31.4 34.1 34.1
Interest expense.............................. 19.1 23.4 30.7 22.2
Management fees............................... 8.9 3.2 -- --
ESOP expense.................................. -- 2.9 7.1 7.1
Impairment of long-lived assets............... 26.1 25.4 (1.4) (1.4)
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524.0 523.4 521.8 513.3
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Income (loss) from continuing operations before
minority interests and income taxes........... (25.6) (8.2) 35.3 43.8
Minority interests in earnings of consolidated
entities...................................... 1.9 1.9 2.2 2.2
-------- -------- -------- --------
Income (loss) from continuing operations before
income taxes.................................. (27.5) (10.1) 33.1 41.6
Provision (benefit) for income taxes............ (9.8) (2.7) 15.2 18.5
-------- -------- -------- --------
Income (loss) from continuing operations(b)..... $ (17.7) $ (7.4) $ 17.9 $ 23.1
======== ======== ======== ========
Net income (loss)(b)............................ $ (21.8) $ (7.4) $ 17.9
======== ======== ========
Basic earnings (loss) per share:
Income (loss) from continuing operations(b)... $ (0.59) $ (0.24) $ 0.57 $ 0.66
Net income (loss)(b).......................... $ (0.73) $ (0.24) $ 0.57
Shares used in computing basic earnings (loss)
per share (in millions).................... 30.0 30.5 31.6 34.8
Diluted earnings (loss) per share:
Income (loss) from continuing operations(b)... $ (0.59) $ (0.24) $ 0.54 $ 0.64
Net income (loss)(b).......................... $ (0.73) $ (0.24) $ 0.54
Shares used in computing diluted earnings
(loss) per share (in millions)............. 30.0 30.5 32.9 36.1
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YEAR ENDED DECEMBER 31,
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PRO FORMA
1998 1999 2000 2000(A)
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FINANCIAL POSITION (AS OF END OF YEAR):
Assets.......................................... $ 355.0 $ 420.4 $ 488.0 $ 487.1
Long-term debt, including amounts due within one
year.......................................... 0.6 260.2 289.4 202.7
Intercompany balances payable to HCA............ 167.6 -- -- --
Working capital................................. 26.9 42.2 65.4 77.1
OTHER OPERATING DATA:
EBITDA(c)....................................... $ 56.8 $ 78.1 $ 105.8 $ 105.8
Net cash flows provided by operating
activities.................................... 47.5 59.3 83.4
Net cash flows used in investing activities..... (31.5) (68.8) (91.8)
Net cash flows provided by (used in) financing
activities.................................... (16.0) 22.0 35.6
Capital expenditures............................ 29.3 64.8 31.4
Number of hospitals at end of period............ 23 23 20
Number of licensed beds at end of period(d)..... 2,169 2,169 1,963
Weighted average licensed beds(e)............... 2,127 2,169 2,056
Admissions(f)................................... 62,269 64,081 66,085
Equivalent admissions(g)........................ 110,029 114,321 119,812
Average length of stay (days)(h)................ 4.4 4.2 4.1
Same hospital (percent changes)(i)
Admissions.................................... (0.8) 3.2 2.6
Equivalent admissions......................... 0.2 4.2 6.5
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(a) The pro forma summary of operations data for the year ended December 31,
2000 gives effect to our sale of 3,200,000 shares of common stock offered
in this prospectus and the application of the estimated net proceeds of
$86.7 million from the sale of the common stock to the repayment of a
portion of the debt under our bank credit agreement as described in "Use of
Proceeds" as if these transactions had been completed as of January 1,
2000. The pro forma financial position data as of December 31, 2000 gives
effect to our sale of 3,200,000 shares of common stock offered in this
prospectus and the application of the estimated net proceeds to the
repayment of a portion of the debt under our bank credit agreement as
described in "Use of Proceeds," as if these transactions had been completed
as of December 31, 2000. If we use the net proceeds of this offering to
repay a portion of the amounts outstanding under our bank credit agreement
and redeem a portion of our $150 million 10 3/4% senior subordinated notes
as described in "Use of Proceeds," then the pro forma summary of operations
data for the year ended December 31, 2000 would not differ significantly
from that shown and our long-term debt shown in the pro forma financial
position data as of December 31, 2000 would be $206.1 million.
(b) Includes gain on impairment of long-lived assets of $1.4 million ($0.8
million after-tax or $0.02 diluted earnings per share) for historical and
pro forma for the year ended December 31, 2000. Includes charges related to
impairment of long-lived assets of $25.4 million ($16.2 million after-tax
or $0.53 diluted loss per share) and $26.1 million ($15.9 million after-tax
or $0.53 diluted loss per share) for the years ended December 31, 1999 and
1998, respectively.
(c) EBITDA is defined as income from continuing operations before depreciation
and amortization, interest expense, management fees, impairment of
long-lived assets, ESOP expense, minority interests in earnings of
consolidated entities and income taxes. EBITDA is commonly used as an
analytical indicator within the healthcare industry and also serves as a
measure of leverage capacity and debt service ability. EBITDA should not be
considered as a measure of financial performance under generally accepted
accounting principles and the items excluded from EBITDA are significant
components in understanding and assessing financial performance. EBITDA
should not be considered in isolation or as an alternative to net income,
cash flows generated by operating, investing or
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financing activities or other financial statement data presented in the
consolidated financial statements as an indicator of financial performance
or liquidity. Because EBITDA is not a measurement determined in accordance
with generally accepted accounting principles and is susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(d) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(e) Represents the average number of licensed beds weighted based on periods
owned.
(f) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals and is used by management
and certain investors as a general measure of inpatient volume. Amounts for
the years ended December 31, 1998 and 1999 have been restated to conform to
current year definitions.
(g) Equivalent admissions is used by management and investors as a general
measure of combined inpatient and outpatient volume. Equivalent admissions
is computed by multiplying admissions (inpatient volume) by the sum of
gross inpatient revenue and gross outpatient revenue and then dividing the
resulting amount by gross inpatient revenue. The equivalent admissions
computation "equates" outpatient revenue to the volume measure (admissions)
used to measure inpatient volume resulting in a general measure of combined
inpatient and outpatient volume. Amounts for the years ended December 31,
1998 and 1999 have been restated to conform to current year definitions.
(h) Represents the average number of days admitted patients stay in our
hospitals. Average length of stay has declined as a result of the
continuing pressures from managed care and other payers to restrict
admissions and reduce the number of days that are covered by the payers for
certain procedures and by technological and pharmaceutical improvements.
(i) "Same hospital" information excludes the operations of hospitals which we
either acquired or divested during the years presented.
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in our common stock. Some of the following factors relate
principally to our business and the industry in which we operate. Other factors
relate principally to your investment in our common stock. The risks and
uncertainties described below are not the only ones facing our company.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also constrain our business and operations.
If any of the matters included in the following risks were to occur, our
business, financial condition, results of operations, cash flows or prospects
could be materially adversely affected. In that case, the trading price of our
common stock could decline and you could lose all or part of your investment.
OUR REVENUES MAY DECLINE IF FEDERAL OR STATE PROGRAMS REDUCE OUR MEDICARE OR
MEDICAID PAYMENTS OR MANAGED CARE COMPANIES REDUCE OUR REIMBURSEMENTS.
For the year ended December 31, 2000, we derived 47.0% of our revenues from
the Medicare and Medicaid programs. In recent years, federal and state
governments made significant changes in the Medicare and Medicaid programs.
These changes have decreased the amounts of money we receive for our services to
patients who participate in these programs.
In recent years, Congress and some state legislatures have introduced an
increasing number of other proposals to make major changes in the healthcare
system. Medicare-reimbursed, hospital-outpatient services converted to a
prospective payment system on August 1, 2000. This system creates limitations on
levels of payment for a substantial portion of hospital outpatient procedures.
Future federal and state legislation may further reduce the payments we receive
for our services.
A number of states have adopted legislation designed to reduce their
Medicaid expenditures and to provide universal coverage and additional care to
their residents. Some states propose to enroll Medicaid recipients in managed
care programs and impose additional taxes on hospitals to help finance or expand
the states' Medicaid systems.
In addition, insurance and managed care companies and other third parties
from whom we receive payment for our services increasingly attempt to control
healthcare costs by requiring that hospitals discount their fees in exchange for
exclusive or preferred participation in their benefit plans. We believe that
this trend may continue and may reduce the payments we receive for our services.
WE MAY BE SUBJECTED TO ALLEGATIONS THAT WE FAILED TO COMPLY WITH GOVERNMENTAL
REGULATION WHICH COULD RESULT IN SANCTIONS THAT REDUCE OUR REVENUE AND
PROFITABILITY.
All participants in the healthcare industry are required to comply with
many laws and regulations at the federal, state and local government levels.
These laws and regulations require that hospitals meet various requirements,
including those relating to the adequacy of medical care, equipment, personnel,
operating policies and procedures, maintenance of adequate records, privacy,
compliance with building codes and environmental protection. These laws often
contain safe harbor provisions which describe some of the conduct and business
relationships that are immune from prosecution. Some of our current business
arrangements do not qualify for a safe harbor. This does not automatically
render our arrangements illegal. However, we may be subject to scrutiny by
enforcement authorities. If we fail to comply with applicable laws and
regulations, we could suffer civil or criminal penalties, including the loss of
our licenses to operate our hospitals and our ability to participate in the
Medicare, Medicaid and other federal and state healthcare programs.
Significant media and public attention recently has focused on the hospital
industry due to ongoing investigations related to referrals, cost reporting and
billing practices, laboratory and home healthcare services and physician
ownership and joint ventures involving hospitals. Both federal and state
government agencies have announced heightened and coordinated civil and criminal
enforcement efforts. In addition, the Office of the Inspector General of the
United States Department of Health and Human Services and
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the United States Department of Justice periodically establish enforcement
initiatives that focus on specific billing practices or other suspected areas of
abuse. Recent initiatives include a focus on hospital billing practices.
In public statements, governmental authorities have taken positions on
issues for which little official interpretation was previously available. Some
of these positions appear to be inconsistent with common practices within the
industry and which have not previously been challenged in this manner. Moreover,
some government investigations that have in the past been conducted under the
civil provisions of federal law are now being conducted as criminal
investigations under the Medicare fraud and abuse laws.
The laws and regulations that we must comply with are complex and subject
to change. In the future, different interpretations or enforcement of these laws
and regulations could subject our current practices to allegations of
impropriety or illegality or could require us to make changes in our facilities,
equipment, personnel, services, capital expenditure programs and operating
expenses.
IF WE FAIL TO EFFECTIVELY RECRUIT AND RETAIN PHYSICIANS AND NURSES OUR ABILITY
TO DELIVER HEALTHCARE SERVICES EFFICIENTLY WILL SUFFER.
Physicians generally direct the majority of hospital admissions. Our
success, in part, depends on the number and quality of physicians on our
hospitals' medical staffs, the admissions practices of these physicians and the
maintenance of good relations with these physicians. We generally do not employ
physicians. Only a limited number of physicians practice in the non-urban
communities where our hospitals are located. Our primary method of adding or
expanding medical services is the recruitment of new physicians into our
communities.
The success of our recruiting efforts depends on several factors. In
general, there is a shortage of specialty care physicians. We face intense
competition in the recruitment of specialists because of the difficulty
convincing these individuals of the benefits of practicing in a rural community.
Physicians are concerned with the patient volume in rural hospitals and whether
the volume will allow them to generate income comparable to that which they
would generate in an urban setting. If the trend in the United States over the
last several years to move out of cities and into more rural areas changes and
the growth rate in the rural communities where our hospitals operate slows, then
we could experience difficulty attracting physicians to practice in our
communities.
There is generally a shortage of nurses. Our hospitals may be forced to
hire expensive contract nurses if they are unable to recruit and retain nurses.
The shortage of nurses may affect our hospitals' ability to deliver healthcare
services efficiently.
OUR REVENUE IS HEAVILY CONCENTRATED IN KENTUCKY AND TENNESSEE, WHICH MAKES US
PARTICULARLY SENSITIVE TO REGULATORY AND ECONOMIC CHANGES IN THOSE STATES.
Our revenue is particularly sensitive to regulatory and economic changes in
the states of Kentucky and Tennessee. As of December 31, 2000, we operated 20
hospitals with six located in the Commonwealth of Kentucky and six located in
the State of Tennessee. Based on those 20 hospitals, we generated 38.8% of our
revenue from our Kentucky hospitals and 20.7% from our Tennessee hospitals for
the year ended December 31, 2000. Effective January 2, 2001, we began operating
Bluegrass Community Hospital in Versailles, Kentucky. One managed care
organization that participates in Tennessee's Medicaid program has been placed
in receivership by the State of Tennessee. Other managed care organizations in
the states in which we derive significant revenue may encounter similar
difficulties in paying claims in the future.
WE MAY HAVE DIFFICULTY ACQUIRING HOSPITALS ON FAVORABLE TERMS, AVOIDING UNKNOWN
OR CONTINGENT LIABILITIES OF ACQUIRED HOSPITALS AND, BECAUSE OF REGULATORY
SCRUTINY, ACQUIRING NONPROFIT ENTITIES.
One element of our business strategy is expansion through the acquisition
of acute care hospitals in growing, non-urban markets. We face significant
competition to acquire other attractive, rural hospitals. We may not find
suitable acquisitions on favorable terms. We also may incur or assume additional
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indebtedness as a result of the consummation of any acquisitions. In addition,
in order to ensure the tax-free treatment of the distribution of our stock from
HCA, our ability to issue stock as consideration for acquisitions is limited.
Our failure to acquire non-urban hospitals consistent with our growth plans
could prevent us from increasing our revenues.
We also may acquire businesses with unknown or contingent liabilities,
including liabilities for failure to comply with healthcare laws and
regulations. We have policies to conform the practices of acquired facilities to
our standards and applicable law and generally will seek indemnification from
prospective sellers covering these matters. We may, however, incur material
liabilities for past activities of acquired businesses.
In recent years, the legislatures and attorneys general of several states
have become more interested in sales of hospitals by not-for-profit entities.
This heightened scrutiny may increase the cost and difficulty, or prevent our
completion, of transactions with not-for-profit organizations in the future.
CERTIFICATE OF NEED LAWS MAY PROHIBIT OR LIMIT ANY FUTURE EXPANSION BY US IN
STATES WITH THESE LAWS.
Some states require prior approval for the purchase, construction and
expansion of health care facilities, based on a state's determination of need
for additional or expanded health care facilities or services. Four states in
which we currently own hospitals, Alabama, Florida, Kentucky and Tennessee,
require a certificate of need for capital expenditures exceeding a prescribed
amount, changes in bed capacity or services and certain other matters. We may
not be able to obtain certificates of need required for expansion activities in
the future. If we fail to obtain any required certificate of need, our ability
to operate or expand operations in these states could be impaired.
OUR SUBSTANTIAL LEVERAGE MAY LIMIT OUR ABILITY TO SUCCESSFULLY RUN OUR BUSINESS.
We are highly leveraged. At December 31, 2000, our consolidated long-term
debt equaled approximately $289.4 million. After giving effect to the use of the
net proceeds of this offering, our consolidated long-term debt will equal
approximately $202.7 million. We also may draw on a revolving credit commitment
of up to $65 million under our bank credit agreement. In addition, we have the
ability to incur additional debt, subject to limitations imposed by our credit
agreement and the indenture governing the notes issued by our subsidiary,
LifePoint Hospitals Holdings, Inc. Our leverage and debt service requirements
could have important consequences to our stockholders, including the following:
- make us more vulnerable to economic downturns and to adverse changes in
business conditions, such as further limitations on reimbursement under
Medicare and Medicaid programs;
- limit our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes;
- require us to dedicate a substantial portion of our cash flow from
operations to the payment of principal and interest on our indebtedness,
reducing the funds available for our operations;
- make us vulnerable to increases in interest rates because some of our
borrowings are at variable rates of interest; and
- require us to pay the indebtedness immediately if we default on any of
the numerous financial and other restrictive covenants, including
restrictions on our payments of dividends, incurrences of indebtedness
and sale of assets.
Any substantial increase in our debt levels could affect our ability to
borrow funds at favorable interest rates and our future operating cash flow.
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FEDERAL AND STATE INVESTIGATIONS OF HCA COULD SUBJECT OUR HOSPITALS AND
OPERATIONS TO INCREASED GOVERNMENTAL SCRUTINY.
HCA has been the subject of various federal and state investigations, qui
tam actions, shareholder derivative and class action suits, patient/payer
actions and general liability claims. These investigations, actions and claims
relate to HCA and its subsidiaries, including subsidiaries that, before our
formation as an independent company, owned the facilities we now own.
On December 14, 2000, HCA announced that it signed an agreement with the
Department of Justice and four U.S. attorneys' offices resolving all pending
federal criminal issues in the government's investigation. HCA also announced at
this time that it signed a civil settlement agreement with the Department of
Justice resolving civil false claims issues related to DRG coding, outpatient
laboratory and home health. The criminal agreement has been accepted by the
federal district courts. The civil settlement agreement is conditioned on court
approval of the settlement, which HCA expects to receive in the first quarter of
2001. These agreements relate only to conduct that was the subject of the
federal investigations resolved in the agreements, and HCA has stated publicly
that it continues to discuss civil claims relating to cost reporting and
physician relations with the government. HCA recently announced that the
Department of Justice has intervened and remains active in eight existing qui
tam actions.
Based on our review of documents filed by HCA with the Securities and
Exchange Commission, the agreements with the government do not resolve all qui
tam actions filed by private parties against HCA. The qui tam actions in which
the Department of Justice remains active are not covered by the settlement
agreements. Representatives of state attorneys general have agreed to recommend
to state officials that HCA be released from criminal and civil liability
related to the matters covered by the settlement agreements.
HCA agreed to indemnify us for any losses, other than consequential
damages, arising from the pending governmental investigations of HCA's business
practices prior to the date of the distribution and losses arising from legal
proceedings, present or future, related to the investigation or actions engaged
in before the distribution that relate to the investigation. However, we could
be held responsible for any claims that are not covered by the agreements
reached with the federal government or for which HCA is not required to, or
fails to, indemnify us. We may also be affected by the initiation of additional
investigations or claims against HCA in the future, if any, and the related
media coverage.
WE DEPEND SIGNIFICANTLY ON KEY PERSONNEL, AND THE LOSS OF ONE OR MORE SENIOR OR
LOCAL MANAGEMENT PERSONNEL COULD LIMIT OUR ABILITY TO EXECUTE OUR BUSINESS
STRATEGY.
We depend on the continued services and management experience of James M.
Fleetwood, Jr. and our other executive officers. If Mr. Fleetwood or any of our
other executive officers resign their positions or otherwise are unable to
serve, our management expertise and ability to deliver healthcare services
efficiently could be weakened. In addition, if we fail to attract and retain
managers at our hospitals and related facilities our operations will suffer.
OTHER HOSPITALS PROVIDE SIMILAR SERVICES, WHICH MAY RAISE THE LEVEL OF
COMPETITION FACED BY OUR HOSPITALS.
Competition among hospitals and other healthcare providers for patients has
intensified in recent years. All but one of our hospitals operate in geographic
areas where we are currently the sole provider of hospital services in these
communities. While our hospitals face less direct competition in our immediate
service areas, we do compete with other hospitals, including larger tertiary
care centers. Although these competing hospitals may be in excess of 30 to 50
miles away from our facilities, patients in these markets may migrate to, may be
referred by local physicians to, or may be lured by incentives from managed care
plans to travel to these distant hospitals. Some of these competing hospitals
use equipment and services more specialized than those available at our
hospitals. In addition, some of the hospitals that compete with us are owned by
tax-supported governmental agencies or not-for-profit entities supported by
endowments and charitable contributions. These hospitals can make capital
expenditures without paying sales, property
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and income taxes. We also face competition from other specialized care
providers, including outpatient surgery, orthopedic, oncology and diagnostic
centers.
WE HAVE LIMITED OPERATING HISTORY AS AN INDEPENDENT COMPANY.
Prior to May 11, 1999, we operated as the America Group division of HCA.
Accordingly, we do not have a long operating history as an independent,
publicly-traded company. Before the distribution of our stock from HCA, we
historically relied on HCA for various financial, administrative and managerial
expertise relevant to the conduct of our business. HCA continues to provide some
support services to us on a contractual basis. We did not generate a profit for
1999. Although we generated a profit in 2000, we may not have net profits in the
future. See "Business -- Arrangements Relating to the Distribution" for more
information regarding our arrangements with HCA and see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for factors that
could affect our ability to generate profits.
IF OUR ACCESS TO HCA'S INFORMATION SYSTEMS IS RESTRICTED OR WE ARE NOT ABLE TO
INTEGRATE CHANGES TO OUR EXISTING INFORMATION SYSTEMS, OUR OPERATIONS COULD
SUFFER.
Our business depends significantly on effective information systems to
process clinical and financial information. Information systems require an
ongoing commitment of significant resources to maintain and enhance existing
systems and develop new systems in order to keep pace with continuing changes in
information processing technology. We rely heavily on HCA for information
systems. Under a contract with an initial term that will expire on May 11, 2006,
HCA provides financial, clinical, patient accounting and network information
services to us. If our access to these systems is limited in the future or if
HCA develops systems more appropriate for the urban healthcare market and not
suited for our hospitals, our operations could suffer. In addition, as new
information systems are developed, we must integrate them into our existing
systems. Evolving industry and regulatory standards, including the Health
Insurance Portability and Accountability Act of 1996, commonly known as "HIPAA,"
may require changes to our information systems. We may not be able to integrate
new systems or changes required to our existing systems in the future
effectively.
IF WE FAIL TO COMPLY WITH OUR CORPORATE INTEGRITY AGREEMENT, WE COULD BE
REQUIRED TO PAY SIGNIFICANT MONETARY PENALTIES.
In December 2000, we entered into a corporate integrity agreement with the
Office of Inspector General. Under this agreement, we have an affirmative
obligation to report violations of applicable laws and regulations. This
obligation could result in greater scrutiny of us by regulatory authorities.
Complying with our corporate integrity agreement will require additional efforts
and costs. Our failure to comply with the terms of the corporate integrity
agreement could subject us to significant monetary penalties.
IF WE BECOME SUBJECT TO MALPRACTICE AND RELATED LEGAL CLAIMS, WE COULD BE
REQUIRED TO PAY SIGNIFICANT DAMAGES.
In recent years, physicians, hospitals and other healthcare providers have
become subject to an increasing number of legal actions alleging malpractice or
related legal theories. Many of these actions involve large claims and
significant defense costs. To protect ourselves from the cost of these claims,
we generally maintain professional malpractice liability insurance and general
liability insurance coverage in amounts and with deductibles that we believe to
be appropriate for our operations. However, our insurance coverage may not cover
all claims against us or continue to be available at a reasonable cost for us to
maintain adequate levels of insurance.
WE COULD INCUR SUBSTANTIAL LIABILITY IF THIS STOCK OFFERING OR OTHER FACTORS
CAUSE THE DISTRIBUTION OF OUR STOCK FROM HCA TO BE TAXABLE.
On March 30, 1999, HCA received a private letter ruling from the Internal
Revenue Service concerning the United States federal income tax consequences of
the distribution by HCA of our common
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stock and the common stock of Triad Hospitals, Inc., a publicly-traded company
comprising the former Pacific Group of HCA, and the restructuring transactions
that preceded the distribution. The private letter ruling provides that the
distribution generally was tax-free to HCA and HCA's stockholders, except for
any cash received instead of fractional shares. The IRS has issued additional
private letter rulings that supplement its March 30, 1999 ruling, including
supplemental rulings stating that certain transactions occurring after the
distribution, including this stock offering, do not adversely affect the private
letter rulings previously issued by the IRS. The March 30, 1999 ruling and the
supplemental rulings are based on the accuracy of representations as to numerous
factual matters and as to certain intentions of HCA, Triad and LifePoint. The
inaccuracy of any of those representations could cause the IRS to revoke all or
part of any of the rulings retroactively.
If the distribution were to fail to qualify for tax-free treatment, then,
in general, additional corporate tax, which would be substantial, would be
payable by the consolidated group of which HCA is the common parent. Each member
of HCA's consolidated group at the time of the distribution, including
LifePoint, would be jointly and severally liable for this tax liability. In
addition, LifePoint entered into a tax sharing and indemnification agreement
with HCA and Triad, which prohibits LifePoint from taking actions that could
jeopardize the tax treatment of either the distribution or the restructuring
transactions that preceded the distribution, and requires LifePoint to indemnify
HCA and Triad for any taxes or other losses that result from LifePoint's
actions, which amounts could be substantial. If LifePoint were required to make
any indemnity payments or otherwise were liable for additional taxes relating to
the distribution, LifePoint's results of operations could be materially
adversely affected.
WE DEPEND ON DIVIDENDS AND OTHER INTERCOMPANY TRANSFERS OF FUNDS TO MEET OUR
FINANCIAL OBLIGATIONS.
We are a holding company and hold most of our assets and conduct most of
our operations through direct and indirect subsidiaries. As a holding company,
our results of operations depend on the results of operations of our
subsidiaries. Moreover, we depend on dividends and other intercompany transfers
of funds from our subsidiaries to meet our debt service and other obligations,
including payment of principal and interest on the senior subordinated notes
issued by our subsidiary, LifePoint Hospitals Holdings, Inc. The ability of our
subsidiaries to pay dividends or make other payments or advances will depend on
their operating results and will be subject to applicable laws and restrictions
contained in agreements governing indebtedness of these subsidiaries.
OUR ANTI-TAKEOVER PROVISIONS MAY DISCOURAGE ACQUISITIONS OF CONTROL EVEN THOUGH
OUR STOCKHOLDERS MAY CONSIDER THESE PROPOSALS DESIRABLE.
Provisions in our certificate of incorporation and bylaws may have the
effect of discouraging an acquisition of control not approved by our board of
directors. These provisions include:
- the issuance of "blank check" preferred stock by the board of directors
without stockholder approval;
- higher stockholder voting requirements for some transactions, including
business combinations with related parties (i.e., a "fair price
provision");
- a prohibition on taking actions by the written consent of stockholders;
- restrictions on the persons eligible to call a special meeting of
stockholders;
- classification of the board of directors into three classes; and
- the removal of directors only for cause and by a vote of 80% of the
outstanding voting power.
These provisions may also have the effect of discouraging third parties
from making proposals involving our acquisition or change of control, although a
proposal, if made, might be considered desirable by a majority of our
stockholders. These provisions could further have the effect of making it more
difficult for third parties to cause the replacement of our board of directors.
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We have also adopted a stockholder rights plan. This stockholder rights
plan is designed to protect stockholders in the event of an unsolicited offer
and other takeover tactics which, in the opinion of the board of directors,
could impair our ability to represent stockholder interests. The provisions of
this stockholder rights plan may render an unsolicited takeover more difficult
or might prevent a takeover.
Provisions of the tax sharing and indemnification agreement that are
intended to preserve the tax-free status of the distribution could also
discourage takeover proposals or make them more expensive. See
"Business -- Arrangements Relating to the Distribution."
We are subject to provisions of Delaware corporate law which may also
restrict some business combination transactions. Delaware law may further
discourage, delay or prevent someone from acquiring or merging with us.
WE HAVE NEVER PAID AND HAVE NO CURRENT PLANS TO PAY A DIVIDEND ON OUR COMMON
SHARES.
We have never paid a cash dividend and we do not anticipate paying any cash
dividends in the foreseeable future. Our senior credit facility also restricts
the payment of cash dividends. If we incur any future indebtedness to refinance
our existing indebtedness or to fund our future growth, our ability to pay
dividends may be further restricted by the terms of this indebtedness.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
The trading price of our common stock has been and may continue to be
subject to wide fluctuations. Our stock price may fluctuate in response to a
number of events and factors, including:
- quarterly variations in operating results;
- changes in financial estimates and recommendations by securities
analysts;
- the operating and stock price performance of other companies that
investors may deem comparable; and
- news reports relating to trends in our markets.
Broad market and industry fluctuations may adversely affect the price of
our common stock, regardless of our operating performance.
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FORWARD-LOOKING STATEMENTS
This prospectus and other materials we have filed or may file with the
Securities and Exchange Commission, as well as information included in oral
statements or other written statements made, or to be made, by us, contain, or
will contain, disclosures which are "forward-looking statements."
Forward-looking statements include all statements that do not relate solely to
historical or current facts and can be identified by the use of words such as
"may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan"
or "continue." These forward-looking statements address, among other things,
strategic objectives and the anticipated effects of the sale of our common
stock. See "Prospectus Summary," "Risk Factors," "Business," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." These
forward-looking statements are based on the current plans and expectations of
our management and are subject to a number of uncertainties and risks that could
significantly affect our current plans and expectations and future financial
condition and results. These factors include, but are not limited to:
- the highly competitive nature of the healthcare business including the
competition to recruit general and specialized physicians;
- the efforts of insurers, healthcare providers and others to contain
healthcare costs;
- possible changes in the Medicare program that may further limit
reimbursements to healthcare providers and insurers;
- changes in federal, state or local regulation affecting the healthcare
industry;
- the possible enactment of federal or state healthcare reform;
- the ability to attract and retain qualified management and personnel,
including physicians, both general practitioners and specialists,
consistent with our expectations and targets;
- our ability to acquire hospitals on favorable terms;
- liabilities and other claims asserted against us;
- uncertainty with the newly issued HIPAA regulations;
- the ability to enter into, renegotiate and renew payor arrangements on
acceptable terms;
- the availability and terms of capital to fund our business strategy;
- implementation of our business strategy and development plans;
- our ongoing efforts to monitor, maintain and comply with applicable laws,
regulations, policies and procedures including those required by the
corporate integrity agreement that we entered into with the government in
December, 2000;
- the ability to increase patient volumes and control the costs of
providing services and supply costs;
- successful development or license, performance and use of management
information systems, including software for efficient claims processing;
- limitations placed on us to preserve the tax treatment of the
distribution of our common stock from HCA;
- fluctuations in the market value of our common stock;
- changes in accounting practices;
- changes in general economic conditions; and
- other risk factors described in this prospectus.
As a consequence, current plans, anticipated actions and future financial
conditions and results may differ from those expressed in any forward-looking
statements made by or on behalf of our company. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. You are cautioned not to unduly
rely on such forward-looking statements when evaluating the information
presented in this prospectus.
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USE OF PROCEEDS
We estimate our net proceeds from the sale of our common stock in this
offering, after deducting underwriters' discounts and estimated offering costs
of $6.1 million, to be approximately $86.7 million. If the underwriters exercise
their over-allotment option in full, we will realize additional net proceeds of
approximately $13.2 million, after deducting $0.7 million for underwriters'
discounts. We intend to use the net proceeds of the offering to either repay a
portion of the amounts outstanding under our bank credit agreement or repay a
portion of the amounts outstanding under our bank credit agreement and redeem a
portion of our $150 million 10 3/4% senior subordinated notes.
Our bank credit agreement provides for commitments aggregating $210 million
consisting of a $60 million term loan facility, an $85 million term loan
facility and a $65 million revolving credit facility. No amounts were
outstanding under the $65 million revolving credit facility as of March 22,
2001. We would use proceeds of the offering to repay debt outstanding under our
$60 million term loan facility and under our $85 million term loan facility.
These amounts include approximately $14.0 million of debt held by affiliates of
the underwriters.
The final payment under our $60 million term loan facility is due November
11, 2004. The final payment under our $85 million term loan is due November 11,
2005. We make payments under the term loan facilities in quarterly installments
with quarterly amortization based on annual amounts. Interest on the bank
facilities is currently based on LIBOR plus 2.75% for the $60 million term loan
facility and LIBOR plus 3.25% for the $85 million term loan facility. The
weighted average interest rate on the bank facilities was approximately 9.7% at
December 31, 2000.
The 10 3/4% senior subordinated notes will mature on May 15, 2009. Subject
to obtaining the consent of our senior lenders, we have the option to redeem up
to 35% of the notes with the net proceeds from this offering within 60 days at a
redemption price equal to 110.75% of the principal amount redeemed, together
with accrued interest.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock. We intend to
retain future earnings to finance the growth and development of our business
and, accordingly, do not intend to declare or pay any dividends on the common
stock in the foreseeable future. Our board of directors will evaluate our future
earnings, results of operations, financial condition and capital requirements in
determining whether to declare or pay cash dividends. Delaware law prohibits us
from paying any dividends unless we have capital surplus or net profits
available for this purpose. In addition, our credit facilities impose
restrictions on our ability to pay dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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PRICE RANGE OF COMMON STOCK
Our common stock began publicly trading on May 11, 1999, the date of the
distribution of all of our common stock to the HCA stockholders. Prior to that
date, no public market existed for our common stock. Our common stock is quoted
on the Nasdaq National Market under the symbol "LPNT." The following table shows
the range of high and low sales prices for our common stock for the periods
indicated, as reported by the Nasdaq National Market.
HIGH LOW
------ ------
1999
Second Quarter (beginning May 11, 1999)..................... $17.50 $ 9.13
Third Quarter............................................... 14.38 6.88
Fourth Quarter.............................................. 12.63 7.69
2000
First Quarter............................................... $18.00 $12.25
Second Quarter.............................................. 23.56 15.50
Third Quarter............................................... 37.00 19.94
Fourth Quarter.............................................. 51.75 31.13
2001
First Quarter (through March 22, 2001)...................... $50.36 $27.75
On March 22, 2001, the last reported sales price for our common stock on
the Nasdaq National Market was $30 3/16 per share. At March 21, 2001, there were
34,742,766 shares of our common stock held by 6,429 holders of record.
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CAPITALIZATION
The following table contains as of December 31, 2000:
- the actual capitalization of our company; and
- the pro forma capitalization of our company which reflects the sale of
the shares of common stock offered by us and the application of the
estimated net proceeds to us from the sale of those shares to repay
borrowings under our bank credit agreement and the related write-off of
deferred loan costs originally incurred in obtaining the term portion of
the bank credit agreement, as if these transactions had occurred as of
December 31, 2000.
You should read this table in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus.
AS OF DECEMBER 31, 2000
------------------------
ACTUAL PRO FORMA
-------- -----------
(DOLLARS IN MILLIONS)
Long-term debt:
Credit agreement.......................................... $139.3 $ 52.6
Notes..................................................... 150.0 150.0
Other..................................................... 0.1 0.1
------ ------
Total debt................................................ 289.4 202.7(a)
Less current maturities................................... (11.1) --
------ ------
Total long-term debt.............................. $278.3 $202.7
====== ======
Stockholders' equity:
Common stock, $.01 par value; 90,000,000 shares
authorized; 34,709,504 shares issued and outstanding
actual and 37,909,504 shares issued and outstanding pro
forma.................................................. $ 0.3 $ 0.4
Capital in excess of par value............................ 156.5 243.1
Unearned ESOP compensation................................ (25.7) (25.7)
Notes receivable for shares sold to employees............. (7.2) (7.2)
Retained earnings......................................... 4.5 3.6
------ ------
Total stockholders' equity........................ 128.4 214.2
====== ======
Total capitalization......................... $406.7 $416.9
====== ======
---------------
(a) If we use the net proceeds of this offering to repay a portion of the
amounts outstanding under our bank credit agreement and redeem a portion of
our $150 million 10 3/4% senior subordinated notes as described in "Use of
Proceeds," our total debt would be $206.1 million, including $105.1 million
under our bank credit agreement and $100.9 million of the senior
subordinated notes, if the application of the net proceeds is given effect
as of December 31, 2000.
The table above excludes:
- 3,339,748 shares of common stock issuable upon exercise of options
outstanding at December 31, 2000 at a weighted average exercise price of
$11.73 per share; and
- 1,153,252 shares of common stock reserved for future grant or issuance
under our option plans and stock purchase plans.
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SELECTED CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA
The following table contains selected historical financial data for each of
the years in the five year period ended December 31, 2000. We derived the
selected historical financial data as of December 31, 1996 from unaudited
financial statements. You should read this table in conjunction with the
consolidated financial statements and related notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues..................................... $ 464.0 $ 487.6 $ 498.4 $ 515.2 $ 557.1
Salaries and benefits...................... 175.2 196.6 220.8 217.4 224.2
Supplies................................... 50.9 55.0 62.0 64.2 67.0
Other operating expenses................... 99.3 119.5 117.2 117.3 118.1
Provision for doubtful accounts............ 28.0 34.5 41.6 38.2 42.0
Depreciation and amortization.............. 23.5 27.4 28.3 31.4 34.1
Interest expense........................... 14.1 15.4 19.1 23.4 30.7
Management fees............................ 6.2 8.2 8.9 3.2 --
ESOP expense............................... -- -- -- 2.9 7.1
Impairment of long-lived assets............ -- -- 26.1 25.4 (1.4)
------- -------- -------- -------- --------
397.2 456.6 524.0 523.4 521.8
------- -------- -------- -------- --------
Income (loss) from continuing operations
before minority interests and income
taxes...................................... 66.8 31.0 (25.6) (8.2) 35.3
Minority interests in earnings of
consolidated entities...................... 1.2 2.2 1.9 1.9 2.2
------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes........................ 65.6 28.8 (27.5) (10.1) 33.1
Provision (benefit) for income taxes......... 26.3 11.7 (9.8) (2.7) 15.2
------- -------- -------- -------- --------
Income (loss) from continuing
operations(a).............................. $ 39.3 $ 17.1 $ (17.7) $ (7.4) $ 17.9
======= ======== ======== ======== ========
Net income (loss)(a)............... $ 41.2 $ 12.5 $ (21.8) $ (7.4) $ 17.9
======= ======== ======== ======== ========
Basic earnings (loss) per share:
Income (loss) from continuing
operations(a)........................... $ 1.31 $ 0.57 $ (0.59) $ (0.24) $ 0.57
Net income (loss)(a)....................... $ 1.37 $ 0.41 $ (0.73) $ (0.24) $ 0.57
Shares used in computing basic earnings
(loss) per share (in millions).......... 30.0 30.0 30.0 30.5 31.6
Diluted earnings (loss) per share:
Income (loss) from continuing
operations(a)........................... $ 1.30 $ 0.57 $ (0.59) $ (0.24) $ 0.54
Net income (loss)(a)....................... $ 1.36 $ 0.41 $ (0.73) $ (0.24) $ 0.54
Shares used in computing diluted earnings
(loss) per share (in millions).......... 30.3 30.2 30.0 30.5 32.9
Cash dividends declared per common share..... -- -- -- -- --
FINANCIAL POSITION (AS OF END OF YEAR):
Assets....................................... $ 376.0 $ 397.9 $ 355.0 $ 420.4 $ 488.0
Long-term debt, including amounts due within
one year................................... 1.6 1.6 0.6 260.2 289.4
Intercompany balances payable to HCA......... 176.3 182.5 167.6 -- --
Working capital.............................. 39.0 41.1 26.9 42.2 65.4
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YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1997 1998 1999 2000
------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
OTHER OPERATING DATA:
EBITDA(b).................................... $ 110.6 $ 82.0 $ 56.8 $ 78.1 $ 105.8
Capital expenditures......................... 53.4 51.8 29.3 64.8 31.4
Number of hospitals at end of year........... 22 22 23 23 20
Number of licensed beds at end of year(c).... 2,074 2,080 2,169 2,169 1,963
Weighted average licensed beds(d)............ 2,060 2,078 2,127 2,169 2,056
Admissions(e)................................ 59,381 60,487 62,269 64,081 66,085
Equivalent admissions(f)..................... 98,869 105,126 110,029 114,321 119,812
Average length of stay (days)(g)............. 4.7 4.4 4.4 4.2 4.1
---------------
(a) Includes charges related to impairment of long-lived assets of $25.4
million ($16.2 million after-tax) and $26.1 million ($15.9 million
after-tax) for the years ended December 31, 1999 and 1998, respectively,
and gain on impairment of long-lived assets of $1.4 million ($0.8 million
after-tax) for the year ended December 31, 2000.
(b) EBITDA is defined as income from continuing operations before depreciation
and amortization, interest expense, management fees, impairment of
long-lived assets, ESOP expense, minority interests in earnings of
consolidated entities and income taxes. EBITDA is commonly used as an
analytical indicator within the healthcare industry and also serves as a
measure of leverage capacity and debt service ability. EBITDA should not be
considered as a measure of financial performance under generally accepted
accounting principles, and the items excluded from EBITDA are significant
components in understanding and assessing financial performance. EBITDA
should not be considered in isolation or as an alternative to net income,
cash flows generated by operating, investing or financing activities or
other financial statement data presented in the consolidated financial
statements as an indicator of financial performance or liquidity. Because
EBITDA is not a measurement determined in accordance with generally
accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(c) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(d) Represents the average number of licensed beds weighted based on periods
owned.
(e) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals and is used by management
and investors as a general measure of inpatient volume. Amounts for the
years ended December 31, 1998 and 1999 have been restated to conform to
current year definitions.
(f) Equivalent admissions is used by management and investors as a general
measure of combined inpatient and outpatient volume. Equivalent admissions
is computed by multiplying admissions (inpatient volume) by the sum of
gross inpatient revenue and gross outpatient revenue and then dividing the
resulting amount by gross inpatient revenue. The equivalent admissions
computation "equates" outpatient revenue to the volume measure (admissions)
used to measure inpatient volume resulting in a general measure of combined
inpatient and outpatient volume. Amounts for the years ended December 31,
1998 and 1999 have been restated to conform to current year definitions.
(g) Represents the average number of days admitted patients stay in our
hospitals. Average length of stay has declined as a result of the
continuing pressures from managed care and other payers to restrict
admissions and reduce the number of days that are covered by the payers for
certain procedures and by technological and pharmaceutical improvements.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Statement of Operations
presented in this prospectus reflects our results of operations for the year
ended December 31, 2000 as if the offering, including the use of the estimated
net proceeds to repay a portion of the outstanding debt under our bank credit
agreement, had occurred at the beginning of the year. The Unaudited Pro Forma
Condensed Consolidated Balance Sheet assumes that the offering had occurred on
December 31, 2000. The pro forma adjustments do not include additional shares
issued and corresponding additional debt repayments in conjunction with the
potential sale of over-allotment shares.
You should read the Unaudited Pro Forma Condensed Consolidated Financial
Statements in conjunction with the historical financial statements included
elsewhere in this prospectus and the notes to these financial statements. We
have presented the pro forma condensed consolidated financial information for
informational purposes only and we do not purport to reflect our results of
operations or financial position that would have occurred had the offering
occurred during that period.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
OFFERING PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
Revenues.................................................... $ 557.1 $ 557.1
Salaries and benefits....................................... 224.2 224.2
Supplies.................................................... 67.0 67.0
Other operating expenses.................................... 118.1 118.1
Provision for doubtful accounts............................. 42.0 42.0
Depreciation and amortization............................... 34.1 34.1
Interest expense............................................ 30.7 (8.5)(a) 22.2
ESOP expense................................................ 7.1 7.1
Gain on previously impaired assets.......................... (1.4) (1.4)
------- ------ -------
521.8 (8.5) 513.3
------- ------ -------
Income before minority interests and income taxes........... 35.3 8.5 43.8
Minority interests in earnings of consolidated entities..... 2.2 -- 2.2
------- ------ -------
Income before income taxes.................................. 33.1 8.5 41.6
Provision for income taxes.................................. 15.2 3.3(b) 18.5
------- ------ -------
Income from continuing operations........................... $ 17.9 $ 5.2 $ 23.1
======= ====== =======
Shares used in computing basic earnings per share (in
millions)................................................. 31.6 3.2(c) 34.8
Basic earnings per shares................................... $ 0.57 $ 0.66
======= =======
Shares used in computing diluted earnings per share (in
millions)................................................. 32.9 3.2(c) 36.1
Diluted earnings per share.................................. $ 0.54 $ 0.64
======= =======
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PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents............................. $ 39.7 $ 39.7
Accounts receivable, net.............................. 41.7 41.7
Inventories........................................... 13.9 13.9
Deferred taxes and other current assets............... 22.2 0.6(d) 22.8
------- ------- -------
117.5 0.6 118.1
Property and equipment:
Land.................................................. 8.7 8.7
Buildings and improvements............................ 236.9 236.9
Equipment............................................. 244.9 244.9
Construction in progress.............................. 9.4 9.4
------- ------- -------
499.9 499.9
Accumulated depreciation................................ (183.4) (183.4)
------- ------- -------
316.5 -- 316.5
Intangible assets, net.................................. 53.8 (1.5)(d) 52.3
Other................................................... 0.2 0.2
------- ------- -------
$ 488.0 $ (0.9) $ 487.1
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable...................................... $ 16.1 $ 16.1
Accrued salaries...................................... 13.8 13.8
Other current liabilities............................. 11.1 11.1
Current maturities of long-term debt.................. 11.1 (11.1)(c) --
------- ------- -------
52.1 (11.1) 41.0
Long-term debt.......................................... 278.3 (75.6)(c) 202.7
Deferred taxes.......................................... 15.2 15.2
Professional liability risks and other liabilities...... 9.4 9.4
Minority interests in equity of consolidated entities... 4.6 4.6
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; no shares issued....................... -- --
Common stock, $.01 par value; 90,000,000 shares
authorized; 34,709,504 shares issued and
outstanding actual and 37,909,504 shares issued and
outstanding pro forma.............................. 0.3 0.1(c) 0.4
Capital in excess of par value........................ 156.5 86.6(c) 243.1
Unearned ESOP compensation............................ (25.7) (25.7)
Notes receivable for shares sold to employees......... (7.2) (7.2)
Retained earnings..................................... 4.5 (0.9)(d) 3.6
------- ------- -------
128.4 85.8 214.2
------- ------- -------
$ 488.0 $ (0.9) $ 487.1
======= ======= =======
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
(a) To adjust interest expense based on the repayment of $86.7 million of
long-term debt under our bank credit agreement from the net proceeds of
this offering, using an assumed weighted average interest rate of 9.9%. If
we use the net proceeds of this offering to repay a portion of the amounts
outstanding under our bank credit agreement and redeem a portion of our
$150 million 10 3/4% senior subordinated notes as described in "Use of
Proceeds," then the pro forma operations data for the year ended December
31, 2000 would not differ significantly from that shown.
(b) To adjust income taxes for the estimated impact of the pro forma
adjustments.
(c) To reflect the repayment of $86.7 million of long-term debt under our bank
credit agreement from the net proceeds of this offering and the issuance of
3,200,000 shares of common stock. The adjustment assumes estimated offering
expenses of approximately $6.1 million. If we use the net proceeds of this
offering to repay a portion of the amounts outstanding under our bank
credit agreement and redeem a portion of our $150 million 10 3/4% senior
subordinated notes as described in "Use of Proceeds," long term debt would
be $206.1 million and retained earnings would decline by $3.4 million
after-tax, related to the extraordinary charge for the prepayment penalty
on the 10 3/4% senior subordinated notes.
(d) To reflect the write-off of $1.5 million in deferred loan costs and the
related tax benefits originally recorded in connection with obtaining the
term portion of our bank credit agreement.
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25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read this discussion together with our consolidated historical
financial statements and related notes included elsewhere in this prospectus.
OVERVIEW
At December 31, 2000, we operated 20 general, acute care hospitals. For the
year ended December 31, 2000, we generated $557.1 million in net revenues.
Effective January 2, 2001, we opened Bluegrass Community Hospital located in
Versailles, Kentucky. We currently operate in the states of Alabama, Florida,
Kansas, Kentucky, Tennessee, Utah and Wyoming.
RESULTS OF OPERATIONS
Revenue/Volume Trends
We expect our patient volumes and related revenues to continue to increase
as a result of the following factors:
- Expanding Service Offerings. We believe our efforts to improve the
quality and broaden the scope of healthcare services available at our
facilities will lead to increased patient volumes. Recruiting and
retaining both general practitioners and specialists for our non-urban
communities is a key to the success of these efforts. Between the date of
the distribution of our stock from HCA and December 31, 2000, we
recruited 150 physicians, of which approximately 61% are specialists.
Adding new physicians should help increase patient volumes which, in
turn, should increase revenues. Continuing to add specialists should also
allow us to grow by offering new services.
- Improving Managed Care Position. We believe we have been able to
negotiate contract terms that are generally more favorable for our
facilities than terms available in urban markets.
- Aging U.S. Population. In general, the population of the United States
and of the communities that we serve is aging. At the end of 2000,
approximately 13% of the U.S. population was 65 years old or older
compared to 11% of the population at the end of 1980. This aging trend is
projected to continue so that by 2025, approximately 18% of the U.S.
population is expected to be older than 65.
Although we expect our patient volumes to increase, the resulting revenue
will likely be offset in part by the following factors:
- Revenues from Medicare, Medicaid and Managed Care Plans. We derive a
significant portion of our revenues from Medicare, Medicaid and managed
care plans. Admissions related to Medicare, Medicaid and managed care
plan patients were 90.4% and 89.2% of total admissions for the years
ended December 31, 2000 and 1999, respectively. These payors receive
significant discounts compared to other payors.
- Efforts to Reduce Payments. Insurance companies, government programs
(other than Medicare) and employers purchasing health care services for
their employees also negotiate discounted fees rather than paying
standard prices. Hospitals generally receive lower payments per patient
under managed care plans than under traditional indemnity insurance
plans. In addition, an increasing proportion of our services are
reimbursed under prospective payment amounts regardless of the cost
incurred.
- Growth in Outpatient Services. We expect the growth trend in outpatient
services to continue. A number of procedures once performed only on an
inpatient basis have been, and will likely continue to be, converted to
outpatient procedures. This conversion has occurred through continuing
advances in pharmaceutical and medical technologies and as a result of
efforts made by payors to
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control costs. Generally, the payments we receive for outpatient
procedures are less than for similar procedures performed in an inpatient
setting.
Reductions in Medicare and Medicaid payment levels, the increase in
outpatient services and the patient volume being related to patients
participating in managed care plans will present ongoing challenges for us.
These challenges are exacerbated by our inability to control these trends and
the associated risks. To maintain or improve operating margins in the future, we
must, among other things, increase patient volumes while controlling the costs
of providing services. If we are not able to achieve these improvements and the
trend toward declining reimbursements and payments continues, results of
operations and cash flow will deteriorate.
IMPACT OF ACQUISITIONS AND DIVESTITURES
Acquisitions
Effective July 1, 2000, we acquired Lander Valley Medical Center in Lander,
Wyoming for approximately $33.0 million. Effective June 16, 2000, we acquired
Putnam Community Medical Center in Palatka, Florida for approximately $49.4
million. We accounted for these two acquisitions using the purchase method of
accounting and allocated the purchase price of each transaction to identifiable
assets acquired and liabilities assumed based on their respective fair values.
Divestitures
Effective November 17, 2000, we sold Springhill Medical Center located in
Springhill, Louisiana for approximately $5.7 million. We deposited the proceeds
into a trust for tax planning reasons and we intend to use them for future
capital reinvestment.
Effective September 1, 2000, we sold Barrow Medical Center in Winder,
Georgia for approximately $2.2 million.
Effective August 1, 2000, we sold Riverview Medical Center in Gonzales,
Louisiana for approximately $20.7 million. We used the proceeds from this
transaction and our available cash to pay down existing borrowings under our
revolving credit facility.
Effective April 1, 2000, we sold Halstead Hospital in Halstead, Kansas and
effective February 1, 2000, we sold Trinity Hospital in Erin, Tennessee. We
previously held Halstead Hospital, Trinity Hospital and Barrow Medical Center
for sale. We recorded an impairment of long-lived assets related to these three
hospitals of $24.8 million in 1998 and an additional impairment of $25.4 million
in 1999.
During 2000, we recorded a $1.4 million pre-tax gain related to the
favorable settlement on the sale of one of the facilities that we previously
held for sale.
We consolidated the operating results of the acquisitions and divestitures
for the periods subsequent to acquisition and for the periods prior to sale,
respectively.
Because of the relatively small number of hospitals we own, each hospital
acquisition can materially affect our overall operating margin. We typically
take a number of steps to lower operating costs when we acquire a hospital. The
impact of our actions may be offset by other cost increases to expand services,
strengthen medical staff and improve market position. The benefits of our
investments and of other activities to improve operating margins generally do
not occur immediately. Consequently, the financial performance of a newly
acquired hospital may adversely affect our overall operating margins in the
short term. As we acquire additional hospitals, this effect should be mitigated
by the expanded financial base of our existing hospitals and the allocation of
corporate overhead among a larger number of hospitals.
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OPERATING RESULTS SUMMARY
The following table presents summaries of results from continuing
operations for the years ended December 31, 1998, 1999 and 2000:
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 1999 2000
----------------- ----------------- -----------------
% OF % OF % OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ -------- ------ --------
Revenues...................... $498.4 100.0% $515.2 100.0% $557.1 100.0%
Salaries and benefits......... 220.8 44.3 217.4 42.2 224.2 40.2
Supplies...................... 62.0 12.4 64.2 12.5 67.0 12.0
Other operating expenses...... 117.2 23.5 117.3 22.7 118.1 21.3
Provision for doubtful
accounts.................... 41.6 8.4 38.2 7.4 42.0 7.5
------ ----- ------ ----- ------ -----
441.6 88.6 437.1 84.8 451.3 81.0
------ ----- ------ ----- ------ -----
EBITDA(a)..................... 56.8 11.4 78.1 15.2 105.8 19.0
Depreciation and
amortization................ 28.3 5.7 31.4 6.2 34.1 6.2
Interest expense.............. 19.1 3.8 23.4 4.5 30.7 5.5
Management fees............... 8.9 1.8 3.2 0.6 -- --
ESOP expense.................. -- -- 2.9 0.6 7.1 1.3
Impairment of long-lived
assets...................... 26.1 5.2 25.4 4.9 (1.4) (0.3)
------ ----- ------ ----- ------ -----
Income (loss) from continuing
operations before minority
interests and income
taxes....................... (25.6) (5.1) (8.2) (1.6) 35.3 6.3
Minority interests in earnings
of consolidated entities.... 1.9 0.4 1.9 0.4 2.2 0.4
------ ----- ------ ----- ------ -----
Income (loss) from continuing
operations before income
taxes....................... (27.5) (5.5) (10.1) (2.0) 33.1 5.9
Provision (benefit) for income
taxes....................... (9.8) (2.0) (2.7) (0.6) 15.2 2.7
------ ----- ------ ----- ------ -----
Income (loss) from continuing
operations.................. $(17.7) (3.5)% $ (7.4) (1.4)% $ 17.9 3.2%
====== ===== ====== ===== ====== =====
% changes from prior year:
Revenues.................... 3.4% 8.1%
Income (loss) from
continuing operations
before income taxes...... 63.1 425.7
Income (loss) from
continuing operations.... 58.4 342.4
Admissions(b)............... 3.2 3.1
Equivalent admissions(c).... 4.2 4.8
Revenues per equivalent
admission................ (0.8) 3.2
Same hospital % changes from
prior year(d):
Revenues.................... 8.8
Admissions(b)............... 2.6
Equivalent admissions(c).... 6.5
Revenues per equivalent
admission................ 2.2
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---------------
(a) EBITDA is defined as income from continuing operations before depreciation
and amortization, interest expense, management fees, impairment of
long-lived assets, ESOP expense, minority interests in earnings of
consolidated entities and income taxes. EBITDA is commonly used as an
analytical indicator within the healthcare industry and also serves as a
measure of leverage capacity and debt service ability. EBITDA should not be
considered as a measure of financial performance under generally accepted
accounting principles and the items excluded from EBITDA are significant
components in understanding and assessing financial performance. EBITDA
should not be considered in isolation or as an alternative to net income,
cash flows generated by operating, investing or financing activities or
other financial statement data presented in the consolidated financial
statements as an indicator of financial performance or liquidity. Because
EBITDA is not a measurement determined in accordance with generally
accepted accounting principles and is susceptible to varying calculations,
EBITDA as presented may not be comparable to other similarly titled
measures of other companies.
(b) 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.
(c) 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 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.
(d) "Same hospital" information excludes the operations of hospitals which we
either acquired or divested during the years presented.
For the Years Ended December 31, 2000 and 1999
Revenues increased 8.1% to $557.1 million for the year ended December 31,
2000 compared to $515.2 million for the year ended December 31, 1999, primarily
as a result of an 8.8% increase in same hospital revenues and our acquisition of
two hospitals during fiscal 2000. Our sale of five hospitals during fiscal 2000
partially offset the increase in revenues. The 8.8% increase in same hospital
revenues resulted primarily from a 2.6% increase in same hospital inpatient
admissions and a 6.5% increase in same hospital equivalent admissions, adjusted
to reflect combined inpatient and outpatient volume.
Revenues per equivalent admission increased 3.2% primarily due to our
acquisition of two hospitals in fiscal 2000 with higher revenues per equivalent
admission compared to our average. The higher revenues per equivalent admission
at one of the acquired hospitals resulted primarily from a low number of
outpatient procedures performed at that hospital as revenues from outpatient
services are generally lower than inpatient services. In addition, the higher
revenues per equivalent admission at the other acquired hospital resulted
primarily from a lower percentage of revenues from managed care plans as
compared to our average. The increase in revenues per equivalent admission was
partially offset by an increase in outpatient revenues for the year ended
December 31, 2000 compared to the same period last year. Outpatient revenues as
a percentage of patient revenues were 48.1% for the year ended December 31, 2000
compared to 47.2% for the same period last year. We also recorded favorable
adjustments to estimated third party settlements of $3.2 million for the year
ended December 31, 2000 compared to $0.7 million for the year ended December 31,
1999.
Our costs did not increase at the same rate as our revenue. The increase in
volumes and revenues per equivalent admission contributed to the reduction of
our operating expenses as a percent of revenue because we were able to spread
our operating costs over an increased base of revenues.
Salaries and benefits decreased as a percentage of revenues to 40.2% for
the year ended December 31, 2000 from 42.2% for the year ended December 31, 1999
primarily as a result of improvements in labor productivity and an increase in
revenues per equivalent admission, as discussed above. In addition, man-hours
per equivalent admission decreased 5.4% over the same period last year.
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29
Supply costs decreased as a percentage of revenues to 12.0% for the year
ended December 31, 2000 from 12.5% for the year ended December 31, 1999. The
decrease related primarily to the increase in revenues per equivalent admission
and a lower number of high intensity services provided during the year ended
December 31, 2000 compared to the same period last year.
Other operating expenses decreased as a percentage of revenues to 21.3% for
the year ended December 31, 2000 from 22.7% for the year ended December 31,
1999. Other operating expenses consist primarily of contract services, physician
recruitment, professional fees, repairs and maintenance, rents and leases,
utilities, insurance, marketing and non-income taxes. The decrease was primarily
the result of an increase in volumes and revenues per equivalent admission as
discussed above and a decrease in contract services as a percentage of revenues.
Provision for doubtful accounts increased slightly as a percentage of
revenues to 7.5% for the year ended December 31, 2000 from 7.4% for the year
ended December 31, 1999.
Depreciation and amortization expense increased to $34.1 million for the
year ended December 31, 2000 from $31.4 million for the year ended December 31,
1999 primarily due to the opening of a replacement facility in Bartow, Florida
in December 1999 and the acquisition of two hospitals in fiscal 2000. This
increase was partially offset by a decrease in depreciation and amortization
expense related to the sale of hospitals during 2000.
Interest expense increased to $30.7 million for the year ended December 31,
2000 from $23.4 million for the year ended December 31, 1999. This increase is
primarily due to the interest expense we incurred on the debt obligations we
assumed from HCA as a result of the distribution. The increase is also due to
our increased borrowings to finance acquisitions and an increase in interest
rates. For the year ended December 31, 1999, interest expense consisted of
interest incurred on the net intercompany balance with HCA and approximately
seven and a half months of interest expense on the debt obligations we assumed
from HCA.
Management fees incurred during 1999 represent fees allocated to us by HCA
before the distribution. This amount represented allocations, using revenues as
the allocation basis, of the corporate, general and administrative expenses of
HCA.
ESOP expense increased to $7.1 million for the year ended December 31, 2000
from $2.9 million for the year ended December 31, 1999. We established the ESOP
in June 1999; therefore, only seven months of expense for the ESOP is reflected
in the year ended December 31, 1999. The increase in ESOP expense is also due to
a higher average fair market value of our common stock for the year ended
December 31, 2000 compared to the same period last year. We recognize ESOP
expense based on the average fair market value of the shares committed to be
released during the period.
During the year ended December 31, 2000, we recorded a $1.4 million pre-tax
gain related to the favorable settlement on the sale of a facility that we
previously held for sale. During the year ended December 31, 1999, we recorded a
$25.4 million impairment charge related to the three facilities we identified as
held for sale during 1998. We sold the three hospital facilities held for sale
during the year ended December 31, 2000. We recorded the impairment charge and
the gain in the accompanying consolidated statements of operations as impairment
of long-lived assets. For the year ended December 31, 2000 and 1999, these
facilities had net revenues of $14.4 million and $42.6 million, EBITDA of $(1.0)
million and $(0.7) million, admissions of 1,140 and 4,689 and equivalent
admissions of 2,781 and 8,722, respectively.
Minority interests in earnings of consolidated entities increased slightly
to $2.2 million for the year ended December 31, 2000 from $1.9 million for the
year ended December 31, 1999.
Income (loss) from continuing operations before income taxes increased to
$33.1 million for the year ended December 31, 2000 compared to $(10.1) million
for the year ended December 31, 1999 primarily because of the $25.4 million
impairment charge we incurred during 1999, increases in revenues and decreases
in expenses as described above.
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30
The provision (benefit) for income taxes for the year ended December 31,
2000 was $15.2 million compared to $(2.7) million for the year ended December
31, 1999. These provisions reflect effective income tax rates of 46.1% for 2000
and 26.7% for 1999. The increase in the effective rate relates primarily to the
impairment charge taken in the fourth quarter of 1999 as discussed above and
also due to the increase in the nondeductible portion of ESOP expense.
Net income (loss) increased to $17.9 million for the year ended December
31, 2000 compared to $(7.4) million for the year ended December 31, 1999 due to
the reasons described above.
For the Years Ended December 31, 1999 and 1998
Revenues increased 3.4% to $515.2 million for the year ended December 31,
1999 compared to $498.4 million for the year ended December 31, 1998 primarily
because of increases in the volume of patients treated at our facilities.
Inpatient admissions increased 3.2% and equivalent admissions, adjusted to
reflect combined inpatient and outpatient volume, increased 4.2% for the year
ended December 31, 1999 compared to the year ended December 31, 1998. Revenues
per equivalent admission decreased 0.8% for the year ended December 31, 1999
compared to the prior year. The decline in revenues per equivalent admission
resulted from several factors, including:
- decreases in Medicare reimbursement rates mandated by the Balanced Budget
Act which became effective October 1, 1997. These rates lowered revenues
by approximately $10.1 million for the year ended December 31, 1999
compared to periods before the effective date of the Balanced Budget Act;
- continued increases in the number of managed care payers which as a
percentage of total admissions increased to 20.2% for the year ended
December 31, 1999 compared to 18.6% for the year ended December 31, 1998;
and
- favorable adjustments to third party settlements of $0.7 million recorded
during the year ended December 31, 1999 compared to $1.2 million recorded
during the year ended December 31, 1998.
Salaries and benefits decreased as a percentage of revenues to 42.2% for
the year ended December 31, 1999 from 44.3% for the year ended December 31, 1998
primarily as a result of improvements in labor productivity. Man-hours per
equivalent admission decreased 9.2% over the prior year.
Supply costs increased slightly to 12.5% as a percentage of revenues for
the year ended December 31, 1999 from 12.4% for the year ended December 31,
1998.
Other operating expenses decreased as a percentage of revenues to 22.7% for
the year ended December 31, 1999 from 23.5% for the year ended December 31, 1998
primarily because of a decrease in professional fees and contract services.
Provision for doubtful accounts decreased as a percentage of revenues to
7.4% for the year ended December 31, 1999 from 8.4% for the year ended December
31, 1998. In fiscal year 1998, a majority of our facilities converted their
computer information systems which hampered their business office billing
functions. Some facilities did not timely bill accounts and our allowance for
bad debt increased in 1998. During 1999, we began to recover from the
conversions and focus more on collections of accounts receivable.
Depreciation and amortization expense increased to $31.4 million for the
year ended December 31, 1999 from $28.3 million for the year ended December 31,
1998 primarily as a result of capital expenditures related to computer
information systems. The majority of our facilities began depreciating the
systems in the fourth quarter of 1998.
Interest expense increased to $23.4 million for the year ended December 31,
1999 from $19.1 million for the year ended December 31, 1998 primarily as a
result of the interest expense we incurred on the debt obligations that we
assumed from HCA in connection with the distribution. For the year ended
December 31, 1998, our interest expense primarily included interest that we
incurred on the net
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31
intercompany balance with HCA. On the date HCA distributed our common stock to
its stockholders, we eliminated the intercompany amounts payable by us to HCA.
Management fees allocated by HCA equaled $3.2 million for the year ended
December 31, 1999 and $8.9 million for the year ended December 31, 1998. These
amounts represented allocations, using revenues as the allocation basis, of the
corporate, general and administrative expenses of HCA; HCA stopped allocating
management fees to us after the distribution. Increases in salaries, supplies
and other operating costs related to the establishment and operation of our
corporate office during 1999 offset the elimination of management fee
allocations by HCA.
ESOP expense of $2.9 million during 1999 relates to the newly established
ESOP.
During the fourth quarter of 1998, we decided to sell three hospital
facilities that we identified as not compatible with our operating plans based
on management's review of all facilities, consideration of current and expected
market conditions and consideration of current and expected capital needs in
each market. At December 31, 1998, the carrying value before the impairment
charge of the long-lived assets related to these hospital facilities equaled
approximately $47.2 million. We reduced the carrying value to fair value, based
on estimates of selling values at that time, for a total non-cash charge of
$24.8 million. During the fourth quarter of 1999, based on revised selling
values, we recorded an additional non-cash charge of $25.4 million (comprised of
$22.4 million in further impairment charges for these facilities and $3.0
million in anticipated selling/closing costs). For the year ended December 31,
1999 and 1998, these facilities had net revenues of $42.6 million and $48.0
million, EBITDA of $(0.7) million and $0.3 million, admissions of 4,689 and
5,454 and equivalent admissions of 8,722 and 9,295, respectively.
We recorded, during the third quarter of 1998, an impairment loss of
approximately $1.3 million related to the write-off of intangibles and other
long-lived assets of physician practices where we determined that the recorded
asset values were not fully recoverable based on the operating results trends
and projected future cash flows. We have now recorded these assets being held
and used at estimated fair value based on discounted, estimated future cash
flows.
These impairment charges did not have a significant impact on our cash
flows and we do not expect the charges to significantly impact cash flows for
future periods. Depreciation and amortization expense related to these assets
will decrease in future periods as a result of the right downs. In the
aggregate, we do not expect the net effect of the change in depreciation and
amortization expense to have a material effect on operating results for future
periods.
Minority interests in earnings of consolidated entities remained unchanged
as a percentage of revenues at 0.4% compared to the prior year.
Loss from continuing operations before income taxes was $10.1 million for
the year ended December 31, 1999 compared to a loss of $27.5 million for the
year ended December 31, 1998 primarily because of increases in revenue and
decreases in certain expenses as described above.
Net loss equaled $7.4 million for the year ended December 31, 1999 compared
to a loss of $21.8 million for the year ended December 31, 1998. The year ended
December 31, 1998 included a $4.1 million after-tax loss from our discontinued
home health operations, resulting primarily from declines in Medicare rates of
reimbursement under the Balanced Budget Act and declines in home health visits.
We divested our home health operations during 1998.
LIQUIDITY AND CAPITAL RESOURCES
We rely upon our bank credit facilities and other traditional funding
sources to supplement any cash needs not met by operations. At December 31,
2000, we had working capital of $65.4 million compared to $42.2 million at
December 31, 1999 primarily due to a $27.2 million increase in cash resulting
from net cash collections during 2000 and to a decrease in accounts payable. The
increase in working capital was offset by increases in current maturities on
long-term debt.
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32
Cash provided by operating activities increased to $83.4 million in 2000
compared to $59.3 million in 1999 and $47.5 million in 1998. The increase in
2000 resulted primarily from receipt of an income tax refund of $4.4 million in
2000 compared to income tax payments of $15.4 million during 1999. The increase
in 1999 over 1998 was primarily attributable to less of a net loss in 1999 than
in 1998.
Cash used in investing activities increased to $91.8 million during 2000
compared to $68.8 million in 1999 and $31.5 million in 1998. The increase in
2000 resulted primarily from our two hospital acquisitions during fiscal 2000.
The increase was partially offset by proceeds of $24.3 million from the sale of
facilities and by decreased capital expenditures of $31.4 million during 2000
compared to $64.8 million in 1999 (which included the construction of a
replacement facility). Capital expenditures totaled $29.3 million in 1998. At
December 31, 2000, we had projects under construction which had an estimated
additional cost to complete and equip of approximately $12.0 million. We
anticipate that these projects will be completed over the next twelve months. We
believe our capital expenditure program is adequate to expand, improve and equip
our existing healthcare facilities. We expect to make total capital expenditures
in 2001 of approximately $35 to $40 million, excluding acquisitions.
Cash provided by financing activities increased to $35.6 million in 2000
compared to $22.0 million in 1999. This increase resulted primarily from an
increase in long-term debt to pay for acquisitions. Cash used in financing
activities was $16.0 million in 1998 primarily due to a decrease in intercompany
balances with HCA.
In June 2000, we borrowed the remaining $35 million from our $60 million
term loan facility and $30 million under our $65 million revolving credit
facility. We utilized this additional debt to fund acquisitions. Effective
August 1, 2000, we sold Riverview Medical Center in Gonzales, Louisiana for
approximately $20.7 million. We used the proceeds from this transaction and our
available cash to pay off the $30 million outstanding balance under our
revolving credit facility. As of December 31, 2000 and as of March 22, 2001, we
did not have any amounts outstanding under our revolving credit facility.
Management does not consider the sale of any assets to be necessary to
repay our indebtedness or to provide working capital. However, for other
reasons, we may sell facilities in the future from time to time. Management
expects that operations and amounts available under our bank credit agreement
will provide sufficient liquidity for the next twelve months.
We intend to acquire additional hospitals and are actively seeking such
acquisitions. These acquisitions may, however, require additional financing. We
also continually review our capital needs and financing opportunities and may
seek additional financing for our acquisition program or other needs. Although
we intend to use the net proceeds of this offering to repay a portion of the
outstanding amounts under our bank credit agreement, we may incur additional
bank or other indebtedness in the future.
We do not expect to pay dividends on our common stock in the foreseeable
future.
LONG-TERM DEBT
Bank Credit Agreement
On May 11, 1999, we assumed from HCA the obligations under a bank credit
agreement with a group of lenders with commitments aggregating $210 million. The
credit agreement consists of a $60 million term loan facility, an $85 million
term loan facility and a $65 million revolving credit facility.
At the time of the distribution, $25 million of the $60 million term loan
facility was drawn. In June 2000, we borrowed the remaining $35 million of the
$60 million term loan facility. The final payment under this term loan facility
is due November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
distribution from HCA. The final payment under this term loan facility is due
November 11, 2005.
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The $65 million revolving credit facility is available for working capital
and other general corporate purposes and any outstanding amounts under the
revolving credit facility will be due and payable on November 11, 2004. As of
December 31, 2000 and as of March 22, 2001, we did not owe any amounts under
this facility.
We make payments under the term loan facilities in quarterly installments
with quarterly amortization based on annual amounts. Interest on the bank
facilities is currently based on LIBOR plus 2.75% for the revolving credit
facility and the $60 million term loan facility, and LIBOR plus 3.25% for the
$85 million term loan facility. The weighted average interest rate on the bank
facilities equaled approximately 9.7% at December 31, 2000. We also pay a
commitment fee equal to 0.5% of the average daily amount available under the
revolving credit facility.
Our subsidiaries guarantee our obligations under the bank facilities. These
guarantees are secured by a pledge of substantially all of the subsidiaries'
assets. The credit agreement requires that we comply with various financial
ratios and tests and contains covenants, including but not limited to
restrictions on new indebtedness, the ability to merge or consolidate, asset
sales, capital expenditures and dividends.
Senior Subordinated Notes
On May 11, 1999, we assumed from HCA $150 million in senior subordinated
notes maturing on May 15, 2009 and bearing interest at 10.75%. In November 1999,
in a registered exchange offer, we issued a like aggregate principal amount of
notes in exchange for these notes. Interest is payable semi-annually. The notes
are unsecured obligations and are subordinated in right of payment to all
existing and future senior indebtedness. Our subsidiaries also guarantee our
obligations under the notes.
The indenture pursuant to which the notes were made contains certain
covenants, including but not limited to restrictions on new indebtedness, the
ability to merge or consolidate, asset sales, capital expenditures and
dividends.
MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
Our interest expense is sensitive to changes in the general level of
interest rates. We do not currently use derivatives to alter the interest rate
characteristics of our debt instruments.
With respect to our interest-bearing liabilities, approximately $139.3
million of our long-term debt at December 31, 2000 is subject to variable rates
of interest. The remaining balance in long-term debt of $150.1 million at
December 31, 2000 is subject to fixed interest rates. The fair value of our
total long-term debt (including current portion) equaled $301.4 million at
December 31, 2000. We determined the fair value of our senior subordinated notes
using the quoted market price at December 31, 2000. We estimate the fair value
of the remaining long-term debt using discounted cash flows, based on our
incremental borrowing rates. Based on a hypothetical 1% increase in interest
rates on our variable rate debt, the potential annualized losses in future
pretax earnings would be approximately $1.4 million. The impact of this change
in interest rates on the carrying value of long-term debt would not be
significant. We determine the estimated changes to interest expense and the fair
value of long-term debt by considering the impact of hypothetical interest rates
on our borrowing cost and long-term debt balances. These analyses do not take
into account the effects, if any, of the potential changes in our credit ratings
or the overall level of economic activity. Further, in the event of a change in
interest rates of significant magnitude, management would expect to take actions
intended to further mitigate its exposure to such change. For further
information, see the discussion above of our long-term debt.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which was required to be adopted in years beginning
after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
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the effective date of SFAS No. 133 for one year. Management does not anticipate
that the adoption of the new statement will have a material effect on our
financial condition or results of operations.
YEAR 2000 COMPLIANCE
We did not experience any material disruptions or other effects caused by
the Year 2000 problem, nor do we expect to experience any material disruptions
or other effects caused by the Year 2000 problem in the future.
INFLATION
The healthcare industry is labor intensive. Wages and other expenses
increase during periods of inflation and when shortages in marketplaces occur.
In addition, suppliers pass along rising costs to us in the form of higher
prices. Our ability to pass on these increased costs is limited because of
increasing regulatory and competitive pressures, as discussed above. In the
event we experience inflationary pressures, results of operations may be
materially effected.
HEALTHCARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed to Congress and in some state legislatures. While we are
unable to predict which, if any, proposals for healthcare reform will be
adopted, there can be no assurance that proposals adverse to our business will
not be adopted.
CONTINGENCIES
HCA has been the subject of various federal and state investigations,
actions and general liability claims. These investigations, actions and claims
relate to HCA and its subsidiaries, including subsidiaries that, prior to our
formation as an independent company, owned the facilities we now own. On
December 14, 2000, HCA announced that it signed an agreement with the Department
of Justice and four U.S. attorneys' offices resolving all pending federal
criminal issues in the government's investigation. HCA also announced at this
time that it signed a civil settlement agreement with the Department of Justice
resolving civil false claims issues related to DRG coding, outpatient laboratory
and home health. The criminal agreement has been accepted by the federal courts.
The civil settlement agreement is conditioned on court approval of the
settlement, which HCA expects to receive in the first quarter of 2001. These
agreements relate only to conduct that was the subject of the federal
investigations resolved in the agreements, and HCA has stated publicly that it
continues to discuss civil claims relating to cost reporting and physician
relations with the government.
HCA has agreed to indemnify us for any losses, other than consequential
damages, arising from the pending governmental investigations of HCA's business
practices prior to the date of the distribution and losses arising from legal
proceedings, present or future, related to the investigation or actions engaged
in prior to the distribution that relate to the investigation. However, it is
possible that we could be held responsible for any claims that are not covered
by the agreements reached with the federal government or for which HCA is not
required to, or fails to, indemnify us. We may be affected by the initiation of
additional investigations against HCA or us in the future, if any, and the
related media coverage. It is possible that these matters could have a material
adverse effect on our financial condition and results of operations in future
periods.
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BUSINESS
GENERAL
We operate 21 general, acute care hospitals with an aggregate of 1,988
licensed beds in growing, non-urban communities. In all but one of our
communities, our hospital is the only provider of acute care hospital services.
Our hospitals are located in Alabama, Florida, Kansas, Kentucky, Tennessee, Utah
and Wyoming. For the year ended December 31, 2000, we generated $557.1 million
in net revenues and EBITDA of $105.8 million.
THE NON-URBAN HEALTHCARE MARKET
We believe that growing, non-urban healthcare markets are attractive
because of the following factors:
- Less Competition. Non-urban communities have smaller populations with
fewer hospitals and other healthcare service providers. We believe that
the smaller populations and relative significance of the one or two acute
care hospitals in these markets may discourage the entry of alternate
non-hospital providers, including outpatient surgery centers and
rehabilitation or diagnostic imaging centers.
- More Favorable Payment Environment. The lower number of healthcare
providers in non-urban markets limits the ability of managed care
organizations to create price competition among local providers.
Consequently, non-urban hospitals can often negotiate reimbursement rates
with managed care plans that are more favorable, in general, than those
available in urban markets. In addition, there is generally a lower level
of managed care presence in non-urban markets than in urban markets. We
believe that non-urban markets are less attractive to these payors
because their limited size and diverse, non-national employer bases
minimize the ability of managed care organizations to achieve economies
of scale. We believe that marketing expenses incurred by managed care
plans do not produce the level of return in non-urban markets that they
do in urban markets.
- Community Focus. We believe that non-urban areas generally view the
local hospital as an integral part of the community. Therefore, we
believe patients and physicians tend to be more loyal to the hospital.
- Acquisition Opportunities. Currently, not-for-profit and governmental
entities own most non-urban hospitals. These entities typically have
limited access to the capital needed to keep pace with advances in
medical technology. In addition, these entities sometimes lack the
management resources necessary to control hospital expenses, recruit and
retain physicians, expand healthcare services and comply with
increasingly complex reimbursement and managed care requirements. As a
result, patients may migrate to, may be referred by local physicians to,
or may be encouraged by managed care plans to travel to, hospitals in
larger, urban markets. We believe that as a result of these pressures,
not-for-profit and governmental owners of non-urban hospitals who wish to
preserve the local availability of quality healthcare services are
interested in selling or leasing these hospitals to companies, like us,
that are committed to the local delivery of healthcare and that have
greater access to capital and management resources.
OPERATING PHILOSOPHY
We are committed to operating acute care hospitals in growing, non-urban
markets. As a result, we adhere to an operating philosophy that is focused on
the unique patient and provider needs and opportunities in these communities.
This philosophy includes a commitment to:
- improving the quality and scope of available healthcare services;
- providing physicians a positive environment in which to practice
medicine, with access to necessary equipment and resources;
- providing an outstanding work environment for employees;
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- recognizing and expanding the hospital's role as a community asset; and
- continuing to improve each hospital's financial performance.
BUSINESS STRATEGY
We manage our hospitals in accordance with our operating philosophy and
have developed the following strategies tailored for each of our markets:
- Expand Breadth of Service and Attract Community Patients. We strive to
increase revenues by improving the quality and broadening the scope of
healthcare services available at our facilities, and to recruit
physicians with a broader range of specialties. We have undertaken
projects in the majority of our hospitals targeted at expanding or
renovating specialty service facilities including the following:
CAPITAL
TOTAL EXPENDITURES
NUMBER OF PROJECT ------------
EXPANSION OR RENOVATION PROJECT FACILITIES BUDGET 1999 2000
------------------------------- ---------- ------- ---- ----
(DOLLARS IN MILLIONS)
Operating room expansion.......................... 6 $22.4 $5.8 $6.4
MRI addition...................................... 6 7.9 -- 3.0
CT scanner addition............................... 8 3.7 2.7 0.6
Emergency room expansion.......................... 2 2.5 0.4 1.7
Obstetric care addition........................... 2 6.1 4.5 1.4
We believe that our expansion of available treatments and our community
focus will encourage residents in the non-urban markets that we serve to
seek care locally at our facilities rather than at facilities outside the
area.
- Strengthen Physician Recruiting and Retention. We seek to increase our
revenue by enhancing the quality of care available locally. We believe
that recruiting physicians in local communities is critical to increasing
the quality of healthcare and the breadth of available services at our
facilities. Following the distribution of our stock from HCA, we
recruited 70 physicians in 1999, including 42 specialists. In 2000, we
recruited 80 physicians, including 49 specialists. Our physician
recruitment program is currently focused primarily on recruiting
additional specialty care physicians. Our management is focused on
working more effectively with individual physicians and physician
practices. We believe that expansion of the range of available treatments
at our hospitals should also assist in physician recruiting and
contribute to the sense that our hospitals are community assets.
- Retain and Develop Stable Management. We seek to retain the executive
teams at our hospitals to enhance medical staff relations and maintain
continuity of relationships within the community. We make a commitment to
the rural communities that we serve by focusing our recruitment of
managers and healthcare professionals on those who wish to live and
practice in the communities in which our hospitals are located. Almost
85% of the chief executive officers at our hospitals have been in their
current position since the distribution of our stock from HCA in May
1999.
- Improve Managed Care Position. We strive to improve our revenues from
managed care plans by negotiating facility-specific contracts with these
payors on terms appropriate for smaller, non-urban markets. As part of
HCA, our facilities typically were included in managed care contracts
negotiated by HCA on a market wide basis emphasizing large urban
facilities. Our independence from HCA allows us to negotiate contracts
that are more appropriate for non-urban markets. In addition, our
position as a significant provider of acute care services in our markets
enables us to negotiate contract terms that are generally more favorable
for our facilities and to decrease the levels of discount in the
arrangements in which we participate.
- Improve Expense Management. We seek to control costs by, among other
things, reducing labor costs, improving labor productivity, controlling
supply expenses and reducing uncollectible revenues.
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We have implemented cost control initiatives including adjusting staffing
levels according to patient volumes, modifying supply purchases according
to usage patterns and providing training to hospital staff in more
efficient billing and collection processes. For the year ended December
31, 2000 compared to the year ended December 31, 1999, salaries and
benefits decreased as a percentage of revenue to 40.2% from 42.2%,
supplies decreased to 12.0% from 12.5%, and other operating expenses
decreased to 21.3% from 22.7%, respectively. We believe that as our
company grows, we will likely benefit from our ability to spread fixed
administrative costs over a larger base of operations.
- Acquire Other Hospitals. We continue to pursue a disciplined acquisition
strategy and seek to identify and acquire attractive hospitals in
growing, non-urban markets. We also regularly monitor our existing
facilities and seek to take advantage of opportunities to improve our
portfolio of hospitals. We seek to acquire hospitals that are located in
non-urban markets with above average population growth, a strong economic
base and a favorable payor mix. In 2000, we acquired two hospitals that
met this criteria. We acquired Lander Valley Medical Center in Lander,
Wyoming and Putnam Community Medical Center in Palatka, Florida on July
1, 2000 and June 16, 2000, respectively. Each of these hospitals is
located in a growing non-urban area where patients often travel outside
of the community for healthcare services. By implementing our operating
strategies, we believe that we can attract many of these patients that
historically have sought care elsewhere.
We believe that our strategic goals align our interests with those of the
local communities served by our hospitals. We believe that the following
qualities enable us to successfully compete for acquisitions:
- our commitment to maintaining the local availability of healthcare
services;
- our reputation for providing market-specific, high quality healthcare;
- our focus on physician recruiting and retention;
- our management's operating experience; and
- our access to financing.
We have also sold under-performing or non-strategic facilities to
strengthen our overall portfolio of hospitals. During the past year, we
sold Springhill Medical Center, Barrow Medical Center, Trinity Hospital
and Halstead Hospital to community-focused buyers. In addition, we sold
Riverview Medical Center to one of the largest acute care hospitals in
Baton Rouge, Louisiana. These sales allowed us to pay down existing
borrowings under our credit facility, reinvest in existing markets and
provide funds for future acquisitions.
OPERATIONS
Our general, acute care hospitals usually provide the range of medical and
surgical services commonly available in hospitals in non-urban markets. These
hospitals also provide diagnostic and emergency services, as well as outpatient
and ancillary services including outpatient surgery, laboratory, radiology,
respiratory therapy and physical therapy.
A board of trustees governs each of our hospitals. The board of trustees
includes members of the hospital's medical staff as well as community leaders.
The board establishes policies concerning medical, professional and ethical
practices, monitors these practices, and is responsible for ensuring that these
practices conform to established standards. We maintain quality assurance
programs to support and monitor quality of care standards and to meet
accreditation and regulatory requirements. We also monitor patient care
evaluations and other quality of care assessment activities on a regular basis.
Like most hospitals located in non-urban areas, our hospitals do not engage
in extensive medical research and medical education programs. However, a number
of our hospitals have an affiliation with medical schools, including the
clinical rotation of medical students.
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In addition to providing capital resources, we make available a variety of
management services to our healthcare facilities. These services include:
- information systems;
- leasing contracts;
- accounting, financial and clinical systems;
- legal support;
- personnel management;
- internal auditing; and
- resource management.
We participate, along with HCA, Triad and Health Management Associates,
Inc. in a group purchasing organization which makes certain national supply and
equipment contracts available to our facilities.
PROPERTIES
The following table lists the hospitals owned, except as otherwise
indicated, by us as of March 22, 2001:
LICENSED
FACILITY NAME CITY STATE BEDS
------------- ------------ ----- --------
Andalusia Hospital..................................... Andalusia AL 101
Bartow Memorial Hospital............................... Bartow FL 56
Putnam Community Medical Center........................ Palatka FL 141
Western Plains Regional Hospital(1).................... Dodge City KS 110
Georgetown Community Hospital.......................... Georgetown KY 75
Jackson Purchase Medical Center........................ Mayfield KY 107
Meadowview Regional Medical Center..................... Maysville KY 111
Bourbon Community Hospital............................. Paris KY 58
Logan Memorial Hospital................................ Russellville KY 92
Lake Cumberland Regional Hospital...................... Somerset KY 227
Bluegrass Community Hospital(2)........................ Versailles KY 25
Smith County Memorial Hospital......................... Carthage TN 63
Crockett Hospital...................................... Lawrenceburg TN 107
Livingston Regional Hospital........................... Livingston TN 122
Hillside Hospital...................................... Pulaski TN 95
Emerald-Hodgson Hospital............................... Sewanee TN 40
Southern Tennessee Medical Center...................... Winchester TN 159
Castleview Hospital.................................... Price UT 88
Ashley Valley Medical Center........................... Vernal UT 39
Lander Valley Medical Center(3)........................ Lander WY 102
Riverton Memorial Hospital............................. Riverton WY 70
---------------
(1) We operate and hold a 70% equity interest in a consolidated joint venture
which owns and operates Western Plains Regional Hospital.
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(2) We lease Bluegrass Community Hospital from Woodford Healthcare, Inc., a
Kentucky not-for-profit corporation, pursuant to a lease agreement that
expires on December 31, 2002. We can extend the term of the lease until
December 31, 2014 and have an option to purchase the hospital between
January 1, 2004 and January 1, 2007.
(3) We lease the real estate associated with Lander Valley Medical Center from
the City of Lander, Wyoming pursuant to a ground lease that expires on
December 31, 2073.
We operate medical office buildings in conjunction with many of our
hospitals. These office buildings are primarily occupied by physicians who
practice at our hospitals.
Our headquarters are located in approximately 25,500 square feet of space
in one office building in Brentwood, Tennessee. Our headquarters, hospitals and
other facilities are suitable for their respective uses and are, in general,
adequate for our present needs. Our obligations under our bank credit facilities
are secured by a pledge of substantially all of our assets, including first
priority mortgages on each of our hospitals.
SERVICES AND UTILIZATION
We believe that two important factors relating to the overall utilization
of a hospital are the quality and market position of the hospital and the
number, quality and specialties of physicians providing patient care within the
facility. Generally, we believe that the ability of a hospital to meet the
healthcare needs of its community is determined by the following:
- breadth of services;
- level of technology; and
- emphasis on quality of care and convenience for patients and physicians.
Other factors which impact utilization include:
- the size of and growth in local population;
- local economic conditions;
- the availability of reimbursement programs such as Medicare and Medicaid;
and
- the ability to negotiate contracts with managed care organizations that
are appropriate for non-urban markets.
Utilization across the industry also is being affected by improved
treatment protocols as a result of advances in medical technology and
pharmacology.
The following table contains operating statistics for our hospitals for
each of the past five years ended December 31. Medical/surgical hospital
operations are subject to seasonal fluctuations, including decreases in patient
utilization during holiday periods and increases in patient utilization during
the cold weather months.
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1997 1998 1999 2000
------ ------- ------- ------- -------
Number of hospitals at end of period...... 22 22 23 23 20
Number of licensed beds at end of
period(a)............................... 2,074 2,080 2,169 2,169 1,963
Weighted average licensed beds(b)......... 2,060 2,078 2,127 2,169 2,056
Admissions(c)............................. 59,381 60,487 62,269 64,081 66,085
Equivalent admissions(d).................. 98,869 105,126 110,029 114,321 119,812
Average length of stay (days)(e).......... 4.7 4.4 4.4 4.2 4.1
---------------
(a) Licensed beds are those beds for which a facility has been granted
approval to operate from the applicable state licensing agency.
(b) Represents the average number of licensed beds weighted based on periods
owned.
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(c) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals and is used by management
and investors as a general measure of inpatient volume. Amounts for the
years ended December 31, 1998 and 1999 have been restated to conform to
current year definitions.
(d) Equivalent admissions is used by management and investors as a general
measure of combined inpatient and outpatient volume. Equivalent admissions
is computed by multiplying admissions (inpatient volume) by the sum of
gross inpatient revenue and gross outpatient revenue and then dividing the
resulting amount by gross inpatient revenue. The equivalent admissions
computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general
measure of combined inpatient and outpatient volume. Amounts for the years
ended December 31, 1998 and 1999 have been restated to conform to current
year definitions.
(e) Represents the average number of days admitted patients stay in our
hospitals. Average length of stay has declined due to the continuing
pressures from managed care and other payers to restrict admissions and
reduce the number of days that are covered by the payers for certain
procedures, and by technological and pharmaceutical improvements.
Our hospitals have experienced significant growth in outpatient care
services compared to inpatient care services. We believe outpatient services
provided at our hospitals have increased for two primary reasons. First, because
of our ongoing recruiting efforts, many new physicians work at our hospitals.
These new physicians tend to provide primarily outpatient care services until
they become established in the community and develop a patient base. Once they
become established in a community, inpatient admissions from physicians tend to
increase.
Second, improvements in technology and clinical practices and hospital
payment changes by Medicare, insurance carriers and self-insured employers have
also resulted in increased outpatient care services relative to inpatient care
services. These hospital payment changes generally encourage the utilization of
outpatient, rather than inpatient, services whenever possible, and shortened
lengths of stay for inpatient care.
In response to this increasing demand for outpatient care, we are
reconfiguring some of our hospitals to more effectively accommodate outpatient
services and restructuring existing surgical capacity in some of our hospitals
to permit additional outpatient volume and a greater variety of outpatient
services.
SOURCES OF REVENUE
Our hospitals receive payment for patient services from the federal
government primarily under the Medicare program, state governments under their
respective Medicaid programs, HMOs, PPOs and other private insurers, as well as
directly from patients. The approximate percentages of net patient revenues from
continuing operations of our facilities from these sources during the periods
specified below were as follows:
YEARS ENDED
DECEMBER 31,
---------------------
1998 1999 2000
----- ----- -----
Medicare.................................................... 37.8% 34.8% 34.6%
Medicaid.................................................... 11.1 12.6 12.4
Managed Care................................................ 20.1 24.3 27.4
Other sources............................................... 31.0 28.3 25.6
----- ----- -----
Total............................................. 100.0% 100.0% 100.0%
===== ===== =====
Medicare provides hospital and medical insurance benefits to persons age 65
and over, some disabled persons and persons with end-stage renal disease.
Medicaid, a joint federal-state program that is administered by the states,
provides hospital benefits to qualifying individuals who are unable to afford
care. All of our hospitals are certified as providers of Medicare and Medicaid
services. Amounts received
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under the Medicare and Medicaid programs are generally significantly less than
the hospital's customary charges for the services provided.
To attract additional volume, most of our hospitals offer discounts from
established charges to certain large group purchasers of healthcare services,
including private insurance companies, employers, HMOs, PPOs and other managed
care plans. These discount programs often limit our ability to increase charges
in response to increasing costs.
In addition to government programs, our hospitals are reimbursed by private
payers including HMOs, PPOs, private insurance companies, employers and
individual private payers. Patients are generally not responsible for any
difference between customary hospital charges and amounts reimbursed for the
services under Medicare, Medicaid, some private insurance plans, HMOs or PPOs,
but are responsible for services not covered by these plans, exclusions,
deductibles or co-insurance features of their coverage. The amount of
exclusions, deductibles and co-insurance has generally been increasing each
year.
COMPETITION
The hospital industry is highly competitive. We compete with other
hospitals and healthcare providers for patients. The competition among hospitals
and other healthcare providers for patients has intensified in recent years. Our
hospitals are located in growing, non-urban market areas. In 20 of our 21
communities, our hospitals face no direct competition within their communities
because there are no other hospitals in their communities. However, these
hospitals do face competition from hospitals outside of their communities,
including hospitals in the market area and nearby urban areas that provide more
complex services. These facilities are generally located in excess of 25 miles
from our facilities. Patients in our primary service areas may travel to these
other hospitals for a variety of reasons, including the need for services we do
not offer or physician referrals. Some of these competing hospitals use
equipment and services more specialized than those available at our hospitals.
Patients who require services from these other hospitals may subsequently shift
their preferences to those hospitals for services we do provide. In addition,
some of the hospitals that compete with us are owned by tax-supported
governmental agencies or not-for-profit entities supported by endowments and
charitable contributions. These hospitals can make capital expenditures without
paying sales, property and income taxes. We also face competition from other
specialized care providers, including outpatient surgery, orthopedic, oncology
and diagnostic centers.
State certificate of need laws, which place limitations on a hospital's
ability to expand hospital services and add new equipment, also may have the
effect of restricting competition. Of the seven states where we own hospitals,
Alabama, Florida, Kentucky and Tennessee have certificate of need laws. The
application process for approval of covered services, facilities, changes in
operations and capital expenditures is, therefore, highly competitive in these
states.
The number and quality of the physicians on a hospital's staff is an
important factor in a hospital's competitive advantage. Physicians decide
whether a patient is admitted to the hospital and the procedures to be
performed. We believe that physicians refer patients to a hospital primarily on
the basis of the quality of services it renders to patients and physicians, the
quality of other physicians on the medical staff, the location of the hospital
and the quality of the hospital's facilities, equipment and employees. Admitting
physicians may be on the medical staffs of other hospitals in addition to those
of our hospitals.
One element of our business strategy is expansion through the acquisition
of acute care hospitals in growing, non-urban markets. The competition to
acquire rural hospitals is significant. We intend to acquire, on a selective
basis, hospitals that are similar to those we currently own and operate.
However, we may not find suitable acquisitions that can be accomplished on terms
favorable to us.
EMPLOYEES AND MEDICAL STAFF
At February 28, 2001, we had approximately 6,450 employees, including
approximately 1,560 part-time employees. None of our employees are subject to
collective bargaining agreements. We consider our employee relations to be good.
While some of our hospitals experience union organizing activity from time
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to time, we do not expect these efforts to materially affect our future
operations. Our hospitals, like most hospitals, have experienced labor costs
rising faster than the general inflation rate.
Our hospitals are staffed by licensed physicians who have been admitted to
the medical staff of individual hospitals. Any licensed physician may apply to
be admitted to the medical staff of any of our hospitals, but admission to the
staff must be approved by the hospital's medical staff and the appropriate
governing board of the hospital in accordance with established credentialing
criteria. With certain exceptions, physicians generally are not employees of our
hospitals. However, we have conducted a physician practice management program
pursuant to which some physicians provide services in our hospitals by contract.
We attempt to restructure or phase out these physician contracts as they come up
for renewal and do not intend to expand this program in the future.
GOVERNMENT REGULATION
Overview. All participants in the healthcare industry are required to
comply with extensive government regulation at the federal, state and local
levels. Under these laws and regulations, hospitals must meet requirements to be
certified as hospitals and qualified to participate in government programs,
including the Medicare and Medicaid programs. These requirements relate to the
adequacy of medical care, equipment, personnel, operating policies and
procedures, maintenance of adequate records, hospital use, rate-setting,
compliance with building codes, and environmental protection laws. There are
also extensive regulations governing a hospital's participation in these
government programs. If we fail to comply with applicable laws and regulations,
we can be subject to criminal penalties and civil sanctions, our hospitals can
lose their licenses and we could lose our ability to participate in these
government programs. In addition, government regulations may change. If that
happens, we may have to make changes in our facilities, equipment, personnel and
services so that our hospitals remain certified as hospitals and qualified to
participate in these programs. We believe that our hospitals are in substantial
compliance with current federal, state and local regulations and standards.
Hospitals are subject to periodic inspection by federal, state, and local
authorities to determine their compliance with applicable regulations and
requirements necessary for licensing and certification. All of our hospitals are
licensed under appropriate state laws and are qualified to participate in
Medicare and Medicaid programs. In addition, all of our hospitals are accredited
by the Joint Commission on Accreditation of Healthcare Organizations. This
accreditation indicates that a hospital satisfies the applicable health and
administrative standards to participate in Medicare and Medicaid programs.
Fraud and Abuse Laws. Participation in the Medicare program is heavily
regulated by federal statute and regulation. If a hospital fails substantially
to comply with the numerous federal laws governing a facility's activities, the
hospital's participation in the Medicare program may be terminated and/or civil
or criminal penalties may be imposed. For example, a hospital may lose its
ability to participate in the Medicare and/or Medicaid programs if it performs
any of the following acts:
- making claims to Medicare for services not provided or misrepresenting
actual services provided in order to obtain higher payments;
- paying money to induce the referral of patients where services are
reimbursable under a federal or state health program; or
- failing to provide appropriate emergency medical screening services to
any individual who comes to a hospital's emergency room or otherwise
failing to properly treat and transfer emergency patients.
HIPAA broadened the scope of the fraud and abuse laws by adding several
criminal statutes that are not related to receipt of payments from a federal
healthcare program. HIPAA created civil penalties for conduct, including
upcoding and billing for medically unnecessary goods or services. It established
new enforcement mechanisms to combat fraud and abuse. These include a bounty
system, where a portion of the payments recovered is returned to the government
agencies, as well as a whistleblower program. This law also expanded the
categories of persons that may be excluded from participation in federal and
state healthcare programs.
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A provision of the Social Security Act, known as the "anti-kickback"
statute, prohibits the payment, receipt, offer, or solicitation of money with
the intent of generating referrals or orders for services or items covered by a
federal or state healthcare program. Violations of the anti-kickback statute may
be punished by criminal and civil fines, exclusion from federal and state
healthcare programs, and damages up to three times the total dollar amount
involved.
The Office of Inspector General of the Department of Health and Human
Services is responsible for identifying fraud and abuse activities in government
programs. In order to fulfill its duties, the Office of Inspector General
performs audits, investigations, and inspections. In addition, it provides
guidance to healthcare providers by identifying types of activities that could
violate the anti-kickback statute. The Office of the Inspector General has
identified the following incentive arrangements as potential violations:
- payment of any incentive by a hospital each time a physician refers a
patient to the hospital;
- use of free or significantly discounted office space or equipment for
physicians in facilities usually located close to the hospital;
- provision of free or significantly discounted billing, nursing, or other
staff services;
- free training for a physician's office staff including management and
laboratory techniques;
- guarantees which provide that if the physician's income fails to reach a
predetermined level, the hospital will pay any portion of the remainder;
- low-interest or interest-free loans, or loans which may be forgiven if a
physician refers patients to the hospital;
- payment of the costs of a physician's travel and expenses for
conferences;
- payment of services which require few, if any, substantive duties by the
physician, or payment for services in excess of the fair market value of
the services rendered; or
- purchasing goods or services from physicians at prices in excess of their
fair market value.
We have a variety of financial relationships with physicians who refer
patients to our hospitals. Physician investors have an ownership interest in one
of our hospitals. Physicians may also own our stock. We also have contracts with
physicians providing for a variety of financial arrangements, including
employment contracts, leases, independent contractor agreements, and
professional service agreements. We provide financial incentives to recruit
physicians to relocate to communities served by our hospitals. These incentives
include minimum revenue guarantees and, in some cases, loans. The Office of
Inspector General is authorized to publish regulations outlining activities and
business relationships that would be deemed not to violate the anti-kickback
statute. These regulations are known as "safe harbor" regulations. The failure
of a particular activity to comply with the safe harbor regulations does not
mean that the activity violates the anti-kickback statute. We believe that all
of our business arrangements are in full compliance with the anti-kickback law.
We try to structure each of our arrangements, especially each of our business
arrangements with physicians, to fit as closely as possible within an applicable
safe harbor. However, not all of our business arrangements fit wholly within
safe harbors, and so we cannot guarantee that these arrangements will not be
scrutinized by government authorities, or if scrutinized, that they will be
determined to be in compliance with the anti-kickback law or other applicable
laws. If that happened, we would be subject to criminal and civil penalties
and/or possible exclusion from participating in Medicare, Medicaid, or other
governmental healthcare programs.
The Social Security Act also includes a provision commonly known as the
"Stark law." This law prohibits physicians from referring Medicare and Medicaid
patients to selected types of healthcare entities in which they or any of their
immediate family members have ownership or other financial interests. These
types of referrals are commonly known as "self referrals." Sanctions for
violating the Stark law include civil monetary penalties, assessments equal to
twice the dollar value of each service, and exclusion from Medicare and Medicaid
programs. There are ownership and compensation arrangement exceptions to the
self-referral prohibition. One exception allows a physician to make a referral
to a hospital if the physician
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owns an interest in the entire hospital, as opposed to an ownership interest in
a department of the hospital. Another exception allows a physician to refer
patients to a healthcare entity in which the physician has an ownership interest
if the entity is located in a rural area, as defined in the statute. There are
also exceptions for many of the customary financial arrangements between
physicians and providers, including employment contracts, leases, and
recruitment agreements. The federal government released regulations interpreting
some, but not all, of the provisions included in the Stark law in January 2001,
and the government expects to release a second phase of final Stark regulations
in the near future. Phase II of the Stark regulations to be published at an
unknown date in the future will address those exceptions not addressed in the
regulations released on January 4, 2001. We have structured our financial
arrangements with physicians to comply with the statutory exceptions included in
the Stark law. However, Phase II of the new regulations may interpret provisions
of this law in a manner different from the manner with which we have interpreted
them. We cannot predict the effect these regulations will have on us.
Many states in which we operate also have adopted, or are considering
adopting, similar laws. Some of these state laws apply even if the payment for
care does not come from the government. These statutes typically provide
criminal and civil penalties as well as loss of licensure. While there is little
precedent for the interpretation or enforcement of these state laws, we have
attempted to structure our financial relationships with physicians and others in
light of these laws. However, if we are found to have violated these state laws,
it could result in the imposition of criminal and civil penalties as well as
possible licensure revocation.
Corporate Practice of Medicine and Fee-Splitting. Some states have laws
that prohibit unlicensed persons or business entities, including corporations,
from employing physicians. Some states also have adopted laws that prohibit
direct or indirect payments or fee-splitting arrangements between physicians and
unlicensed persons or business entities. Possible sanctions for violations of
these restrictions include loss of a physician's license, civil and criminal
penalties and rescission of business arrangements. These laws vary from state to
state, are often vague and have seldom been interpreted by the courts or
regulatory agencies. We attempt to structure our arrangements with healthcare
providers to comply with the relevant state laws and the few available
regulatory interpretations.
Emergency Medical Treatment and Active Labor Act. The Emergency Medical
Treatment and Active Labor Act imposes requirements as to the care that must be
provided to anyone who comes to facilities providing emergency medical services
seeking care. Regulations have recently been adopted that expand the areas
within a facility that must provide emergency screening and treatment to include
provider-based outpatient departments. Sanctions for failing to fulfill these
requirements include exclusion from participation in Medicare and Medicaid
programs and civil money penalties. In addition, the law creates private civil
remedies which enable an individual who suffers personal harm as a direct result
of a violation of the law to sue the offending hospital for damages and
equitable relief. A medical facility that suffers a financial loss as a direct
result of another participating hospital's violation of the law also has a
similar right. Although we believe we comply with the Emergency Medical
Treatment and Active Labor Act, differing interpretations are applied by the
regulatory agencies responsible for enforcement.
Federal False Claims Act. Another trend in healthcare litigation is the
use of the Federal False Claims Act. The Federal False Claims Act prohibits
providers from knowingly submitting false claims for payment to the federal
government. This law has been used not only by the U.S. government, but also by
individuals who bring an action on behalf of the government under the law's "qui
tam" or "whistleblower" provisions. When a private party brings a qui tam action
under the Federal False Claims Act, the defendant will generally not be aware of
the lawsuit until the government makes a determination whether it will intervene
and take a lead in the litigation.
Civil liability under the Federal False Claims Act can be up to three times
the actual damages sustained by the government plus civil penalties for each
separate false claim. There are many potential bases for liability under the
Federal False Claims Act. Although liability under the Federal False Claims Act
arises when an entity knowingly submits a false claim for reimbursement to the
federal government, the Federal False Claims Act defines the term "knowingly"
broadly. Thus, although simple negligence
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generally will not give rise to liability under the Federal False Claims Act,
submitting a claim with reckless disregard to its truth or falsity can
constitute "knowingly" submitting a claim.
Healthcare Reform. The healthcare industry continues to attract much
legislative interest and public attention. In recent years, an increasing number
of legislative proposals have been introduced or proposed in Congress and in
some state legislatures that would affect major changes in the healthcare
system. Proposals that have been considered include cost controls on hospitals,
insurance market reforms to increase the availability of group health insurance
to small businesses, and mandatory health insurance coverage for employees. The
costs of implementing some of these proposals would be financed, in part, by
reductions in payments to healthcare providers under Medicare, Medicaid, and
other government programs.
Conversion Legislation. Many states have adopted legislation regarding the
sale or other disposition of hospitals operated by not-for-profit entities. In
other states that do not have specific legislation, the attorneys general have
demonstrated an interest in these transactions under their general obligations
to protect charitable assets from waste. These legislative and administrative
efforts primarily focus on the appropriate valuation of the assets divested and
the use of the proceeds of the sale by the not-for-profit seller. These review
and, in some instances, approval processes can add additional time to the
closing of a not-for-profit hospital acquisition. Future actions on the state
level may seriously delay or even prevent our ability to acquire hospitals.
Certificates of Need. The construction of new facilities, the acquisition
of existing facilities and the addition of new services and expensive equipment
at our facilities may be subject to state laws that require prior approval by
state regulatory agencies. These certificate 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. We
operate hospitals in four states that have adopted certificate of need laws,
Kentucky, Tennessee, Florida and Alabama. If we fail to obtain necessary state
approval, we will not be able to expand our facilities, complete acquisitions or
add new services in these states. Violation of these state laws may result in
the imposition of civil sanctions or the revocation of a hospital's licenses.
HIPAA Privacy and Security Requirements. The Administrative Simplification
Provisions of the Health Insurance Portability and Accountability Act of 1996
require the use of uniform electronic data transmission standards for healthcare
claims and payment transactions submitted or received electronically. These
provisions are intended to encourage electronic commerce in the healthcare
industry. On August 17, 2000, the Health Care Financing Administration published
final regulations establishing electronic data transmission standards that all
healthcare providers must use when submitting or receiving certain healthcare
transactions electronically. Compliance with these regulations is required by
October 16, 2002. We cannot predict the impact that final regulations, when
fully implemented, will have on us.
The Administrative Simplification Provisions also require the Health Care
Financing Administration to adopt standards to protect the security and privacy
of health-related information. The Health Care Financing Administration proposed
regulations containing security standards on August 12, 1998. These proposed
security regulations have not been finalized, but as proposed, would require
healthcare providers to implement organizational and technical practices to
protect the security of electronically maintained or transmitted health-related
information. In addition, the Health Care Financing Administration released
final regulations containing privacy standards in December 2000. These privacy
regulations are effective April 14, 2001, but compliance with these regulations
is not required until April 2003. Therefore, these privacy regulations could be
further amended prior to the compliance date. However, as currently drafted, the
privacy regulations will extensively regulate the use and disclosure of
individually identifiable health-related information. The security regulations,
as proposed, and the privacy regulations could impose significant costs on our
facilities in order to comply with these standards. We cannot predict the final
form that these regulations will take or the impact that final regulations, when
fully implemented, will have on us. If we violate HIPAA, we are subject to
monetary fines and penalties, criminal sanctions and civil causes of action.
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PAYMENT
Medicare. Under the Medicare program, we are paid for inpatient and
outpatient services performed by our hospitals.
Payments for inpatient acute services are generally made pursuant to a
prospective payment system, commonly known as "PPS." Under PPS, our hospitals
are paid a prospectively determined amount for each hospital discharge based on
the patient's diagnosis. Specifically, each discharge is assigned to a diagnosis
related group, commonly known as a "DRG," based on the patient's condition and
treatment during the relevant inpatient stay. This assignment also effects the
prospectively determined capital rate paid with each DRG. Each DRG is assigned a
payment rate that is prospectively set using national average costs per case for
treating a patient for a particular diagnosis. DRG payments do not consider the
actual costs incurred by a hospital in providing a particular inpatient service.
However, DRG and capital payments are adjusted by a predetermined geographic
adjustment factor assigned to the geographic area in which the hospital is
located. In addition to DRG and capital payments, hospitals may qualify for
"outlier" payments. Hospitals qualify for outlier payments when the relevant
patient's treatment costs exceed a specified threshold. Hospitals qualify for
disproportionate share payments when their percentage of low income patients
exceed specified thresholds. Under the Medicare, Medicaid, and SCHIP Benefits,
Improvement and Protection Act of 2000, known as "BIPA," a majority of our
hospitals qualify to receive disproportionate share payments.
The DRG rates are adjusted by an update factor each federal fiscal year,
which begins on October 1. The index used to adjust the diagnostic related group
rates, known as the "market basket index," gives consideration to the inflation
experienced by hospitals in purchasing goods and services. For several years,
however, the percentage increases in the diagnostic related group payments have
been lower than the projected increase in the costs of goods and services
purchased by hospitals. DRG rate increases were 1.1% for federal fiscal year
1995, 1.5% for federal fiscal year 1996, 2.0% for federal fiscal year 1997, 0.0%
for federal fiscal year 1998, and 0.5% for federal fiscal year 1999. The DRG
rate was increased by market basket minus 1.8% for federal fiscal year 2000.
BIPA provides some relief to the low diagnostic related group increases mandated
by the Balanced Budget Act. Under BIPA, the DRG rate will increase in the amount
of the full market basket for fiscal year 2001 and in an amount equal to the
market basket minus 0.55% for fiscal years 2002 and 2003.
Outpatient services have traditionally been paid at the lower of customary
charges or on a reasonable cost basis. The Balanced Budget Act established a PPS
for outpatient hospital services that commenced on August 1, 2000. The Balanced
Budget Refinement Act of 1999 eliminated the anticipated average reduction of
5.7% for various Medicare outpatient business under the Balanced Budget Act of
1997. Under the Balanced Budget Refinement Act of 1999, losses for non-urban
hospitals with 100 beds or less are mitigated through a "hold harmless"
provision until December 31, 2003. Eleven of our hospitals qualify for this
relief. Losses under Medicare outpatient PPS of non-urban hospitals with greater
than 100 beds and urban hospitals will be mitigated through a corridor
reimbursement approach, where a percentage of losses will be reimbursed through
December 31, 2003. Substantially all of our remaining hospitals qualify for
relief under this provision.
Skilled nursing facilities have historically been paid by Medicare on the
basis of actual costs, subject to limitations. The Balanced Budget Act
established a PPS for Medicare skilled nursing facilities. The new PPS commenced
in July 1998, and is being implemented progressively over a three year term. We
have experienced reductions in payments for our skilled nursing services.
However, BIPA requires HCFA to increase the current reimbursement amount for
each resource utilization group component of the skilled nursing facility PPS by
16.7% for services furnished between April 1, 2001 and September 30, 2002.
Additionally, BIPA increases the skilled nursing facility PPS update to the full
market basket for fiscal year 2001 and market basket minus 0.5% for fiscal year
2002.
The Balanced Budget Act also required the Department of Health and Human
Services to establish a PPS for home health services. The Balanced Budget Act of
1997 put in place the interim payment system, commonly known as "IPS," until the
home health PPS could be implemented. As of October 1, 2000, the
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home health PPS replaced IPS. We have experienced reductions in payments for our
home health services and a decline in home health visits due to a reduction in
benefits by reason of the Balanced Budget Act. However, the Balanced Budget
Refinement Act delayed until one year following implementation of the PPS a
15.0% payment reduction that would have otherwise applied effective October 1,
2000. The BIPA further delays the one-time 15.0% payment reduction until October
1, 2002. Additionally, the BIPA increases the home health agency PPS annual
update to 2.2% for services furnished between April 1, 2001 and September 30,
2001, and for a two year period beginning April 1, 2001, increases Medicare
payments to 10.0% for home health services furnished in specified rural areas.
The Balanced Budget Act mandated a PPS for inpatient rehabilitation
hospital services. A PPS system for Medicare inpatient rehabilitation services
is scheduled for a two year phase in beginning April 1, 2001. Prior to the
implementation of the prospective payment systems, payments to exempt hospitals
and units, such as inpatient psychiatric, rehabilitation and skilled nursing
services, are based upon reasonable cost, subject to a cost per discharge
target. These limits are updated annually by a market basket index.
As of December 31, 2000, we operated five inpatient psychiatric units, four
inpatient rehabilitation units, ten hospital-based skilled nursing facility
units, three rural health clinics, two home health agencies, one comprehensive
outpatient rehabilitation facility and eight hospitals utilizing swing beds.
Medicaid. Most state Medicaid payments are made under a PPS or under
programs which negotiate payment levels with individual hospitals. Medicaid is
currently funded jointly by state and federal governments. The federal
government and many states are currently considering significantly reducing
Medicaid funding, while at the same time expanding Medicaid benefits. This could
adversely affect future levels of Medicaid payments received by our hospitals.
Annual Cost Reports. Hospitals participating in the Medicare and some
Medicaid programs, whether paid on a reasonable cost basis or under a PPS, are
required to meet certain financial reporting requirements. Federal and, where
applicable, state regulations require submission of annual cost reports
identifying medical costs and expenses associated with the services provided by
each hospital to Medicare beneficiaries and Medicaid recipients.
Annual cost reports required under the Medicare and some Medicaid programs
are subject to routine governmental audits. These audits may result in
adjustments to the amounts ultimately determined to be due to us under these
reimbursement programs. Finalization of these audits often takes several years.
Providers can appeal any final determination made in connection with an audit.
Commercial Insurance. Our hospitals provide services to individuals
covered by private healthcare insurance. Private insurance carriers pay our
hospitals or in some cases reimburse their policyholders based on the hospital's
established charges and the coverage provided in the insurance policy.
Commercial insurers are trying to limit the costs of hospital services by
negotiating discounts, including PPS, which would reduce payments by commercial
insurers to our hospitals. Reductions in payments for services provided by our
hospitals to individuals covered by commercial insurers could adversely affect
us.
REGULATORY COMPLIANCE PROGRAM
It is our policy to conduct our business with integrity and in compliance
with the law. We have in place and continue to develop a corporate-wide
compliance program, which focuses on all areas of regulatory compliance,
including reimbursement and cost reporting practices and laboratory operations.
This regulatory compliance program is intended to ensure that high
standards of conduct are maintained in the operation of our business and to help
ensure that policies and procedures are implemented so that employees act in
full compliance with all applicable laws, regulations and company policies.
Under the regulatory compliance program, we provide initial and periodic legal
compliance and ethics training to every employee, review various areas of our
operations, and develop and implement policies and procedures designed to foster
compliance with the law. We regularly monitor our ongoing compliance efforts.
The program also includes a mechanism for employees to report, without fear of
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retaliation, any suspected legal or ethical violations to their supervisors or
designated compliance officers in our hospitals.
In December 2000, we entered into a corporate integrity agreement with the
Office of Inspector General and agreed to maintain our compliance program in
accordance with the corporate integrity agreement. Violations of the integrity
agreement could subject us to substantial monetary penalties. The compliance
measures and reporting and auditing requirements contained in the integrity
agreement include:
- continuing the duties and activities of our audit and compliance
committee, corporate compliance officer, internal audit and compliance
department, local ethics and compliance officers, corporate compliance
committee and hospital compliance committees;
- maintaining our written code of conduct, which sets out our commitment to
full compliance with all statutes, regulations, and guidelines applicable
to federal healthcare programs;
- maintaining our written policies and procedures addressing the operation
of our compliance program;
- providing general training on the compliance policy;
- providing specific training for the appropriate personnel on billing,
coding and cost report issues;
- having an independent third party conduct periodic audits of our
facilities' inpatient DRG coding;
- continuing our confidential disclosure program and compliance hotline to
enable employees or others to disclosure issues or questions regarding
possible inappropriate policies or behavior;
- enhancing our screening program to ensure that we do not hire or engage
employees or contractors who are ineligible persons for federal
healthcare programs;
- reporting any material deficiency which resulted in an overpayment to us
by a federal healthcare program; and
- submitting annual reports to the Inspector General which describe in
detail the operations of our corporate compliance program for the past
year.
LEGAL PROCEEDINGS
General. 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, breach of management contracts, for wrongful restriction of or
interference with physicians' staff privileges and employment related claims. In
certain of these actions, plaintiffs request punitive or other damages against
us that may not be covered by insurance. We are currently not a party to any
proceeding which, in management's opinion, would have a material adverse effect
on our business, financial condition or results of operations.
Americans with Disabilities Act Claim. On January 12, 2001, Access Now,
Inc., a disability rights organization, filed a class action lawsuit against
each of our hospitals alleging non-compliance with the accessibility guidelines
under the Americans with Disabilities Act. The lawsuit, filed in the United
States District Court for the Eastern District of Tennessee, seeks injunctive
relief requiring facility modification, where necessary, to meet the ADA
guidelines, along with attorneys fees and costs. We are working with Access Now
to determine the scope of facility modification needed to comply with the Act.
Governmental Investigation of HCA and Related Litigation. HCA has been the
subject of various federal and state investigations, qui tam actions,
shareholder derivative and class action suits filed in federal court,
shareholder derivative actions filed in state courts, patient/payer actions and
general liability claims. These investigations, actions and claims relate to HCA
and its subsidiaries, including subsidiaries that, prior to our formation as an
independent company, owned the facilities we now own.
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On December 14, 2000, HCA announced that it signed an agreement with the
Department of Justice and four U.S. attorneys' offices resolving all pending
federal criminal issues in the government's investigation. HCA also announced at
this time that it signed a civil settlement agreement with the Department of
Justice resolving civil false claims issues related to DRG coding, outpatient
laboratory and home health. The criminal agreement has been accepted by the
federal district courts. The civil settlement agreement is conditioned on court
approval of the settlement, which HCA expects to receive in the first quarter of
2001. These agreements relate only to conduct that was the subject of the
federal investigations resolved in the agreements, and HCA has stated publicly
that it continues to discuss civil claims relating to cost reporting and
physician relations with the government.
Based on our review of documents filed by HCA with the Securities and
Exchange Commission, the agreements with the government do not resolve all qui
tam actions filed by private parties against HCA. Representatives of state
attorneys general have agreed to recommend to state officials that HCA be
released from criminal and civil liability related to the matters covered by the
settlement agreements.
HCA has disclosed that, on March 15, 2001, the Department of Justice filed
a status report setting forth the government's decisions regarding intervention
in existing qui tam actions against HCA and filed formal complaints for those
suits in which the government has intervened. HCA stated that, of the original
30 qui tam actions, the Department of Justice remains active in eight actions.
The actions are not covered by the settlement agreements.
HCA agreed to indemnify us for any losses, other than consequential
damages, arising from the pending governmental investigations of HCA's business
practices prior to the date of the distribution and losses arising from legal
proceedings, present or future, related to the investigation or actions engaged
in prior to the distribution that relate to the investigation. However, we could
be held responsible for any claims that are not covered by the agreements
reached with the federal government or for which HCA is not required to, or
fails to, indemnify us. We may also be affected by the initiation of additional
investigations or claims against HCA in the future, if any, and the related
media coverage.
ARRANGEMENTS RELATING TO THE DISTRIBUTION
Immediately prior to HCA's distribution of our common stock, we entered
into agreements with HCA to define our ongoing relationships after the
distribution and to allocate tax, employee benefits and other liabilities and
obligations arising from periods prior to the distribution date.
Distribution Agreement. We entered into a distribution agreement with HCA
and Triad which governed the corporate transactions required to effect the
distribution and other arrangements between the parties after the distribution.
The distribution agreement also allocated financial responsibility between the
parties for liabilities arising out of the assets and entities that constitute
our company, including liabilities arising out of the transfer of the assets and
entities to us. HCA agreed in the distribution agreement to indemnify us for any
losses arising from the pending governmental investigations of HCA's business
practices prior to the date of the distribution and losses arising from legal
proceedings, present or future, related to the investigation or actions engaged
in prior to the distribution that relate to the investigation.
Tax Sharing and Indemnification Agreement. We also entered into a tax
sharing and indemnification agreement with HCA and Triad, which allocated tax
liabilities among the parties and addressed other tax matters, including
responsibility for filing tax returns, control of and cooperation in tax
litigation, and qualification of the distribution as a tax-free transaction.
Generally, HCA is responsible for taxes that are allocable to periods before the
distribution date, and each of HCA, LifePoint and Triad is responsible for its
own tax liabilities, including its allocable portion of taxes shown on any
consolidated, combined or other tax return filed by HCA, for periods after the
distribution date.
The tax sharing and indemnification agreement prohibits us from taking
actions that could jeopardize the tax treatment of the distribution or the
restructuring that preceded the distribution, and requires us to indemnify HCA
and Triad for any taxes or other losses that result from our actions. In
connection with preserving the tax treatment of the distribution and the
restructuring that preceded the distribution, we
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agreed to take certain actions that HCA may request and we made covenants,
including covenants that, for a period of three years following the
distribution, we will not authorize, undertake or facilitate any of the
following without the consent of HCA:
- issue additional stock or other equity instruments;
- merge, dissolve, consolidate, redeem our securities or liquidate;
- transfer or dispose of assets, other than the disposition of assets that
were previously identified for divestiture; or
- recapitalize or otherwise change our capital structure.
Although we have received HCA consent to complete this stock offering,
under the tax sharing and indemnification agreement, we are still liable if any
taxes or other losses with respect to the distribution or the restructuring that
preceded that distribution result from this stock offering.
Benefits and Employment Matters Agreement. We entered into a benefits and
employment matters agreement with HCA and Triad, which allocated
responsibilities for employee compensation, benefits, labor, benefit plan
administration and certain other employment matters on and after the
distribution date.
Insurance Allocation and Administration Agreement. Before the
distribution, HCA maintained various insurance policies for the benefit of the
facilities that now make up our company. A wholly owned insurance subsidiary of
HCA insures HCA against substantially all losses in periods before the
distribution. In addition, HCA maintains excess loss policies. We also entered
into an insurance allocation and administration agreement with HCA that
describes our continuing rights and obligations regarding insurance after the
distribution date and that defines our relationship regarding insurance on HCA's
property and our property.
Computer and Data Processing Services Agreement. HCA's wholly owned
subsidiary, Columbia Information Systems, Inc., entered into a computer and data
processing services agreement with us. Columbia Information Systems provides
computer installation, support, training, maintenance, data processing and other
related services to us under this agreement. Columbia Information Systems
charges fees to us for services provided under this agreement that are market
competitive based on Columbia Information Systems' costs incurred in providing
these services.
Other Agreements. HCA entered into agreements with us by which HCA shares
telecommunications services with us under HCA's agreements with its
telecommunications services provider and by which HCA makes account collection
services available to us. We also participate, along with HCA, Triad and Health
Management Associates, Inc. in a group purchasing organization which makes
national supply and equipment contracts available to our facilities.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table contains information concerning our executive officers
and directors:
NAME AGE POSITION
---- --- --------
James M. Fleetwood, Jr.................... 53 Chairman, Chief Executive Officer, Chief
Operating Officer and President
Kenneth C. Donahey........................ 50 Executive Vice President and Chief Financial
Officer
William F. Carpenter III.................. 46 Senior Vice President, General Counsel and
Secretary
Neil D. Hemphill.......................... 47 Senior Vice President of Administration and
Human Resources
William M. Gracey......................... 47 Division President
Daniel S. Slipkovich...................... 43 Division President
Ricki Tigert Helfer....................... 56 Director
John E. Maupin, Jr., D.D.S................ 54 Director
DeWitt Ezell, Jr.......................... 62 Director
William V. Lapham......................... 62 Director
Richard H. Evans.......................... 56 Director
James M. Fleetwood, Jr. has been the Chairman and Chief Executive Officer
of LifePoint since June 8, 2000 and the President and Chief Operating Officer of
LifePoint since May 11, 1999. From January 1, 1998 until May 11, 1999, Mr.
Fleetwood served as President of the America Group of HCA. Mr. Fleetwood served
as President of the Florida Group of HCA from May 1996 to January 1, 1998;
President of the North Florida Division of HCA from April 1995 to May 1996; and
as Regional Vice President of Healthtrust, Inc. -- The Hospital Company prior
thereto.
Kenneth C. Donahey has been an Executive Vice President of LifePoint since
March 4, 2001 and Chief Financial Officer since May 11, 1999. Mr. Donahey served
as a Senior Vice President of LifePoint from May 11, 1999 until March 4, 2001.
From November 5, 1998 until May 11, 1999, Mr. Donahey served as Senior Vice
President and Chief Financial Officer of the America Group of HCA. Mr. Donahey
served as Senior Vice President and Controller of HCA from April 1995 through
November 4, 1998; and as Senior Vice President and Controller of Healthtrust,
Inc. -- The Hospital Company prior thereto.
William F. Carpenter III has been a Senior Vice President, General Counsel
and Secretary of LifePoint since May 11, 1999. From November 16, 1998 until May
11, 1999, Mr. Carpenter served as General Counsel of the America Group of HCA.
Mr. Carpenter served as a member of the law firm of Waller Lansden Dortch &
Davis, A Professional Limited Liability Company through December 31, 1998.
Neil D. Hemphill has been the Senior Vice President of Administration and
Human Resources of LifePoint since May 11, 1999. From September 1, 1998 until
May 11, 1999, Mr. Hemphill served as Senior Vice President of Administration and
Human Resources of the America Group of HCA. Mr. Hemphill served as Senior Vice
President of Human Resources of HCA from February 1994 to September 1, 1998; and
as Vice President of Human Resources of Columbia Healthcare Corporation prior
thereto.
William M. Gracey has been a Division President of LifePoint since May 11,
1999. From July 1998 until May 11, 1999, Mr. Gracey served as a Division
President of the America Group of HCA. Mr. Gracey served as President of
Operations Support for the Atlantic Group of HCA from January 1998 through June
1998; Division President of HCA from September 1995 to December 1997; Chief
Operating Officer of the Pacific Division of HCA from February 1995 to September
1995; and as Chief Executive Officer of other facilities of Hospital Corporation
of America prior thereto.
Daniel S. Slipkovich has been a Division President of LifePoint since May
11, 1999. From October 1998 until May 11, 1999, Mr. Slipkovich served as a
Division President of the America Group of HCA. Mr. Slipkovich served as Chief
Financial Officer of the America Group of HCA from January 1998 to
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October 1998; Chief Financial Officer and Vice President of the Florida Group of
HCA from July 1996 to December 1997; Chief Financial Officer and Vice President
of the North Florida Division of HCA from February 1995 to June 1996; and as
Regional Assistant Vice President of Healthtrust, Inc. -- The Hospital Company
prior thereto.
Ricki Tigert Helfer is currently an Associate Professor of Law at American
University's Washington College of Law. Ms. Helfer was a non-resident Senior
Fellow at the Brookings Institution from February 1998 to July 1999. Since June
1997, Ms. Helfer has been a consultant in the field of International Banking.
Prior to that time, she was the Chairman of the Board of Directors and Chief
Executive Officer of the Federal Deposit Insurance Corporation from October 1994
to June 1997; and a partner at Gibson, Dunn & Crutcher prior thereto.
John E. Maupin, Jr., D.D.S. has been the President of Meharry Medical
College since July 1994 and served as the Executive Vice President of Morehouse
School of Medicine prior thereto. Dr. Maupin is a director of Pinnacle Financial
Partners, Inc., North American Funds, Monarch Dental Corp. and USLIFE Income
Fund, Inc.
DeWitt Ezell, Jr. served as State President, BellSouth Corporation from
January 1996 until his retirement on April 30, 1999. Mr. Ezell is a director of
BlueCross BlueShield of Tennessee.
William V. Lapham acted as Chief Financial Officer of Uptons Department
Stores, a division of American Retail Group, from January 1999 to June 1999.
Prior to that time, Mr. Lapham served as a partner at Ernst & Young LLP for 26
years until his retirement on September 30, 1998. He was a member of the Ernst &
Young International Council until December 31, 1997. Mr. Lapham is a director of
Renal Care Group, Inc. and Avado Brands, Inc.
Richard H. Evans currently serves as Chairman of Evans Holdings, a real
estate investment and real estate services company. Prior to forming Evans
Holdings, Mr. Evans served as President and Chief Executive Officer for Huizenga
Sports and Entertainment Group, a sports and entertainment ownership and
management company, and President and Chief Operating Officer of Florida
Panthers Holdings, a sports and entertainment ownership and management company,
from November 1996 to April 1998. Prior to that time, he was Chief Operating
Officer of Gaylord Entertainment Group, a diversified entertainment,
communications and hospitality company, from April 1993 to October 1996.
THE BOARD OF DIRECTORS
Our certificate of incorporation provides that our board of directors will
be divided into three classes, with the classes to be as nearly equal in number
as possible, and that the directors serve three year terms. Messrs. Ezell and
Lapham will serve until the 2001 annual meeting of directors; Messrs. Fleetwood
and Evans will serve until the 2002 annual meeting of directors; and Ms. Helfer
and Dr. Maupin will serve until the 2003 annual meeting of stockholders.
The board has a number of standing committees, including an audit and
compliance committee and a compensation committee.
Audit and Compliance Committee. The audit and compliance committee reviews
and makes reports and recommendations to the board of directors with respect to
the selection of our independent auditors, the arrangements for and the scope of
the audits to be performed by them and our internal audit activities, accounting
procedures and controls, and reviews our annual consolidated financial
statements. The committee also monitors adherence to our regulatory compliance
program. The members of the audit and compliance committee are Ms. Helfer, Dr.
Maupin and Messrs. Ezell, Evans and Lapham, with Mr. Lapham serving as chair.
Compensation Committee. The compensation committee is responsible for
approving compensation arrangements for our executive management, reviewing
compensation plans relating to officers, grants of options and other benefits
under our employee benefit plans and reviewing generally our employee
compensation policy. The members of the compensation committee are Ms. Helfer,
Dr. Maupin and Messrs. Ezell, Evans and Lapham, with Mr. Ezell serving as chair.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to ownership of the
our common stock as of March 21, 2001, by
- each person known by us to be the beneficial owner of more than 5% of our
common stock;
- each of our directors;
- our chief executive officer and four most highly compensated officers
other than the chief executive officer; and
- all of our directors and executive officers as a group.
To our knowledge, unless otherwise indicated, each stockholder listed below
has sole voting and investment power with respect to the shares beneficially
owned. We are unaware of any person other than those listed below that
beneficially owns more than 5% of the outstanding shares of our common stock.
Under Securities and Exchange Commission rules, the number of shares shown as
beneficially owned includes shares of common stock options that currently are
exercisable or will be exercisable within 60 days of March 21, 2001. Shares of
common stock subject to options that are currently exercisable or will be
exercisable within 60 days of March 21, 2001 are considered to be outstanding
for the purpose of determining the percentage of the shares held by a holder,
but not for the purpose of computing the percentage held by others.
The underwriters may also purchase up to 480,000 additional shares from us
within 30 days from the date of this prospectus to cover over-allotments. Such
shares will not be sold unless the underwriters exercise their over-allotment
option, and the table below assumes that such over-allotment option will not be
exercised.
All computations are based on 34,742,766 shares of common stock outstanding
on March 21, 2001.
PERCENT BENEFICIALLY
OWNED
SHARES BENEFICIALLY ------------------------
OWNED PRIOR TO THE BEFORE THE AFTER THE
5% STOCKHOLDERS, DIRECTORS AND OFFICERS OFFERING OFFERING OFFERING
--------------------------------------- ------------------- ---------- ---------
LifePoint Hospitals, Inc. Retirement Plan(1)......... 2,781,260 8.0% 7.3%
AIM Management Group, Inc.(2)........................ 2,088,740 6.0 5.5
James M. Fleetwood, Jr.(3)........................... 331,649 * *
Ricki Tigert Helfer(3)(4)............................ 5,472 * *
Dr. John E. Maupin, Jr., D.D.S.(3)(4)................ 4,639 * *
DeWitt Ezell, Jr.(3)(4).............................. 8,156 * *
William V. Lapham(3)(5).............................. 6,283 * *
William F. Carpenter III(3).......................... 301,457 * *
Neil D. Hemphill(3).................................. 181,755 * *
Kenneth C. Donahey(3)................................ 341,628 * *
William M. Gracey(3)(6).............................. 155,858 * *
Daniel S. Slipkovich(3)(7)........................... 158,250 * *
Richard H. Evans(3).................................. 494 * *
All directors and executive officers as a group (11
persons)(3)(4)(5)(6)(7)............................ 1,495,641 4.2% 3.9%
---------------
* Less than one percent.
(1) The ownership for the Employee Stock Ownership Plan Component of the
LifePoint Hospitals, Inc. Retirement Plan is based on information contained
in the Schedule 13G dated January 19, 2001, filed with the SEC. The address
of the Plan is c/o U.S. Trust Company, National Association, 515 S. Flower
Street, #2800, Los Angeles, California 90071.
(2) The ownership given for AIM Management Group, Inc., on behalf of itself and
its wholly-owned subsidiaries, AIM Advisors, Inc. and AIM Capital
Management, Inc. is based on information contained in the Schedule 13G
dated February 9, 2001, filed with the SEC. The address of AIM is 11
Greenway Plaza, Suite 100, Houston, Texas 77046.
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(3) Includes shares that are issuable by options that are exercisable within 60
days (Mr. Fleetwood, 184,079, Ms. Helfer, 3,733; Dr. Maupin, 3,733; Mr.
Ezell, 3,733; Mr. Lapham, 3,733; Mr. Carpenter, 154,878; Mr. Hemphill,
111,859; Mr. Donahey, 185,112; Mr. Gracey, 81,849; Mr. Slipkovich, 81,839;
and Mr. Evans, 494).
(4) Mr. Ezell has sole voting power to 1,852 shares. The remaining 2,571 shares
listed for Mr. Ezell, the 1,739 shares listed for Ms. Helfer and the 906
shares listed for Dr. Maupin represent Deferred Stock Units payable in
common stock, granted under our Outside Directors Stock and Incentive
Compensation Plan.
(5) Includes 1,250 shares held by Mr. Lapham's wife, as to which he disclaims
beneficial ownership.
(6) Includes 55 shares and options to purchase 416 shares held by Mr. Gracey's
wife, as to which he disclaims beneficial ownership.
(7) Includes 98 shares held by Mr. Slipkovich's wife, as to which he disclaims
beneficial ownership.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 90,000,000 shares of common stock,
par value $.01 per share, and 10,000,000 shares of preferred stock, of which
90,000 shares have been designated as Series A Junior Participating Preferred
Stock, par value $.01 per share. As of March 21, 2001, there were 34,742,766
shares of common stock outstanding held of record by 6,429 stockholders, and no
shares of preferred stock outstanding. The following description of our capital
stock and provisions of our certificate of incorporation and bylaws are only
summaries and we encourage you to review complete copies of our certificate of
incorporation and bylaws, which we have previously filed with the Securities and
Exchange Commission.
COMMON STOCK
Holders of our common stock are entitled to receive, as, when and if
declared by our board of directors, dividends and other distributions in cash,
stock or property from our assets or funds legally available for those purposes
subject to any dividend preferences that may be attributable to preferred stock.
Holders of common stock are entitled to one vote for each share held of record
on all matters on which stockholders may vote. Holders of common stock are not
entitled to cumulative voting for the election of directors. There are no
preemptive, conversion, redemption or sinking fund provisions applicable to our
common stock. All outstanding shares of common stock are fully paid and
non-assessable. In the event of our liquidation, dissolution or winding up,
holders of common stock are entitled to share ratably in the assets available
for distribution, subject to any prior rights of any holders of preferred stock
then outstanding.
On December 11, 2000, we implemented a share repurchase plan to provide
holders of less than 100 shares of our common stock a cost-effective means to
sell all, but not less than all, of their shares or purchase additional shares
to bring their holdings up to 100 shares. The program ended on February 23,
2001.
PREFERRED STOCK
Our certificate of incorporation provides that we may issue up to
10,000,000 shares of preferred stock. Our board of directors has the authority
to issue preferred stock in one or more series and to fix for each series the
voting powers, full, limited or none, and the designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions on the stock, and the number of shares constituting
any series and the designations of this series, without any further vote or
action by our stockholders. Because the terms of the preferred stock may be
fixed by our board of directors without stockholder action, the preferred stock
could be issued quickly with terms calculated to defeat a proposed takeover or
to make the removal of our management more difficult. Under certain
circumstances, this could have the effect of decreasing the market price of our
common stock.
In connection with our stockholder rights plan, our certificate of
incorporation provides for the issuance of a series of 90,000 shares of
preferred stock designated as the Series A Junior Participating Preferred Stock,
par value $.01 per share.
PREFERRED STOCK PURCHASE RIGHTS
We have a stockholders' rights plan, pursuant to which each outstanding
share of our common stock is accompanied by one preferred stock purchase right.
Each right entitles the registered holder to purchase from us one one-thousandth
of a share of Series A preferred stock at a price of $35 per one one-thousandth
of a share, subject to adjustment. The description and terms of the rights are
described in a Rights Agreement between us and National City Bank, as Rights
Agent.
Each share of Series A preferred stock will be entitled, when, as and if
declared, to a preferential quarterly dividend payment in an amount equal to the
greater of $10 or 1,000 times the aggregate of all dividends declared per share
of common stock. In the event of our liquidation, dissolution or winding up,
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the holders of Series A preferred stock will be entitled to a minimum
preferential liquidation payment equal to $1,000 per share, plus an amount equal
to accrued and unpaid dividends and distributions on the stock, whether or not
declared, to the date of such payment, but will be entitled to an aggregate
payment of 1,000 times the payment made per share of common stock. Each share of
Series A preferred stock will entitle the holder of the stock to 1,000 votes on
all matters submitted to a vote of the stockholders. In the event of any
consolidation, merger, combination or other transaction in which shares of
common stock are exchanged, each share of Series A preferred stock will be
entitled to receive 1,000 times the aggregate amount of stock, securities, cash
and/or other property (payable in kind) as the case may be, into which or for
which each share of common stock is changed or exchanged. The rights of Series A
preferred stock as to dividends, liquidation and voting, and in the event of
mergers and consolidations, are protected by customary anti-dilution provisions.
Initially, the rights will be attached to all common stock certificates and
no separate rights certificates will be issued. Separate certificates evidencing
the rights will be mailed to holders of record of the common stock as of the
close of business on the earlier to occur of (1) the tenth day after a public
announcement that a person or group of affiliated or associated persons has
acquired beneficial ownership of 15% or more of the outstanding common stock, or
(2) a date determined by action of our board of directors following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding common stock.
Prior to the time that a person would otherwise become an acquiring person,
however, our board of directors may determine that such person shall not be an
acquiring person for purposes of the Rights Agreement.
The Rights Agreement provides that, until the rights distribution date (or
earlier redemption or expiration of the rights):
- the rights will be transferred with and only with the certificates for
common stock;
- new common stock certificates issued after the record date upon transfer
or new issuance of common stock will contain a notation incorporating the
Rights Agreement by reference; and
- the surrender for transfer of any certificates for common stock
outstanding as of the record date also will constitute the transfer of
the rights associated with the common stock represented by such
certificate.
The rights are not exercisable until the rights distribution date. The
rights will expire on May 7, 2009, unless the expiration date is extended or
unless the rights are earlier redeemed or exchanged by us, in each case, as
described below.
If a person or group becomes an acquiring person, each holder of a right
will then have the right to receive, on exercise, common stock (or, in certain
circumstances, Series A preferred stock or other similar securities of
LifePoint) having a value equal to two times the exercise price of the right.
Notwithstanding any of the foregoing, following the existence of an acquiring
person, all rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any acquiring person will be null
and void.
In the event that we are acquired in a merger or other business combination
transaction or 50% or more of our consolidated assets or earning power are sold
after a person or group has become an acquiring person, proper provision will be
made so that each holder of a right will thereafter have the right to receive,
on the exercise thereof at the then current exercise price of the right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
right.
At any time after any person or group becomes an acquiring person and prior
to the acquisition by any person or group of 50% or more of the outstanding
shares of common stock, our board of directors may exchange the rights (other
than rights owned by such person or group which will have become void), in whole
or in part, at an exchange ratio of one share of common stock or one
one-thousandth of a share
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of Series A preferred stock (or of a share of a class or series of our preferred
stock having equivalent rights, preferences and privileges), as the case may be,
per right (subject to adjustment).
At any time prior to the existence of an acquiring person, our board of
directors may redeem the rights, in whole but not in part, at a redemption price
of $.01 per right. The redemption of the rights may be made effective at such
time and on such basis with such conditions as our board of directors, in its
sole discretion, may establish. Immediately upon any redemption of the rights,
the right to exercise the rights will terminate and the only right of the
holders of rights will be to receive the redemption price.
The terms of the rights may be amended by our board of directors without
the consent of the holders of the rights, except that from and after the
existence of an acquiring person no such amendment may adversely affect the
interests of the holders of the rights (other than the acquiring person).
The number of outstanding rights and the number of one-thousandths of a
share of Series A preferred stock issuable upon exercise of each right are
subject to adjustment under certain circumstances.
Until a right is exercised, the holder of the right will not have any
rights as a stockholder of our company, including, without limitation, the right
to vote or to receive dividends.
The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire us on terms
not determined by our board of directors to be in the best interests of all
stockholders. The rights should not interfere with any merger or other business
combination approved by our board of directors since (subject to the limitations
described above) we may redeem the rights at $.01 per right prior to the time a
person or group has become an acquiring person.
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR
GOVERNING DOCUMENTS
Provisions in our certificate of incorporation and bylaws could make it
harder for someone to acquire us through a tender offer, proxy contest or
otherwise. These provisions include, for example, terms providing for
- the issuance of "blank check" preferred stock by the board of directors
without stockholder approval;
- higher stockholder voting requirements for certain transactions such as
business combinations with certain related parties (i.e., a "fair price
provision");
- a prohibition on taking actions by the written consent of stockholders;
- restrictions on the persons eligible to call a special meeting of
stockholders;
- classification of the board of directors into three classes; and
- the removal of directors only for cause and by a vote of 80% of the
outstanding voting power.
These provisions may also have the effect of discouraging third parties
from making proposals involving our acquisition or change of control, although
such proposals, if made, might be considered desirable by a majority of our
stockholders. These provisions could further have the effect of making it more
difficult for third parties to cause the replacement of our board of directors.
These provisions have been designed to enable us to develop our business and
foster our long-term growth without disruptions caused by the threat of a
takeover not deemed by our board of directors to be in our best interests and
our stockholders.
We are governed by the provisions of Section 203 of the Delaware General
Corporate Law, which provides that a person who owns (or within three years, did
own) 15% or more of a company's voting stock is an "interested stockholder."
Section 203 prohibits a public Delaware corporation from engaging in a business
combination with an interested stockholder for a period commencing three years
from the date in which the person became an interested stockholder unless:
- the board of directors approved the transaction which resulted in the
stockholder becoming an interested stockholder;
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- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the voting stock of the corporation (excluding shares owned
by officers, directors, or certain employee stock purchase plans); or
- at or subsequent to the time the transaction is approved by the board of
directors, there is an affirmative vote of at least 66.66% of the
outstanding voting stock.
Section 203 could prohibit or delay mergers or other takeover attempts against
us, and accordingly, may discourage attempts to acquire us through tender offer,
proxy contest or otherwise.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except for liability for:
- breach of the director's duty of loyalty;
- acts or omissions not in good faith, intentional misconduct or a knowing
violation of the law;
- the unlawful payment of a dividend or unlawful stock purchase or
redemption; and
- any transaction from which the director derives an improper personal
benefit.
This provision, however, has no effect on the availability of equitable remedies
such as an injunction or rescission. Additionally, this provision will not limit
liability under state or federal securities laws.
The certificate of incorporation also provides that we shall indemnify our
officers and directors to the fullest extent permitted by such law. In addition,
we maintain and pay premiums on an insurance policy on behalf of our officers
and directors covering losses arising from claims based on breaches of duty,
negligence, error and other wrongful acts. We believe that these provisions will
assist us in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is National City
Bank. Its address is 629 Euclid Avenue, Suite 635, Cleveland, Ohio 44114, and
its telephone number at this location is (216) 575-2492.
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MATERIAL UNITED STATES FEDERAL INCOME AND
ESTATE TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a non-U.S. holder that acquires our common stock pursuant to this offering.
This discussion is limited to non-U.S. holders who hold our common stock as a
"capital asset" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended. As used in this discussion, the term "non-U.S. holder"
means a beneficial owner of our common stock that is not, for U.S. federal
income tax purposes:
- an individual who is a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision of the United States,
other than a partnership treated as foreign under U.S. Treasury
regulations;
- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
- a trust, in general, if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have authority to control all substantial decisions of the trust.
An individual may be treated as a resident of the United States in any
calendar year for U.S. federal income tax purposes, instead of a nonresident,
by, among other ways, being present in the United States on at least 31 days in
that calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year. For purposes of this calculation,
you would count all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days present
in the second preceding year. Residents are taxed for U.S. federal income
purposes in the same manner as U.S. citizens.
This discussion does not consider:
- U.S. state and local or non-U.S. tax consequences;
- specific facts and circumstances that may be relevant to a particular
non-U.S. holder's tax position, including, if the non-U.S. holder is a
partnership that the U.S. tax consequences of holding and disposing of
our common stock may be affected by certain determinations made at the
partner level;
- the tax consequences for the shareholders, partners or beneficiaries of a
non-U.S. holder;
- special tax rules that may apply to particular non-U.S. holders, such as
financial institutions, insurance companies, tax-exempt organizations,
certain former citizens or former long-term residents of the United
States, broker-dealers, and traders in securities; or
- special tax rules that may apply to a non-U.S. holder that holds our
common stock as part of a "straddle," "hedge," "conversion transaction,"
"synthetic security" or other integrated investment.
The following discussion is based on provisions of the Internal Revenue
Code, applicable U.S. Treasury regulations and administrative and judicial
interpretations, all as in effect and generally available on the date of this
prospectus, and all of which are subject to change, retroactively or
prospectively. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX
CONSIDERATIONS WITH RESPECT TO ACQUIRING, OWNING AND DISPOSING OF SHARES OF OUR
COMMON STOCK.
DIVIDENDS
We do not anticipate paying dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that we pay
dividends on our common stock, we will have to withhold U.S.
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federal income tax at a rate of 30%, or a lower rate under an applicable income
tax treaty, from the gross amount of the dividends paid to a non-U.S. holder.
Non-U.S. holders should consult their tax advisors regarding their entitlement
to benefits under a relevant income tax treaty.
Under applicable U.S. Treasury regulations, for purposes of the withholding
discussed above and for purposes of determining the applicability of a tax
treaty rate:
- a non-U.S. holder who claims the benefit of an applicable income tax
treaty rate generally will be required to satisfy certain certification
and other requirements;
- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information;
- in the case of common stock held by a foreign trust, the certification
requirement will generally be applied to the trust or the beneficial
owners of the trust depending on whether the trust is a "foreign complex
trust," "foreign simple trust," or "foreign grantor trust" as defined in
the U.S. Treasury regulations; and
- look-through rules will apply for tiered partnerships, foreign simple
trusts and foreign grantor trusts.
A non-U.S. holder which is a foreign partnership or a foreign trust is
urged to consult its own tax advisor regarding its status under these U.S.
Treasury regulations and the certification requirements applicable to it.
A non-U.S. holder that is eligible for a reduced rate of U.S. federal
withholding tax under an income tax treaty may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for a refund together
with the required information with the IRS.
Dividends that are effectively connected with a non-U.S. holder's conduct
of a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States, are taxed on a
net income basis at the regular graduated U.S. federal income tax rates in the
same manner as if the non-U.S. holder were a resident of the United States. In
such cases, we will not have to withhold U.S. federal withholding tax if the
non-U.S. holder complies with applicable certification and disclosure
requirements. In addition, a "branch profits tax" may be imposed at a 30% rate,
or a lower rate under an applicable income tax treaty, on dividends received by
a foreign corporation that are effectively connected with the conduct of a trade
or business in the United States.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income or
withholding tax with respect to gain realized on a sale or other disposition of
our common stock unless one of the following applies:
- the gain is effectively connected with the non-U.S. holder's conduct of a
trade or business in the United States or, alternatively, if an income
tax treaty applies, is attributable to a permanent establishment
maintained by the non-U.S. holder in the United States; in these cases,
the non-U.S. holder will generally be taxed on its net gain derived from
the disposition at the regular graduated rates and in the manner
applicable to U.S. persons and, if the non-U.S. holder is a foreign
corporation, the "branch profits tax" described above may also apply;
- the non-U.S. holder is an individual who holds our common stock as a
capital asset, is present in the United States for 183 days or more in
the taxable year of the disposition and meets certain other requirements;
in this case, the non-U.S. holder will be subject to a 30% tax on the
gain derived from the disposition; or
- we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the five
year period ending on the date of such disposition or the period that the
non-U.S. holder held our common stock. It is possible that we are, or in
the future will be, a U.S. real property holding corporation. Even if we
are, or were to
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become, a U.S. real property holding corporation, however, gains realized
upon a disposition of our common stock by a non-U.S. holder that did not
directly or indirectly own more than 5% of our common stock during the
shorter of the five year period ending on the date of disposition or the
period that the non-U.S. holder held our common stock generally would not
be subject to U.S. federal income tax, provided that our common stock is
"regularly traded on an established securities market" within the meaning
of the Section 897(c)(3) of the Internal Revenue Code. If we are, or were
to become, a U.S. real property holding corporation and a non-U.S. holder
owned directly or indirectly more than 5% of our common stock during the
period described above or our common stock is not "regularly traded on an
established securities market," then a non-U.S. holder would generally be
subject to U.S. federal income tax on its net gain derived from the
disposition of our common stock at regular graduated rates.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual who is a non-U.S.
holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the IRS and to each non-U.S. holder the amount
of dividends paid to that holder and the tax withheld from those dividends.
These reporting requirements apply regardless of whether withholding was reduced
or eliminated by an applicable tax treaty. Copies of the information returns
reporting those dividends and withholding may also be made available to the tax
authorities in the country in which the non-U.S. holder is a resident under the
provisions of an applicable income tax treaty or agreement.
Under some circumstances, U.S. Treasury regulations require additional
information reporting and backup withholding at a rate of 31% on some payments
on common stock. The gross amount of dividends paid to a non-U.S. holder that
fails to certify its non-U.S. holder status in accordance with applicable U.S.
Treasury regulations generally will be reduced by backup withholding at a rate
of 31%.
The payment of the proceeds of the sale or other disposition of common
stock by a non-U.S. holder to or through the U.S. office of any broker, U.S. or
non-U.S., generally will be reported to the IRS and reduced by backup
withholding at a rate of 31%, unless the non-U.S. holder certifies its status as
a non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the sale or other disposition of
common stock by a non-U.S. holder to or through a non-U.S. office of a non-U.S.
broker will not be reduced by backup withholding or reported to the IRS, unless
the non-U.S. broker has certain enumerated connections with the United States.
In general, the payment of proceeds from the sale or other disposition of common
stock by or through a non-U.S. office of a broker that is a U.S. person or has
certain enumerated connections with the United States will be reported to the
IRS and may be reduced by backup withholding at a rate of 31%, unless the
non-U.S. holder certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption or the broker has documentary
evidence in its files that the holder is a non-U.S. holder.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. holder can be refunded or
credited against the non-U.S. holder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the IRS in a timely
manner. These backup withholding and information reporting rules are complex and
non-U.S. holders are urged to consult their own tax advisors regarding the
application of these rules to them.
THE FOREGOING DISCUSSION OF U.S. FEDERAL INCOME AND ESTATE TAX
CONSIDERATIONS IS NOT TAX ADVICE AND IS NOT BASED ON AN OPINION OF COUNSEL.
ACCORDINGLY, EACH PROSPECTIVE NON-U.S. HOLDER OF OUR COMMON STOCK SHOULD CONSULT
THAT HOLDER'S OWN TAX ADVISER WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
NON-U.S. TAX CONSEQUENCES OF THE ACQUISITION OWNERSHIP AND DISPOSITION OF OUR
COMMON STOCK.
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UNDERWRITING
We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation,
Salomon Smith Barney Inc., SunTrust Equitable Securities Corporation and UBS
Warburg LLC are acting as U.S. underwriters. Subject to the terms and conditions
described in a U.S. purchase agreement among us and each of the U.S.
underwriters, and concurrently with the sale of 640,000 shares to the
international managers, we have agreed to sell to the U.S. underwriters, and the
U.S. underwriters severally have agreed to purchase from us, the number of
shares listed opposite their names below.
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 1,126,400
Credit Suisse First Boston Corporation...................... 588,800
Salomon Smith Barney Inc.................................... 281,600
SunTrust Equitable Securities Corporation................... 281,600
UBS Warburg LLC............................................. 281,600
---------
Total.......................................... 2,560,000
=========
We also have entered into an international purchase agreement with Merrill
Lynch International, Credit Suisse First Boston (Europe) Limited, Salomon
Brothers International Limited, SunTrust Equitable Securities Corporation and
UBS AG, acting through its business group UBS Warburg, as the international
managers for the sale of the shares outside the U.S. and Canada. Subject to the
terms and conditions in the international purchase agreement, and concurrently
with the sale of 2,560,000 shares of common stock to the U.S. underwriters
pursuant to the U.S. purchase agreement, we have agreed to sell to the
international managers, and the international managers severally have agreed to
purchase 640,000 shares from us. The public offering price per share and the
total underwriting discount per share are identical under the U.S. purchase
agreement and the international purchase agreement.
The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the non-defaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
U.S. underwriters and the international managers are conditioned on one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the Securities
Act of 1933, or to contribute to payments the U.S. underwriters and
international managers may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The U.S. underwriters have advised us that they propose initially to offer
the shares of our common stock to the public at the public offering price on the
cover page of this prospectus and to dealers at the price less a concession not
in excess of $.84 per share. The U.S. underwriters may allow, and the dealers
may reallow, a discount not in excess of $.10 per share to other dealers. After
the offering, the public offering price, concession and discount may be changed.
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The following table shows the public offering price, underwriting discount
and proceeds before expenses to us. The information assumes either no exercise
or full exercise by the U.S. underwriters and the international managers of
their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- ------------
Public offering price............................ $29.00 $92,800,000 $106,720,000
Underwriting discount............................ $1.45 $4,640,000 $5,336,000
Proceeds, before expenses, to LifePoint.......... $27.55 $88,160,000 $101,384,000
The expenses of the offering, not including the underwriting discount, are
estimated at $1.5 million and are payable by LifePoint.
OVER-ALLOTMENT OPTION
The U.S. underwriters may also purchase up to 384,000 additional shares
from us at the public offering price, less the underwriting discount. The U.S.
underwriters may exercise this option for 30 days from the date of this
prospectus solely to cover any over-allotments. If the U.S. underwriters
exercise this option, each will be obligated, subject to conditions contained in
the U.S. purchase agreement, to purchase a number of additional shares
proportionate to that U.S. underwriter's initial amount reflected in the above
table.
The international managers may also purchase up to 96,000 additional shares
from us to cover any over-allotments on terms similar to those granted to the
U.S. underwriters. The international managers may exercise this option for 30
days from the date of this prospectus.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the public
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the U.S. underwriters and any dealer to whom they
sell shares will not offer to sell or sell shares to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, except in the case of transactions under
the intersyndicate agreement. Similarly, the international managers and any
dealer to whom they sell shares will not offer to sell or sell shares to U.S. or
Canadian persons or to persons they believe intend to resell to U.S. or Canadian
persons, except in the case of transactions under the intersyndicate agreement.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and these other individuals have agreed not directly or
indirectly to:
- offer, pledge, sell or contract to sell any common stock;
- sell any option or contract to purchase any common stock;
- purchase any option or contract to sell any common stock;
- grant any option, right or warrant for the sale of any common stock;
- lend or otherwise dispose of or transfer any common stock;
- request or demand that we file a registration statement related to the
common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
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This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
Notwithstanding the foregoing, Merrill Lynch has agreed to an exception to
these agreements to permit the sale of up to 250,000 shares of common stock in
the aggregate by six of our executive officers. We may also issue shares of
common stock or options to purchase shares of common stock pursuant to our
existing employee benefit plans or upon exercise or conversion of any security
outstanding on the date hereof.
QUOTATION ON THE NASDAQ NATIONAL MARKET
Our shares are quoted on the Nasdaq National Market under the symbol
"LPNT."
NASD REGULATION
More than ten percent of the proceeds of the offering will be applied to
pay down debt obligations owed to affiliates of SunTrust Equitable Securities
Corporation. Because more than ten percent of the net proceeds of the offering
will be paid to members or affiliates of members of the National Association of
Securities Dealers, Inc. participating in the offering, the offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8).
PRICE STABILIZATION, SHORT POSITIONS
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit underwriters from bidding for and
purchasing our common stock. However, the U.S. underwriters may engage in
transactions that stabilize the price of the common stock, such as bids or
purchases to peg, fix or maintain that price.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. underwriters may reduce that short
position by purchasing shares in the open market. The U.S. underwriters may also
elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short term position may cause the price of
the common stock to be higher than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
underwriters or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act during a period before the commencement of offers or sales of
common stock and extending through the completion of distribution. A passive
market maker must display its bid at a price not in excess of the highest
independent bid of that security. However, if all independent bids are lowered
below the passive market maker's bid, that bid must then be lowered when
specified purchase limits are exceeded.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have
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received customary fees and commissions for these transactions. An affiliate of
SunTrust Equitable Securities Corporation is a participating lender under our
bank credit agreement.
Merrill Lynch will be facilitating internet distribution for the offering
to some of its internet subscription customers. Merrill Lynch intends to
allocate a limited number of shares for sale to its online brokerage customers.
An electronic prospectus is available on the website maintained by Merrill
Lynch. Other than the prospectus in electronic format, the information on the
Merrill Lynch website relating to the offering is not a part of this prospectus.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares offered
hereby will be passed upon for LifePoint by Waller Lansden Dortch & Davis, A
Professional Limited Liability Company, Nashville, Tennessee. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Dewey Ballantine LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and 2000, and for each of the three
years in the period ended December 31, 2000, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our annual report on Form 10-K for the year
ended December 31, 2000, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Our SEC filings are also available over the Internet at
the SEC's website at http://www.sec.gov. You may also read and copy any document
we file at the SEC's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms and their copy charges. Reports and
other information concerning us can also be inspected at the offices of Nasdaq,
33 Whitehall Street, New York, New York 10004-2193.
We have filed a registration statement on Form S-3 with the SEC covering
the common stock. For further information on LifePoint and the securities we are
offering in this prospectus, you should refer to our registration statement, its
exhibits and the documents incorporated by reference therein. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Since this prospectus may not contain all the information that you may
find important, you should review the full text of those documents.
You should rely only on the information contained and incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus,
as well as information we previously filed with the SEC and incorporated by
reference, is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supercede this prospectus.
We incorporate by reference the documents listed below which we filed with
the SEC under the Securities Exchange Act of 1934:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
2000;
- our Current Report on Form 8-K filed on February 16, 2001; and
- the description of our capital stock contained in our registration
statement on Form 10, dated December 11, 1998, as amended.
You may request a copy of these filings, at no cost, by writing or
telephoning our Corporate Secretary at the following address:
LifePoint Hospitals, Inc.
103 Powell Court, Suite 200
Brentwood, Tennessee 37027
Attention: Corporate Secretary
(615) 372-8500
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus but before all the
common stock offered by this prospectus has been sold:
- reports filed under Sections 13(a) and (c) of the Securities Exchange Act
of 1934;
- definitive proxy or information statements filed under Section 14 of the
Securities Exchange Act of 1934 in connection with any subsequent
stockholders' meeting; and
- any reports filed under Section 15(d) of the Securities Exchange Act of
1934.
Such documents will become a part of this prospectus from the date such
document is filed.
Any statement contained in this prospectus or in a document incorporated by
reference are modified or superseded for purposes of this prospectus to the
extent that a statement contained in any such document modifies or supersedes
such statement. Any such statement so modified or superseded shall be deemed, as
so modified or superseded, to constitute a part of this prospectus.
---------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospects may have changed since that date.
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors.............................. F-2
Consolidated Statements of Operations -- for the years ended
December 31, 1998, 1999 and 2000.......................... F-3
Consolidated Balance Sheets -- December 31, 1999 and 2000... F-4
Consolidated Statements of Cash Flows -- for the years ended
December 31, 1998, 1999 and 2000.......................... F-5
Consolidated Statements of Stockholders' Equity -- for the
years ended December 31, 1998, 1999 and 2000.............. F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
68
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
LifePoint Hospitals, Inc.
We have audited the accompanying consolidated balance sheets of LifePoint
Hospitals, Inc. as of December 31, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2000. These consolidated financial
statements are the responsibility of the management of LifePoint Hospitals, Inc.
(the "Company"). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LifePoint
Hospitals, Inc. at December 31, 1999 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Nashville, Tennessee
January 29, 2001, except for
Note 3, as to which the date
is March 16, 2001
F-2
69
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1998 1999 2000
------ ------ ------
Revenues.................................................... $498.4 $515.2 $557.1
Salaries and benefits....................................... 220.8 217.4 224.2
Supplies.................................................... 62.0 64.2 67.0
Other operating expenses.................................... 117.2 117.3 118.1
Provision for doubtful accounts............................. 41.6 38.2 42.0
Depreciation and amortization............................... 28.3 31.4 34.1
Interest expense............................................ 19.1 23.4 30.7
Management fees............................................. 8.9 3.2 --
ESOP expense................................................ -- 2.9 7.1
Impairment of long-lived assets............................. 26.1 25.4 (1.4)
------ ------ ------
524.0 523.4 521.8
------ ------ ------
Income (loss) from continuing operations before minority
interests and income taxes................................ (25.6) (8.2) 35.3
Minority interests in earnings of consolidated entities..... 1.9 1.9 2.2
------ ------ ------
Income (loss) from continuing operations before income
taxes..................................................... (27.5) (10.1) 33.1
Provision (benefit) for income taxes........................ (9.8) (2.7) 15.2
------ ------ ------
Income (loss) from continuing operations.................... (17.7) (7.4) 17.9
Discontinued operations:
Loss from operations, net of income tax benefit of $2.6... (4.1) -- --
------ ------ ------
Net income (loss)...................................... $(21.8) $ (7.4) $ 17.9
====== ====== ======
Basic earnings (loss) per share (see Note 14):
Income (loss) from continuing operations.................. $(0.59) $(0.24) $ 0.57
Loss from discontinued operations......................... (0.14) -- --
------ ------ ------
Net income (loss)...................................... $(0.73) $(0.24) $ 0.57
====== ====== ======
Diluted earnings (loss) per share (see Note 14):
Income (loss) from continuing operations.................. $(0.59) $(0.24) $ 0.54
Loss from discontinued operations......................... (0.14) -- --
------ ------ ------
Net income (loss)...................................... $(0.73) $(0.24) $ 0.54
====== ====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
70
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1999 2000
------- -------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12.5 $ 39.7
Accounts receivable, less allowances for doubtful accounts
of $50.3 and $52.3 at December 31, 1999 and 2000,
respectively........................................... 46.7 41.7
Inventories............................................... 14.3 13.9
Deferred taxes and other current assets................... 25.9 22.2
------- -------
99.4 117.5
Property and equipment:
Land...................................................... 7.9 8.7
Buildings and improvements................................ 204.1 236.9
Equipment................................................. 260.6 244.9
Construction in progress (estimated cost to complete and
equip after December 31, 2000 -- $12.0)................ 20.2 9.4
------- -------
492.8 499.9
Accumulated depreciation.................................... (198.4) (183.4)
------- -------
294.4 316.5
Intangible assets, net...................................... 26.4 53.8
Other....................................................... 0.2 0.2
------- -------
$ 420.4 $ 488.0
======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.......................................... $ 26.5 $ 16.1
Accrued salaries.......................................... 14.7 13.8
Other current liabilities................................. 12.9 11.1
Current maturities of long-term debt...................... 3.1 11.1
------- -------
57.2 52.1
Long-term debt.............................................. 257.1 278.3
Deferred taxes.............................................. 12.5 15.2
Professional liability risks and other liabilities.......... 3.4 9.4
Minority interests in equity of consolidated entities....... 4.5 4.6
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; no shares issued........................... -- --
Common stock, $.01 par value; 90,000,000 shares
authorized; 33,701,208
shares and 34,709,504 shares issued and outstanding at
December 31, 1999 and 2000, respectively.................. 0.3 0.3
Capital in excess of par value............................ 137.9 156.5
Unearned ESOP compensation................................ (28.9) (25.7)
Notes receivable for shares sold to employees............. (10.2) (7.2)
Retained earnings (accumulated deficit)................... (13.4) 4.5
------- -------
85.7 128.4
------- -------
$ 420.4 $ 488.0
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
71
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(DOLLARS IN MILLIONS)
1998 1999 2000
------ ------ ------
Cash flows from operating activities:
Net income (loss)......................................... $(21.8) $ (7.4) $ 17.9
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
ESOP expense......................................... -- 2.9 7.1
Provision for doubtful accounts...................... 41.6 38.2 42.0
Depreciation and amortization........................ 28.3 31.4 34.1
Minority interests in earnings of consolidated
entities.......................................... 1.9 1.9 2.2
Deferred income taxes (benefit)...................... (12.4) (13.8) 13.6
Loss (gain) on impairment of long-lived assets....... 26.1 25.4 (1.4)
Loss from discontinued operations.................... 4.1 -- --
Reserve for professional liability risk.............. -- 3.4 5.4
Increase (decrease) in cash from operating assets and
liabilities, net of effects from acquisitions and
divestitures:
Accounts receivable............................... (21.3) (29.8) (32.8)
Inventories and other assets...................... 0.2 (1.1) (1.7)
Accounts payable and accrued expenses............. 0.9 7.1 (11.4)
Income taxes payable.............................. -- (0.3) 6.2
Other................................................ (0.1) 1.4 2.2
------ ------ ------
Net cash provided by operating activities......... 47.5 59.3 83.4
Cash flows from investing activities:
Purchases of property and equipment, net.................. (29.3) (64.8) (31.4)
Purchases of facilities................................... -- -- (82.4)
Proceeds from sale of facilities.......................... -- -- 24.3
Other..................................................... (2.2) (4.0) (2.3)
------ ------ ------
Net cash used in investing activities............. (31.5) (68.8) (91.8)
Cash flows from financing activities:
Borrowings under bank debt................................ -- -- 35.0
Repayments of bank debt................................... -- -- (5.7)
Proceeds from exercise of stock options................... -- -- 7.2
(Decrease) increase in intercompany balances with HCA,
net.................................................... (14.9) 22.4 --
Other..................................................... (1.1) (0.4) (0.9)
------ ------ ------
Net cash (used in) provided by financing
activities...................................... (16.0) 22.0 35.6
------ ------ ------
Change in cash and cash equivalents......................... -- 12.5 27.2
Cash and cash equivalents at beginning of year.............. -- -- 12.5
------ ------ ------
Cash and cash equivalents at end of year.................... $ -- $ 12.5 $ 39.7
====== ====== ======
Supplemental disclosure of cash flow information:
Interest payments......................................... $ 19.1 $ 21.2 $ 29.4
Income taxes paid (received), net......................... $ -- $ 15.4 $ (4.4)
Supplemental non-cash financing activities:
Assumption of debt from HCA............................... $ -- $260.0 $ --
Elimination of intercompany amounts payable to HCA........ $ -- $224.9 $ --
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
72
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999, AND 2000
(DOLLARS AND SHARES IN MILLIONS)
NOTES
CAPITAL RECEIVABLE
IN RETAINED FOR
COMMON STOCK EXCESS OF EARNINGS EQUITY, SHARES UNEARNED
--------------- PAR (ACCUMULATED INVESTMENTS SOLD TO ESOP
SHARES AMOUNT VALUE DEFICIT) BY HCA EMPLOYEES COMPENSATION TOTAL
------ ------ --------- ------------ -------------- ---------- ------------ ------
Balance at December 31, 1997... $ $ $ $140.5 $ $ $140.5
Net loss..................... (21.8) (21.8)
---- ---- ------- ------ ------ ------ ------ ------
Balance at December 31, 1998... 118.7 118.7
Net income before spin-off... 6.0 6.0
Stock issued in connection
with:
Executive Stock Purchase
Plan..................... 1.0 10.2 (10.2) --
Employee Stock Ownership
Plan..................... 2.8 32.1 (32.1) --
Issuance of stock
options.................. 1.6 1.6
ESOP compensation earned..... (0.3) 3.2 2.9
Assumption of debt from
HCA........................ (260.0) (260.0)
Elimination of intercompany
debt to HCA................ 229.9 229.9
Spin-off capitalization...... 29.9 0.3 124.4 (124.7) --
Net loss after spin-off...... (13.4) (13.4)
---- ---- ------- ------ ------ ------ ------ ------
Balance at December 31, 1999... 33.7 0.3 137.9 (13.4) -- (10.2) (28.9) 85.7
Net income................... 17.9 17.9
ESOP compensation earned..... 3.9 3.2 7.1
Exercise of stock options,
including tax benefits and
other...................... 1.0 17.1 17.1
Stock issued in connection
with Management Stock
Purchase Plan.............. 0.7 0.7
Payment on Executive Stock
Purchase Plan.............. (3.1) 3.0 (0.1)
---- ---- ------- ------ ------ ------ ------ ------
Balance at December 31, 2000... 34.7 $0.3 $ 156.5 $ 4.5 $ -- $ (7.2) $(25.7) $128.4
==== ==== ======= ====== ====== ====== ====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
73
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 -- ORGANIZATION AND ACCOUNTING POLICIES
Organization
On May 11, 1999, HCA -- The Healthcare Company ("HCA") completed the
spin-off of its operations comprising the America Group to its stockholders by
distributing all outstanding shares of LifePoint Hospitals, Inc. (the
"Distribution"). LifePoint Hospitals, Inc., together with its subsidiaries, as
appropriate, is hereinafter referred to as the "Company." A description of the
Distribution and certain transactions with HCA is included in Note 2.
At December 31, 2000, the Company was comprised of 20 general, acute care
hospitals and related health care entities. The entities are located in
non-urban areas in the states of Alabama, Florida, Kansas, Kentucky, Tennessee,
Utah and Wyoming.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all subsidiaries and entities controlled by the Company through the
Company's direct or indirect ownership of a majority voting interest or
exclusive rights granted to the Company by contract as the sole general partner
to manage and control the ordinary course of the affiliates' business. All
significant intercompany accounts and transactions within the Company have been
eliminated in consolidation. Investments in entities which the Company does not
control, but in which it has a substantial ownership interest and can exercise
significant influence, are accounted for using the equity method.
Use of Estimates
The preparation of the accompanying consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Equity
Equity for periods prior to the Distribution represents the net investment
in the Company by HCA. It includes Common Stock, additional paid-in-capital and
net earnings.
Revenues
The Company's health care facilities have entered into agreements with
third-party payers, including government programs and managed care health plans,
under which the facilities are paid based upon established charges, the cost of
providing services, predetermined rates per diagnosis, fixed per diem rates or
discounts from established charges.
Revenues are recorded at estimated amounts due from patients and
third-party payers for the health care services provided. Settlements under
reimbursement agreements with third-party payers are estimated and recorded in
the period the related services are rendered and are adjusted in future periods
as final settlements are determined. The net adjustments to estimated
settlements resulted in increases to revenues of $1.2 million, $0.7 million and
$3.2 million for the years ended December 31, 1998, 1999 and 2000, respectively.
Management believes that adequate provisions have been made for adjustments that
may
F-7
74
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
result from final determination of amounts earned under these programs. HCA
retains sole responsibility for, and will be entitled to, any Medicare, Medicaid
or cost-based Blue Cross settlements relating to cost reporting periods ending
on or prior to the Distribution. The net settlement payable estimated as of
December 31, 1999 and 2000 and included in accounts receivable in the
accompanying balance sheets approximated $5.1 million and $13.5 million,
respectively.
Laws and regulations governing Medicare and Medicaid programs are complex
and subject to interpretation. As a result, there is at least a reasonable
possibility that recorded estimates will change by a material amount in the near
term. The Company believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened investigations
involving allegations of potential wrongdoing that would have a material effect
on the Company's financial statements. Compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties and exclusion from the
Medicare and Medicaid programs.
The Company provides care without charge to patients who are financially
unable to pay for the health care services they receive. Because the Company
does not pursue collection of amounts determined to qualify as charity care,
they are not reported in revenues.
The Company's revenue is particularly sensitive to regulatory and economic
changes in the states of Kentucky and Tennessee. As of December 31, 2000, the
Company operated 20 hospitals with six located in the Commonwealth of Kentucky
and six located in the State of Tennessee. Based on those 20 hospitals, the
Company generated 38.8% of its revenue from its Kentucky hospitals and 20.7%
from its Tennessee hospitals for the year ended December 31, 2000.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities
with original maturities of three months or less.
Accounts Receivable
The Company receives payment for services rendered from federal and state
agencies (under the Medicare, Medicaid and TRICARE programs), managed care
health plans, commercial insurance companies, employers and patients. During the
years ended December 31, 1998, 1999 and 2000, approximately 48.9%, 47.4% and
47.0%, respectively, of the Company's revenues related to patients participating
in the Medicare and Medicaid programs. Management recognizes that revenues and
receivables from government agencies are significant to its operations, but it
does not believe that there are significant credit risks associated with these
government agencies. Management does not believe that there are any other
significant concentrations of revenues from any particular payer that would
subject it to any significant credit risks in the collection of its accounts
receivable.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Long-Lived Assets
(a) Property and Equipment
Property and equipment are stated at cost. Routine maintenance and repairs
are charged to expense as incurred. Expenditures that increase capacities or
extend useful lives are capitalized.
F-8
75
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense, computed using the straight-line method, was $27.1
million, $30.6 million and $32.8 million for the years ended December 31, 1998,
1999 and 2000, respectively. Buildings and improvements are depreciated over
estimated useful lives ranging generally from 10 to 40 years. Estimated useful
lives of equipment vary generally from 3 to 10 years.
(b) Intangible Assets
Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method, generally over periods ranging from 30 to 40 years for
hospital acquisitions.
When events, circumstances and operating results indicate that the carrying
values of certain long-lived assets and the related identifiable intangible
assets might be impaired, the Company prepares projections of the undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. If the projections indicate that the recorded amounts are
not expected to be recoverable, such amounts are reduced to estimated fair
value. Fair value is estimated based upon internal evaluations of each asset
that include quantitative analyses of net revenue and cash flows, reviews of
recent sales of similar assets and market responses based upon discussions with
and offers received from potential buyers.
Deferred loan costs are included in intangible assets on the balance sheet
and are amortized over the term of the related debt. In connection with the
Distribution, the Company recorded $10.7 million and $0.8 million of deferred
loan costs during the years ended December 31, 1999 and 2000, respectively.
The following is a summary of intangible assets at December 31, (in
millions):
1999 2000
----- -----
Cost in excess of net assets acquired....................... $24.3 $53.6
Deferred loan costs......................................... 10.7 11.5
----- -----
35.0 65.1
Less accumulated amortization............................... (8.6) (11.3)
----- -----
Total intangible assets........................... $26.4 $53.8
===== =====
Income Taxes
For the periods prior to the Distribution, HCA filed consolidated federal
and state income tax returns which included all of its eligible subsidiaries,
including the Company. The provisions for income taxes (benefits) in the
consolidated statements of operations for periods prior to the Distribution were
computed on a separate return basis (i.e., assuming the Company had not been
included in a consolidated income tax return with HCA). All income tax payments
for these periods were made by the Company through HCA.
Professional and General Liability Risks
The Company is primarily self-insured for its professional and general
liability risks. The reserve for professional and general liability risks was
$3.4 million and $8.9 million at December 31, 1999 and 2000, respectively. The
reserves for self-insured professional and general liability losses and loss
adjustment expenses are based on actuarially projected estimates discounted to
their present value using a rate of 6.0%.
The cost of self-insurance for the years ended December 31, 1998, 1999 and
2000 was approximately $6.8 million, $7.1 million and $7.6 million,
respectively.
F-9
76
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management Fees
For the year ended December 31, 1998 and for the period prior to the
Distribution in 1999, HCA incurred various corporate general and administrative
expenses. These corporate overhead expenses were allocated to the Company based
on net revenues. In the opinion of management, this allocation method was
reasonable.
Stock Based Compensation
The Company accounts for stock option grants in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees." The Company recognizes no
compensation expense for grants when the exercise price equals or exceeds the
market price of the underlying stock on the date of grant.
Earnings Per Share
Earnings per share ("EPS") is based on the weighted average number of
common shares outstanding and dilutive stock options, adjusted for the shares
issued to the ESOP. As the ESOP shares are committed to be released, the shares
become outstanding for earnings per share calculations.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was required to be adopted in years
beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
the effective date of SFAS No. 133 for one year. Management does not anticipate
that the adoption of the new statement will have a material effect on the
financial condition or the results of operations of the Company.
NOTE 2 -- THE DISTRIBUTION AND TRANSACTIONS WITH HCA
As a result of the Distribution, the Company became an independent,
publicly-traded company. Owners of HCA Common Stock received one share of the
Company's Common Stock for every 19 shares of HCA Common Stock held which
resulted in approximately 29.9 million shares of the Company's Common Stock
outstanding immediately after the Distribution. After the Distribution, HCA had
no ownership in the Company. Immediately after the Distribution, however,
certain HCA benefit plans received shares of the Company on behalf of HCA
employees.
In connection with the Distribution, all intercompany amounts payable by
the Company to HCA were eliminated and the Company assumed certain indebtedness
from HCA (see Note 8). In addition, the Company entered into various agreements
with HCA which are intended to facilitate orderly changes for both companies in
a way which would be minimally disruptive to each entity. These agreements
provide certain indemnities to the parties (see Note 3), and provide for the
allocation of tax and other assets, liabilities, and obligations arising from
periods prior to the Distribution.
In connection with the Distribution, HCA received a ruling from the
Internal Revenue Service (the "IRS") to the effect, among other things, that the
Distribution would qualify as a tax-free transaction under Section 355 of the
Internal Revenue Code of 1986, as amended. Such a ruling, while generally
binding upon the IRS, is subject to certain factual representations and
assumptions provided by HCA. The Company has agreed to certain restrictions on
its future actions to provide further assurances that the Distribution will
qualify as tax-free. Restrictions include, among other things, limitations on
the liquidation, merger or consolidation with another company, certain issuances
and redemptions of the Company's Common Stock and the sale or other disposition
of assets. If the Company fails to abide by such restrictions and, as a result,
the Distribution fails to qualify as a tax-free transaction, the Company will be
F-10
77
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligated to indemnify HCA for any resulting liability, which could have a
material adverse effect on the Company's financial position and results of
operations.
NOTE 3 -- HCA INVESTIGATIONS, LITIGATION AND INDEMNIFICATION RIGHTS
HCA has been the subject of various federal and state investigations, qui
tam actions, shareholder derivative and class action suits, patient/payer
actions and general liability claims. These investigations, actions and claims
relate to HCA and its subsidiaries, including subsidiaries that, prior to the
Company's formation as an independent company, owned the facilities the Company
now owns.
On December 14, 2000, HCA announced that it signed an agreement with the
Department of Justice and four U.S. attorneys' offices resolving all pending
federal criminal issues in the government's investigation. HCA also announced at
this time that it signed a civil settlement agreement with the Department of
Justice resolving civil false claims issues related to DRG coding, outpatient
laboratory and home health. The criminal agreement has been accepted by the
federal district courts. The civil settlement agreement is conditioned on court
approval of the settlement, which HCA expects to receive in the first quarter of
2001. These agreements relate only to conduct that was the subject of the
federal investigations resolved in the agreements, and HCA has stated publicly
that it continues to discuss civil claims relating to cost reporting and
physician relations with the government.
Based on our review of documents filed by HCA with the Securities and
Exchange Commission, the agreements with the government do not resolve all qui
tam actions filed by private parties against HCA. Representatives of state
attorneys general have agreed to recommend to state officials that HCA be
released from criminal and civil liability related to the matters covered by the
settlement agreements.
HCA has disclosed that, on March 15, 2001, the Department of Justice filed
a status report setting forth the government's decisions regarding intervention
in existing qui tam actions against HCA and filed formal complaints for those
suits in which the government has intervened. HCA stated that, of the original
30 qui tam actions, the Department of Justice remains active in eight actions.
The actions are not covered by the settlement agreements.
HCA agreed to indemnify the Company for any losses, other than
consequential damages, arising from the pending governmental investigations of
HCA's business practices prior to the date of the distribution and losses
arising from legal proceedings, present or future, related to the investigation
or actions engaged in prior to the distribution that relate to the
investigation. However, the Company could be held responsible for any claims
that are not covered by the agreements reached with the federal government or
for which HCA is not required to, or fails to, indemnify the Company. The
Company may also be affected by the initiation of additional investigations or
claims against HCA in the future, if any, and the related media coverage.
NOTE 4 -- IMPACT OF ACQUISITIONS AND DIVESTITURES
Acquisitions
Effective July 1, 2000, the Company acquired Lander Valley Medical Center
in Lander, Wyoming for a purchase price of $33.0 million. Cost in excess of net
assets acquired totaled $9.5 million and is being amortized over 40 years.
In June 2000, the Company acquired Putnam Community Medical Center in
Palatka, Florida for approximately $49.4 million. Cost in excess of net assets
acquired totaled $20.6 million and is being amortized over 40 years.
The foregoing acquisitions were accounted for using the purchase method of
accounting. The purchase prices of these transactions were allocated to the
assets acquired and liabilities assumed based upon their
F-11
78
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respective fair values. The following table summarizes the allocation of the
aggregate purchase price of the acquisitions for the year ended December 31,
2000 (in millions):
Net cash used for acquisitions.............................. $ 82.4
Fair value of assets acquired............................... (55.0)
Liabilities assumed......................................... 2.7
------
Cost in excess of net assets acquired....................... $ 30.1
======
Divestitures
Effective November 17, 2000, the Company sold Springhill Medical Center in
Springhill, Louisiana for approximately $5.7 million. The proceeds were
deposited in a Starker Trust for future capital reinvestment and are reflected
in "Deferred taxes and other current assets" on the accompanying consolidated
balance sheets.
Effective September 1, 2000, the Company sold Barrow Medical Center in
Winder, Georgia for approximately $2.2 million.
Effective August 1, 2000, the Company sold Riverview Medical Center in
Gonzales, Louisiana for approximately $20.7 million. The proceeds from the
transaction and the Company's available cash were used to pay down existing
borrowings under the Company's revolving credit facility.
Effective April 1, 2000, the Company sold Halstead Hospital in Halstead,
Kansas and effective February 1, 2000, the Company sold Trinity Hospital in
Erin, Tennessee.
Halstead Hospital, Trinity Hospital, and Barrow Medical Center were the
three hospitals previously held for sale by the Company. The Company recorded an
impairment of long-lived assets related to the hospitals held for sale in 1998
and an additional impairment in 1999.
During 2000, the Company recorded a $1.4 million pre-tax gain related to
the favorable settlement on the sale of a facility that was previously held for
sale. The gain is included in the accompanying consolidated statements of
operations as impairment of long-lived assets.
The operating results of the acquisitions and divestitures have been
consolidated in the accompanying consolidated statements of operations for the
periods subsequent to acquisition and for the periods prior to sale,
respectively.
Pro forma Results of Operations
The following unaudited pro forma results of operations give effect to the
operations of the hospitals acquired and sold during the year ended December 31,
2000 as if the respective transactions had occurred at the beginning of the
periods presented (in millions, except per share data):
YEAR ENDED
DECEMBER 31,
-----------------
1999 2000
------ ------
Revenues.................................................... $513.2 $557.0
====== ======
Net income.................................................. $ 15.3 $ 19.4
====== ======
Earnings per share:
Basic..................................................... $ 0.50 $ 0.61
====== ======
Diluted................................................... $ 0.50 $ 0.59
====== ======
F-12
79
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results of operations do not purport to represent what the
Company's results of operations would have been had such transactions in fact
occurred at the beginning of the periods presented or to project the Company's
results of operations in any future period.
NOTE 5 -- INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1998, 1999 and 2000 consists of the following (dollars in millions):
1998 1999 2000
----- ------ ------
Current:
Federal............................................... $ 2.6 $ 9.6 $ --
State................................................. -- 1.5 1.6
----- ------ ------
2.6 11.1 1.6
Deferred:
Federal............................................... (10.5) (13.3) 13.5
State................................................. (1.9) (1.6) (0.1)
----- ------ ------
(12.4) (14.9) 13.4
Increase in Valuation Allowance......................... -- 1.1 0.2
----- ------ ------
Total......................................... $(9.8) $ (2.7) $ 15.2
===== ====== ======
The net change in the total valuation allowance for the years ended
December 31, 1999 and 2000 was an increase of $1.1 million and $0.2 million,
respectively. The increases are primarily as a result of state net operating
loss carryforwards that management believes may not be fully utilized because of
the uncertainty regarding the Company's ability to generate taxable income in
certain states. Various subsidiaries have state net operating loss carryforwards
of approximately $26.2 million with expiration dates through the year 2020.
The Company generated a federal net operating loss of approximately $8.4
million for the year ended December 31, 2000 which will expire in the year 2020.
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate on income (loss) from continuing operations before
income taxes for the years ended December 31, 1998, 1999 and 2000 follows:
1998 1999 2000
---- ----- ----
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 3.9 10.6 2.6
ESOP........................................................ -- -- 4.4
Non-deductible intangible assets............................ (2.6) (3.0) 1.3
Valuation allowance......................................... -- (10.8) 0.9
Other items, net............................................ (0.7) (5.1) 1.9
---- ----- ----
Effective income tax rate................................... 35.6% 26.7% 46.1%
==== ===== ====
F-13
80
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences in the recognition
of assets, liabilities, revenues and expenses for financial accounting and tax
purposes. Sources of these differences and the related tax effects are as
follows (dollars in millions):
1999 2000
------ ------
Deferred tax liabilities:
Depreciation and fixed asset basis differences............ $(18.4) $(21.7)
Other..................................................... (0.6) (1.9)
------ ------
Total deferred tax liabilities.................... (19.0) (23.6)
------ ------
Deferred tax assets:
Provision for doubtful accounts........................... 14.3 6.0
Employee compensation..................................... 5.9 3.0
Professional liability.................................... 1.3 3.8
Other..................................................... 5.5 5.4
------ ------
Total deferred tax assets......................... 27.0 18.2
Valuation allowance......................................... (1.1) (1.3)
------ ------
Net deferred tax assets................................ 25.9 16.9
------ ------
Net deferred tax assets (liabilities).................. $ 6.9 $ (6.7)
====== ======
The balance sheet classification of deferred income tax assets
(liabilities) is as follows (dollars in millions):
1999 2000
------ -----
Current..................................................... $ 19.4 $ 8.5
Long-term................................................... (12.5) (15.2)
------ -----
Total............................................. $ 6.9 $(6.7)
====== =====
HCA and the Company entered into a tax sharing and indemnification
agreement. Under the agreement, HCA maintains full control and absolute
discretion with regard to any combined or consolidated tax filings for periods
prior to the Distribution. In addition, the agreement provides that HCA will
generally be responsible for all taxes that are allocable to periods prior to
the Distribution and HCA and the Company will each be responsible for its own
tax liabilities for periods after the Distribution.
The agreement does not have an impact on the realization of deferred tax
assets or the payment of deferred tax liabilities of the Company except to the
extent that the temporary differences give rise to such deferred tax assets and
liabilities after the Distribution and are adjusted as a result of final tax
settlements after the Distribution. In the event of such adjustments, the tax
sharing and indemnification agreement provides for certain payments between HCA
and the Company as appropriate.
NOTE 6 -- IMPAIRMENT OF LONG-LIVED ASSETS
During the fourth quarter of 1998, the Company decided to sell three
hospital facilities that were identified as not compatible with the Company's
operating plans, based upon management's review of all facilities, and giving
consideration to current and expected market conditions and the current and
expected capital needs in each market. At December 31, 1998, the carrying value
before the impairment charge of the long-lived assets related to these hospital
facilities was approximately $47.2 million. The carrying value was reduced to
fair value, based on estimates of selling values at that time, for a total
non-cash charge of $24.8 million. During the fourth quarter of 1999, the Company
recorded an additional non-cash charge of $25.4 million (comprised of $22.4
million in further impairment charges for these facilities and $3.0 million in
anticipated selling/closing costs). The remaining carrying value of the
long-lived assets
F-14
81
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to these hospital facilities of approximately $22.4 million was written
down based on the revised selling values. The three hospital facilities held for
sale were sold during the year ended December 31, 2000 (see Note 4). For the
years ended December 31, 1998, 1999 and 2000, respectively, these divested
facilities had net revenues of $48.0 million, $42.6 million and $14.4 million
and a loss from continuing operations before income tax benefit and the asset
impairment charges of approximately $2.9 million, $3.8 million and $2.3 million,
respectively.
During the third quarter of 2000, the Company recorded a $1.4 million
pre-tax gain related to the favorable settlement on the sale of a facility that
was previously held for sale. The gain is recorded in the accompanying
consolidated statement of operations as an impairment of long-lived assets.
The Company recorded, during the third quarter of 1998, an impairment loss
of approximately $1.3 million related to the write-off of intangibles and other
long-lived assets of certain physician practices where the recorded asset values
were not deemed to be fully recoverable based upon the operating results trends
and projected future cash flows. These assets being held and used are now
recorded at estimated fair value based upon discounted, estimated future cash
flows.
The impairment charges did not have a significant impact on the Company's
cash flows and are not expected to significantly impact cash flows for future
periods. As a result of the write-downs, depreciation and amortization expense
related to these assets will decrease in future periods. In the aggregate, the
net effect of the change in depreciation and amortization expense is not
expected to have a material effect on operating results for future periods.
NOTE 7 -- DISCONTINUED OPERATIONS
During 1998, the Company completed the divestiture of its home health
businesses for amounts approximating their carrying value. The Company
implemented plans to sell the home health businesses during 1997. The estimated
loss on sale and operating results of the home health businesses are reflected
as discontinued operations in the consolidated statement of operations.
Revenues for the disposed home health businesses were approximately $18.9
million for the year ended December 31, 1998.
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists of the following (in millions):
DECEMBER 31,
-----------------
1999 2000
------ ------
Bank Facilities............................................. $110.0 $139.3
Senior Subordinated Notes................................... 150.0 150.0
Other debt.................................................. 0.2 0.1
------ ------
260.2 289.4
Less current maturities..................................... (3.1) (11.1)
------ ------
$257.1 $278.3
====== ======
F-15
82
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt at December 31, 2000 are as follows (in
millions):
2001........................................................ $ 11.1
2002........................................................ 15.9
2003........................................................ 15.9
2004........................................................ 15.8
2005........................................................ 80.7
Thereafter.................................................. 150.0
------
$289.4
======
Bank Credit Agreement
On May 11, 1999, the Company assumed from HCA the obligations under a bank
credit agreement (the "Credit Agreement") with a group of lenders with
commitments aggregating $210 million. The Credit Agreement consists of a $60
million term loan facility, an $85 million term loan facility, and a $65 million
revolving credit facility (collectively the "Bank Facilities").
As of December 31, 2000, the $60 million term loan facility was drawn in
full. The final payment under this term loan facility is due November 11, 2004.
The $85 million term loan facility was drawn in full at the time of the
Distribution. The final payment under this term loan is due November 11, 2005.
The $65 million revolving credit facility is available for working capital
and other general corporate purposes, and any outstanding amounts thereunder
will be due and payable on November 11, 2004. No amounts were outstanding under
this facility as of December 31, 2000.
Repayments under the term loan facilities are due in quarterly installments
with quarterly amortization based on annual amounts. Interest on the Bank
Facilities is currently based on LIBOR plus 2.75% for the revolving credit
facility and the $60 million term loan facility, and LIBOR plus 3.25% for the
$85 million term loan facility. The weighted average interest rate on the Bank
Facilities was approximately 9.7% at December 31, 2000. The Company also pays a
commitment fee equal to 0.5% of the average daily amount available under the
revolving credit facility.
The Company's obligations under the Bank Facilities are guaranteed by its
subsidiaries. These guarantees are secured by a pledge of substantially all of
the subsidiaries' assets. The Credit Agreement requires that the Company comply
with various financial ratios and tests and contains covenants, including but
not limited to restrictions on new indebtedness, the ability to merge or
consolidate, asset sales, capital expenditures and dividends.
Senior Subordinated Notes
On May 11, 1999, the Company assumed from HCA $150 million in Senior
Subordinated Notes maturing on May 15, 2009 and bearing interest at 10.75%. In
November 1999, in a registered exchange offer, the Company issued a like
aggregate principal amount of notes in exchange for these notes (the "Notes").
Interest is payable semi-annually. The Notes are unsecured obligations and are
subordinated in right of payment to all existing and future senior indebtedness.
The indenture pursuant to which the Notes were made contains certain
covenants, including but not limited to restrictions on new indebtedness, the
ability to merge or consolidate, asset sales, capital expenditures and
dividends.
F-16
83
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Notes are guaranteed jointly and severally on a full and unconditional
basis by all of the Company's operating subsidiaries ("Subsidiary Guarantors").
The Company is a holding company with no operations apart from its ownership of
the Subsidiary Guarantors. The aggregate assets, liabilities, equity and
earnings of the Subsidiary Guarantors are substantially equivalent to the total
assets, liabilities, equity and earnings of the Company and its subsidiaries on
a consolidated basis.
At December 31, 2000, all but one of the Subsidiary Guarantors were wholly
owned and fully and unconditionally guaranteed the Notes. Separate financial
statements and other disclosures of the wholly owned Subsidiary Guarantors are
not presented because management believes that such separate financial
statements and disclosures would not provide additional material information to
investors.
As of May 11, 1999, two of the Subsidiary Guarantors were not wholly owned,
and the guarantees of such non-wholly owned entities were limited. During the
fourth quarter of 1999, the Company acquired ownership of the remaining interest
in one such Subsidiary Guarantor, and the limitations on the guarantee of such
Subsidiary Guarantor, as well as the limitations on the guarantee of the
remaining non-wholly owned Subsidiary Guarantor, were eliminated. Therefore, at
December 31, 2000, only one of the Company's consolidating subsidiaries, Dodge
City Healthcare Group, L.P., was not wholly owned, although all assets,
liabilities, equity and earnings of this entity fully and unconditionally,
jointly and severally guarantee the Notes. The Company owns approximately 70% of
the partnership interests in this mostly owned Subsidiary Guarantor.
Presented below is summarized condensed consolidating financial information
for the Company and its subsidiaries as of and for the years ended December 31,
1999 and 2000 segregating the parent company, the issuer of the Notes (LifePoint
Hospitals Holdings, Inc.), the combined wholly owned Subsidiary Guarantors, the
mostly owned Subsidiary Guarantor and eliminations.
F-17
84
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS)
WHOLLY OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
Revenues....................... $ -- $ -- $482.5 $32.7 $ -- $515.2
Salaries and benefits.......... -- -- 206.2 11.2 -- 217.4
Supplies....................... -- -- 60.0 4.2 -- 64.2
Other operating expenses....... 0.2 -- 112.3 4.8 -- 117.3
Provision for doubtful
accounts..................... -- -- 35.4 2.8 -- 38.2
Depreciation and
amortization................. -- -- 29.7 1.7 -- 31.4
Interest expense............... -- 17.7 5.1 0.6 -- 23.4
Management fees................ -- -- 2.5 0.7 -- 3.2
ESOP expense................... -- -- 2.9 -- -- 2.9
Equity in earnings of
affiliates................... 7.3 (7.0) -- -- (0.3) --
Impairment of long-lived
assets....................... -- -- 25.4 -- -- 25.4
----- ------ ------ ----- ----- ------
7.5 10.7 479.5 26.0 (0.3) 523.4
----- ------ ------ ----- ----- ------
Income (loss) before minority
interests and income taxes... (7.5) (10.7) 3.0 6.7 0.3 (8.2)
Minority interests in earnings
of consolidated entities..... -- 1.9 -- -- -- 1.9
----- ------ ------ ----- ----- ------
Income (loss) before income
taxes........................ (7.5) (12.6) 3.0 6.7 0.3 (10.1)
Provision (benefit) for income
taxes........................ (0.1) (5.3) 2.7 -- -- (2.7)
----- ------ ------ ----- ----- ------
Net income (loss)......... $(7.4) $ (7.3) $ 0.3 $ 6.7 $ 0.3 $ (7.4)
===== ====== ====== ===== ===== ======
F-18
85
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS)
WHOLLY OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
Revenues...................... $ -- $ -- $524.9 $32.2 $ -- $557.1
Salaries and benefits......... -- -- 213.9 10.3 -- 224.2
Supplies...................... -- -- 62.8 4.2 -- 67.0
Other operating expenses...... -- -- 113.1 5.0 -- 118.1
Provision for doubtful
accounts.................... -- -- 39.4 2.6 -- 42.0
Depreciation and
amortization................ -- -- 32.4 1.7 -- 34.1
Interest expense.............. -- 30.9 (0.5) 0.3 -- 30.7
Management fees............... -- -- (0.6) 0.6 -- --
ESOP expense.................. -- -- 6.8 0.3 -- 7.1
Impairment of long-lived
assets...................... -- -- (1.4) -- -- (1.4)
Equity in earnings of
affiliates.................. (17.9) (38.8) -- -- 56.7 --
------ ------ ------ ----- ------ ------
(17.9) (7.9) 465.9 25.0 56.7 521.8
------ ------ ------ ----- ------ ------
Income (loss) before minority
interests and income
taxes....................... 17.9 7.9 59.0 7.2 (56.7) 35.3
Minority interests in earnings
of consolidated entities.... -- 2.2 -- -- -- 2.2
------ ------ ------ ----- ------ ------
Income (loss) before income
taxes....................... 17.9 5.7 59.0 7.2 (56.7) 33.1
Provision (benefit) for income
taxes....................... -- (12.2) 27.4 -- -- 15.2
------ ------ ------ ----- ------ ------
Net income (loss)........ $ 17.9 $ 17.9 $ 31.6 $ 7.2 $(56.7) $ 17.9
====== ====== ====== ===== ====== ======
F-19
86
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(IN MILLIONS)
WHOLLY OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents......... $ -- $ -- $ 12.5 $ -- $ -- $ 12.5
Accounts receivable, net.......... -- -- 41.4 5.3 -- 46.7
Inventories....................... -- -- 13.1 1.2 -- 14.3
Deferred taxes and other current
assets.......................... -- -- 25.8 0.1 -- 25.9
----- ------ ------- ------ ------- -------
-- -- 92.8 6.6 -- 99.4
Property and equipment:
Land.............................. -- -- 7.6 0.3 -- 7.9
Buildings......................... -- -- 194.2 9.9 -- 204.1
Equipment......................... -- -- 250.3 10.3 -- 260.6
Construction in progress.......... -- -- 20.2 -- -- 20.2
----- ------ ------- ------ ------- -------
-- -- 472.3 20.5 -- 492.8
Accumulated depreciation............ -- -- (187.2) (11.2) -- (198.4)
----- ------ ------- ------ ------- -------
-- -- 285.1 9.3 -- 294.4
Net investment in and advances to
subsidiaries...................... 85.7 333.2 -- -- (418.9) --
Intangible assets, net.............. -- 9.8 6.1 10.5 -- 26.4
Other............................... -- -- 0.2 -- -- 0.2
----- ------ ------- ------ ------- -------
$85.7 $343.0 $ 384.2 $ 26.4 $(418.9) $ 420.4
===== ====== ======= ====== ======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................. $ -- $ -- $ 25.9 $ 0.6 $ -- $ 26.5
Accrued salaries.................. -- -- 14.7 -- -- 14.7
Other current liabilities......... -- 2.5 10.1 0.3 -- 12.9
Current maturities of long-term
debt............................ -- 2.9 0.2 -- -- 3.1
----- ------ ------- ------ ------- -------
-- 5.4 50.9 0.9 -- 57.2
Intercompany balances to
affiliates........................ -- (9.7) (1.0) 10.7 -- --
Long-term debt...................... -- 257.1 -- -- -- 257.1
Deferred income taxes............... -- -- 12.5 -- -- 12.5
Professional liability risks and
other liabilities................. -- -- 3.4 -- -- 3.4
Minority interests in equity of
consolidated entities............. -- 4.5 -- -- -- 4.5
Stockholders' equity................ 85.7 85.7 318.4 14.8 (418.9) 85.7
----- ------ ------- ------ ------- -------
$85.7 $343.0 $ 384.2 $ 26.4 $(418.9) $ 420.4
===== ====== ======= ====== ======= =======
F-20
87
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
(IN MILLIONS)
WHOLLY OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents......... $ -- $ -- $ 39.7 $ -- $ -- $ 39.7
Accounts receivable, net.......... -- -- 36.4 5.3 -- 41.7
Inventories....................... -- -- 12.9 1.0 -- 13.9
Deferred taxes and other current
assets.......................... -- -- 22.1 0.1 -- 22.2
------ ------ ------- ------ ------- -------
-- -- 111.1 6.4 -- 117.5
Property and equipment:
Land.............................. -- -- 8.4 0.3 -- 8.7
Buildings and improvements........ -- -- 227.0 9.9 -- 236.9
Equipment......................... -- -- 234.4 10.5 -- 244.9
Construction in progress.......... -- -- 9.4 -- -- 9.4
------ ------ ------- ------ ------- -------
-- -- 479.2 20.7 -- 499.9
Accumulated depreciation............ -- -- (170.9) (12.5) -- (183.4)
------ ------ ------- ------ ------- -------
-- -- 308.3 8.2 -- 316.5
Net investment in and advances to
subsidiaries...................... 128.4 401.5 -- -- (529.9) --
Intangible assets, net.............. -- 9.1 34.5 10.2 -- 53.8
Other............................... -- -- 0.2 -- -- 0.2
------ ------ ------- ------ ------- -------
$128.4 $410.6 $ 454.1 $ 24.8 $(529.9) $ 488.0
====== ====== ======= ====== ======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................. $ -- $ -- $ 15.6 $ 0.5 $ -- $ 16.1
Accrued salaries.................. -- -- 13.8 -- -- 13.8
Other current liabilities......... -- 2.6 8.2 0.3 -- 11.1
Current maturities of long-term
debt............................ -- 11.0 0.1 -- -- 11.1
------ ------ ------- ------ ------- -------
-- 13.6 37.7 0.8 -- 52.1
Intercompany balances to
affiliates........................ -- (14.3) 6.4 7.9 -- --
Long-term debt...................... -- 278.3 -- -- -- 278.3
Deferred income taxes............... -- -- 15.2 -- -- 15.2
Professional liability risks and
other liabilities................. -- -- 9.4 -- -- 9.4
Minority interests in equity of
consolidated entities............. -- 4.6 -- -- -- 4.6
Stockholders' equity................ 128.4 128.4 385.4 16.1 (529.9) 128.4
------ ------ ------- ------ ------- -------
$128.4 $410.6 $ 454.1 $ 24.8 $(529.9) $ 488.0
====== ====== ======= ====== ======= =======
F-21
88
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS)
WHOLLY
OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss).................... $ (7.4) $(7.3) $ 0.3 $6.7 $ 0.3 $(7.4)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
ESOP expense....................... -- -- 2.9 -- -- 2.9
Equity in earnings of affiliates... 7.3 (7.0) -- -- (0.3) --
Provision for doubtful accounts.... -- -- 35.4 2.8 -- 38.2
Depreciation and amortization...... -- -- 29.7 1.7 -- 31.4
Minority interests in earnings of
consolidated entities............ -- 1.9 -- -- -- 1.9
Deferred income taxes (benefit).... -- -- (13.8) -- -- (13.8)
Impairment of long-lived assets.... -- -- 25.4 -- -- 25.4
Reserve for professional liability
risk............................. -- -- 3.4 -- -- 3.4
Increase (decrease) in cash from
operating assets and liabilities:
Accounts receivable........... -- -- (27.5) (2.3) -- (29.8)
Inventories and other current
assets...................... -- -- (0.8) (0.3) -- (1.1)
Accounts payable and accrued
expenses.................... -- 17.7 (10.3) (0.3) -- 7.1
Income taxes payable.......... -- -- (0.3) -- -- (0.3)
Other.............................. 0.1 1.8 (0.5) -- -- 1.4
------ ----- ----- ---- ------ -----
Net cash provided by operating
activities.................. -- 7.1 43.9 8.3 -- 59.3
Cash flows from investing activities:
Purchases of property and equipment,
net................................ -- -- (63.6) (1.2) -- (64.8)
Other................................ -- -- (4.0) -- -- (4.0)
------ ----- ----- ---- ------ -----
Net cash used in investing
activities.................. -- -- (67.6) (1.2) -- (68.8)
Cash flows from financing activities:
Distributions........................ -- -- 6.0 (6.0) -- --
Increase (decrease) in intercompany
balances with affiliates, net.... -- (7.1) 7.9 (0.8) -- --
Increase (decrease) in intercompany
balances with HCA, net........... -- -- 22.4 -- -- 22.4
Other.............................. -- -- (0.1) (0.3) -- (0.4)
------ ----- ----- ---- ------ -----
Net cash (used in) provided by
financing activities........ -- (7.1) 36.2 (7.1) -- 22.0
------ ----- ----- ---- ------ -----
Change in cash and cash equivalents.... -- -- 12.5 -- -- 12.5
Cash and cash equivalents at beginning
of period............................ -- -- -- -- -- --
------ ----- ----- ---- ------ -----
Cash and cash equivalents at end of
period............................... $ -- $ -- $12.5 $ -- $ -- $12.5
====== ===== ===== ==== ====== =====
F-22
89
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS)
WHOLLY
OWNED MOSTLY OWNED
ISSUER OF GUARANTOR GUARANTOR CONSOLIDATED
PARENT NOTES SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------ --------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss)................... $ 17.9 $17.9 $31.6 $7.2 $(56.7) $17.9
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
ESOP expense...................... -- -- 6.8 0.3 -- 7.1
Equity in earnings of
affiliates...................... (17.9) (38.8) -- -- 56.7 --
Provision for doubtful accounts... -- -- 39.4 2.6 -- 42.0
Depreciation and amortization..... -- -- 32.4 1.7 -- 34.1
Minority interests in earnings of
consolidated entities........... -- 2.2 -- -- -- 2.2
Deferred income taxes (benefit)... -- -- 13.6 -- -- 13.6
Gain on impairment of long-lived
assets.......................... -- -- (1.4) -- -- (1.4)
Reserve for professional liability
risk............................ -- -- 5.4 -- -- 5.4
Increase (decrease) in cash from
operating assets and
liabilities, net of effects from
acquisitions and divestitures:
Accounts receivable.......... -- -- (30.2) (2.6) -- (32.8)
Inventories and other current
assets..................... -- -- (1.9) 0.2 -- (1.7)
Accounts payable and accrued
expenses................... -- 0.1 (11.4) (0.1) -- (11.4)
Income taxes payable......... -- -- 6.2 -- -- 6.2
Other............................. -- 0.5 1.7 -- -- 2.2
------ ----- ----- ---- ------ -----
Net cash (used in) provided
by operating activities.... -- (18.1) 92.2 9.3 -- 83.4
Cash flows from investing activities:
Purchases of property and equipment,
net............................... -- -- (31.1) (0.3) -- (31.4)
Purchases of facilities............. -- -- (82.4) -- -- (82.4)
Proceeds from sale of facilities.... -- -- 24.3 -- -- 24.3
Other............................... -- (2.0) (0.3) -- -- (2.3)
------ ----- ----- ---- ------ -----
Net cash used in investing
activities................. -- (2.0) (89.5) (0.3) -- (91.8)
Cash flows from financing activities:
Borrowings under bank debt.......... -- 35.0 -- -- -- 35.0
Repayments of bank debt............. -- (5.7) -- -- -- (5.7)
Distributions....................... -- -- 6.6 (6.6) -- --
Proceeds from exercise of stock
options........................... -- -- 7.2 -- -- 7.2
Increase (decrease) in intercompany
balances with affiliates, net..... -- (8.3) 10.7 (2.4) -- --
Other............................... -- (0.9) -- -- -- (0.9)
------ ----- ----- ---- ------ -----
Net cash provided by (used
in) financing activities... -- 20.1 24.5 (9.0) -- 35.6
------ ----- ----- ---- ------ -----
Change in cash and cash equivalents... -- -- 27.2 -- -- 27.2
Cash and cash equivalents at beginning
of period........................... -- -- 12.5 -- -- 12.5
------ ----- ----- ---- ------ -----
Cash and cash equivalents at end of
period.............................. $ -- $ -- $39.7 $ -- $ -- $39.7
====== ===== ===== ==== ====== =====
F-23
90
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- STOCK BENEFIT PLANS
In connection with the Distribution, the Company adopted the 1998 Long-Term
Incentive Plan, for which 5,425,000 shares of the Company's Common Stock have
been reserved for issuance. The 1998 Long-Term Incentive Plan authorizes the
grant of stock options, stock appreciation rights and other stock based awards
to officers and employees of the Company. On the Distribution Date,
approximately 591,900 stock options were granted under this plan, relating to
pre-existing vested HCA options. These options were granted at various prices,
were exercisable on the date of grant, and expire at various dates not to exceed
10 years. Options to purchase an additional 2,740,000 and 260,700 shares were
granted to the Company's employees during the years ended December 31, 1999 and
2000, respectively, under this plan with an exercise price of the fair market
value on the date of grant. These options are exercisable beginning in part from
the date of grant to five years after the date of grant. All options granted
under this plan expire in 10 years from the date of grant. The Company also
granted 340,000 options to HCA executives in 1999 with an exercise price of the
fair market value on the date of grant. These options were exercisable on the
date of grant and HCA paid the Company $1.5 million in exchange for the issuance
of these options.
The Company also adopted the Executive Stock Purchase Plan in 1999, in
which 1,000,000 shares of the Company's Common Stock were reserved and
subsequently issued. The Executive Stock Purchase Plan grants a right to
specified executives of the Company to purchase shares of Common Stock from the
Company. The Company loaned each participant in the plan 100% of the purchase
price of the Company's Common Stock at the fair value based on the date of
purchase (approximately $10.2 million), on a full recourse basis at interest
rates ranging from 5.2% to 5.3%. The loans are reflected as a reduction to
stockholders' equity as "Notes receivable for shares sold to employees". As of
December 31, 2000, approximately $3.0 million of such loans have been paid under
the Executive Stock Purchase Plan. In addition, such executives have been
granted options equal to three-quarters of a share for each share purchased.
Options to purchase 750,000 shares had been issued pursuant to the 1998
Long-Term Incentive Plan and 219,512 such options have been exercised as of
December 31, 2000. The exercise price of these stock options is equal to the
fair value on the date of grant. The options expire in 10 years and are
exercisable 50% on the date of grant and 50% five years after the Distribution.
In addition, the Company has a Management Stock Purchase Plan which
provides to certain designated employees an opportunity to purchase restricted
shares of its Common Stock at a discount through payroll deductions over six
month intervals. Shares of Common Stock reserved for this plan were 250,000 at
December 31, 2000. Approximately 79,000 restricted shares were issued to
employees during the year ended December 31, 2000 under this plan.
The Company also adopted an Outside Directors Plan for which 175,000 shares
of the Company's Common Stock have been reserved for issuance. Approximately
20,000 and 37,700 options were granted under such plan to non-employee directors
during the years ended December 31, 1999 and 2000, respectively. These options
are exercisable beginning in part from the date of grant to three years after
the date of grant and expire 10 years after grant.
In addition, the Company granted an option to purchase 50,000 shares of the
Company's Common Stock to The LifePoint Community Foundation in 1999. The
exercise price of the stock option was equal to the fair value on the date of
grant.
F-24
91
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Presented below is a summary of stock option activity for 1999 and 2000:
STOCK OPTION PRICE WEIGHTED AVERAGE
OPTIONS PER SHARE EXERCISE PRICE
---------- ------------ ----------------
Balances, December 31, 1998............... -- $ -- $ --
Conversion of HCA options............... 591,900 0.07-18.38 12.12
Granted................................. 3,900,000 7.63-12.00 10.62
Exercised............................... (9,300) 0.18-12.33 9.01
Cancelled............................... (71,200) 0.18-18.38 12.63
----------
Balances, December 31, 1999............... 4,411,400 0.07-18.38 10.79
Granted................................. 298,400 17.25-39.69 22.06
Exercised............................... (1,268,800) 0.07-18.38 10.80
Cancelled............................... (101,300) 0.18-19.88 12.75
----------
Balances, December 31, 2000............... 3,339,700 0.07-39.69 11.73
==========
At December 31, 2000, there were approximately 982,200 options available
for grant.
The following table summarizes information regarding the options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED NUMBER WEIGHTED
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
EXERCISE PRICES AT 12/31/00 LIFE PRICE 12/31/00 PRICE
---------------- ----------- ----------- -------- ----------- --------
$ 0.07 to $ 5.81 20,500 1 $ 0.22 20,500 $0.22
3.56 to 8.76 55,200 2 5.66 55,200 5.66
5.56 to 10.95 18,700 3 8.21 18,700 8.21
11.87 to 13.13 68,500 4 11.87 68,500 11.87
12.22 to 14.98 59,200 5 12.33 59,200 12.33
14.16 to 17.73 101,800 6 16.25 101,800 16.25
17.11 to 18.38 30,900 7 18.34 30,900 18.34
12.90 to 15.64 20,700 8 13.11 20,700 13.11
7.63 to 12.00 2,694,100 9 10.61 1,008,500 10.64
17.25 to 39.69 270,100 10 22.54 5,600 29.56
--------- ---------
3,339,700 1,389,600
========= =========
If the Company had measured compensation cost for the stock options granted
during 1999 and 2000 under the fair value based method prescribed by SFAS No.
123, the net income (loss) would have been changed to the pro forma amounts set
forth below (dollars in millions, except per share amounts):
1999 2000
------ -----
Net income (loss):
As reported............................................... $ (7.4) $17.9
Pro forma................................................. (8.1) 16.6
Basic earnings (loss) per share:
As reported............................................... $(0.24) $0.57
Pro forma................................................. (0.26) 0.52
Diluted earnings (loss) per share:
As reported............................................... $(0.24) $0.54
Pro forma................................................. (0.26) 0.50
F-25
92
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of applying SFAS No. 123 for providing pro forma disclosure is
not likely to be representative of the effect on reported net income for future
years.
The per share weighted-average fair value of stock options granted
(including conversion of HCA options in 1999) during 1999 and 2000 was $3.73 and
$9.22, respectively, on the date of grant using a Black-Scholes option pricing
model, assuming no expected dividends and the following weighted average
assumptions:
1999 2000
-------- --------
Risk free interest rate..................................... 5.90% 6.16%
Expected life, in years..................................... 4.7 3.8
Expected volatility......................................... 35.0% 45.0%
NOTE 10 -- CAPITAL STOCK
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters on which stockholders may vote. There are no preemptive,
conversion, redemption or sinking fund provisions applicable to our common
stock. In the event of liquidation, dissolution or winding up, holders of common
stock are entitled to share ratably in the assets available for distribution,
subject to any prior rights of any holders of preferred stock then outstanding.
Preferred Stock
The certificate of incorporation provides that up to 10,000,000 shares of
preferred stock, of which 90,000 shares have been designated as Series A Junior
Participating Preferred Stock, par value $.01 per share, may be issued. The
board of directors has the authority to issue preferred stock in one or more
series and to fix for each series the voting powers, full, limited or none, and
the designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions on the stock, and
the number of shares constituting any series and the designations of this
series, without any further vote or action by the stockholders. Because the
terms of the preferred stock may be fixed by the board of directors without
stockholder action, the preferred stock could be issued quickly with terms
calculated to defeat a proposed takeover or to make the removal of our
management more difficult.
Preferred Stock Purchase Rights
Pursuant to a stockholders' rights plan, each outstanding share of common
stock is accompanied by one preferred stock purchase right. Each right entitles
the registered holder to purchase one one-thousandth of a share of Series A
preferred stock at a price of $35 per one one-thousandth of a share, subject to
adjustment.
Each share of Series A preferred stock will be entitled, when, as and if
declared, to a preferential quarterly dividend payment in an amount equal to the
greater of $10 or 1,000 times the aggregate of all dividends declared per share
of common stock. In the event of liquidation, dissolution or winding up, the
holders of Series A preferred stock will be entitled to a minimum preferential
liquidation payment equal to $1,000 per share, plus an amount equal to accrued
and unpaid dividends and distributions on the stock, whether or not declared, to
the date of such payment, but will be entitled to an aggregate payment of 1,000
times the payment made per share of common stock. The rights are not exercisable
until the rights distribution date as defined in the stockholders' rights plan.
The rights will expire on May 7, 2009, unless the expiration date is extended or
unless the rights are earlier redeemed or exchanged.
F-26
93
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not determined by the board of directors to be in the best interests of
all stockholders. The rights should not interfere with any merger or other
business combination approved by the board of directors.
NOTE 11 -- RETIREMENT PLANS
In connection with the Distribution, the Company established the LifePoint
Employee Stock Ownership Plan ("ESOP"), a defined contribution retirement plan
which covers substantially all employees. The ESOP purchased from the Company
approximately 8.3% of the Company's Common Stock at fair market value
(approximately 2.8 million shares at $11.50 per share). Shares are allocated
ratably to employee accounts over a period of 10 years (1999 through 2008). The
shares held by the ESOP which have not yet been allocated to employee accounts
are included in stockholders' equity as "Unearned ESOP compensation." Unearned
ESOP shares are released at historical cost upon being allocated to employee
accounts. ESOP expense is recognized using the average market price of shares
committed to be released during the accounting period with any difference
between the average market price and the cost being charged or credited to
capital in excess of par value. As the shares are committed to be released, the
shares become outstanding for earnings per share calculations. ESOP expense was
2.9 million and $7.1 million for the years ended December 31, 1999 and 2000,
respectively.
The ESOP shares as of December 31, 2000 were as follows:
Allocated shares............................................ 379,671
Shares committed to be released............................. 179,673
Unreleased shares........................................... 2,237,375
--------------
Total ESOP shares................................. 2,796,719
==============
Fair value of unreleased shares............................. $112.1 million
Prior to the Distribution, the Company participated in HCA's defined
contribution retirement plans, which covered substantially all employees.
Benefits were determined primarily as a percentage of a participant's earned
income and were vested over specific periods of employee service. Certain plans
also required the Company to make matching contributions at certain percentages.
The cost of these plans was $5.3 million during 1998. Amounts approximately
equal to expense for these plans were funded annually. After the Distribution,
the Company no longer participated in these plans.
NOTE 12 -- CONTINGENCIES
Significant Legal Proceedings
Various lawsuits, claims and legal proceedings have been and are expected
to be instituted or asserted against HCA and the Company, including those
relating to shareholder derivative and class action complaints; purported class
action lawsuits filed by patients and payers alleging, in general, improper and
fraudulent billing, coding and physician referrals, as well as other violations
of law; certain qui tam or "whistleblower" actions alleging, in general,
unlawful claims for reimbursement or unlawful payments to physicians for the
referral of patients, as well as other violations and litigation matters. While
the amounts claimed may be substantial, the ultimate liability cannot be
determined or reasonably estimated at this time due to the considerable
uncertainties that exist. Therefore, it is possible that the Company's results
of operations, financial position and liquidity in a particular period could be
materially, adversely affected upon the resolution of certain of these
contingencies. (See Note 3, for a description of the ongoing government
investigations and HCA's obligations to indemnify the Company with respect to
losses incurred by the Company arising from such governmental investigations and
related proceedings.)
F-27
94
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 12, 2001, Access Now, Inc., a disability rights organization,
filed a class action lawsuit against each of the Company's hospitals alleging
non-compliance with the accessibility guidelines under the Americans with
Disabilities Act. The lawsuit, filed in the United States District Court for the
Eastern District of Tennessee, seeks injunctive relief requiring facility
modification, where necessary, to meet the Americans with Disabilities Act
guidelines, along with attorneys fees and costs. The Company is working with
Access Now to determine the scope of facility modification needed to comply with
the Act.
Corporate Integrity Agreement
In December 2000, the Company entered into a corporate integrity agreement
with the Office of Inspector General and agreed to maintain its compliance
program in accordance with the corporate integrity agreement. Complying with the
compliance measures and reporting and auditing requirements of the corporate
integrity agreement will require additional efforts and costs. Failure to comply
with the terms of the corporate integrity agreement could subject the Company to
significant monetary penalties.
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, breach of management contracts, for wrongful restriction of, or
interference with, physicians' staff privileges and employment related claims.
In certain of these actions, plaintiffs request punitive or other damages
against the Company which may not be covered by insurance. The Company is
currently not a party to any proceeding which, in management's opinion, would
have a material adverse effect on the Company's 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 physician relocating to one of its communities
and agreeing to engage in private practice for the benefit of the respective
community, the Company may loan certain amounts of money to a physician,
normally over a period of one year, to assist in establishing his or her
practice. The Company has committed to advance amounts of approximately $10.9
million at December 31, 2000. The actual amount of such commitments to be
subsequently advanced to physicians often depends upon the financial results of
a physician's private practice during the guaranteed period. Generally, amounts
advanced under the recruiting agreements may be forgiven prorata over a period
of 48 months contingent upon the physician continuing to practice in the
respective community. It is management's opinion that amounts actually advanced
and not repaid will not have a material adverse effect on the Company's results
of operations or financial position.
Acquisitions
The Company has acquired and will continue to acquire businesses with prior
operating histories. Acquired companies may have unknown or contingent
liabilities, including liabilities for failure to comply with health care laws
and regulations, such as billing and reimbursement, fraud and abuse and similar
anti-referral laws. 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.
F-28
95
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- OTHER INFORMATION
A summary of other current liabilities as of December 31 follows (in
millions):
1999 2000
----- -----
Employee benefit plan....................................... $ 2.7 $ 3.2
Accrued interest related to long-term debt.................. 2.6 2.6
Taxes, other than income.................................... 0.3 0.3
Other....................................................... 7.3 5.0
----- -----
$12.9 $11.1
===== =====
A summary of activity in the Company's allowance for doubtful accounts
follows (in millions):
ADDITIONS ACCOUNTS
BALANCES AT CHARGED TO WRITTEN OFF, BALANCE
BEGINNING COSTS AND NET OF AT END
OF PERIOD EXPENSES RECOVERIES OF PERIOD
----------- ---------- ------------ ---------
Allowance for doubtful accounts:
Year ended December 31, 1998............... $37.5 $41.6 $(30.8) $48.3
Year ended December 31, 1999............... 48.3 38.2 (36.2) 50.3
Year ended December 31, 2000............... 50.3 42.0 (40.0) 52.3
NOTE 14 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations (dollars and shares in millions,
except per share amounts):
1998 1999 2000
------ ------ -----
Numerator (a):
Income (loss) from continuing operations................ $(17.7) $ (7.4) $17.9
Denominator (b):
Share reconciliation:
Shares used for basic earnings (loss) per share......... 30.0 30.5 31.6
Effect of dilutive securities (c):
Stock options and other............................ -- -- 1.3
------ ------ -----
Shares used for diluted earnings (loss) per share....... 30.0 30.5 32.9
====== ====== =====
Earnings (loss) per share:
Basic earnings (loss) per share from continuing
operations........................................... $(0.59) $(0.24) $0.57
====== ====== =====
Diluted earnings (loss) per share from continuing
operations........................................... $(0.59) $(0.24) $0.54
====== ====== =====
---------------
(a) Amount is used for both basic and diluted earnings (loss) per share
computations since there is no earnings effect related to the dilutive
securities.
(b) The Company expected to issue 30,000,000 shares of Common Stock at the time
of the Distribution. Earnings per share information has been presented as if
the 30,000,000 shares had been outstanding for the year ended December 31,
1998.
(c) The dilutive effect of approximately 0.2 million and 0.1 million shares,
related to stock options, for the years ended December 31, 1998 and 1999,
respectively, was not included in the computation of diluted loss per share
because to do so would have been antidilutive for those periods.
F-29
96
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable and accounts payable approximates fair value.
The carrying value of long-term debt (including current portion) was $289.4
million for the year ended December 31, 2000. The fair value of long-term debt
(including current portion) was $301.4 million for the year ended December 31,
2000. The fair value of the Notes has been determined using the quoted market
price at December 31, 2000. The fair values of the remaining long-term debt are
estimated using discounted cash flows, based on the Company's incremental
borrowing rates.
NOTE 16 -- UNAUDITED QUARTERLY FINANCIAL INFORMATION
The quarterly interim financial information shown below has been prepared
by the Company's management and is unaudited. It should be read in conjunction
with the audited consolidated financial statements appearing herein (dollars in
millions, except per share amounts).
1999
------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
Revenues........................................ $134.2 $128.2 $125.4 $127.4
Net income (loss)............................... 4.0 1.0 1.1 (13.5)(a)
Basic and diluted earnings (loss) per share..... 0.13 0.04 0.03 (0.44)(a)
2000
------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
Revenues........................................ $136.0 $133.3 $145.3 $142.5
Net income...................................... 4.0 3.7 4.8(b) 5.4
Basic earnings per share........................ 0.13 0.12 0.15(b) 0.17
Diluted earnings per share...................... 0.13 0.11 0.14 0.16
---------------
(a) During the fourth quarter of 1999, the Company recorded a $25.4 million
pre-tax charge ($16.2 million after tax) related to the impairment of
certain long-lived assets (See Note 6 -- Impairment of Long-Lived Assets).
(b) During the third quarter of 2000, the Company recorded a $1.4 million pretax
gain ($0.8 million after tax) related to a previously impaired asset (See
Note 6 -- Impairment of Long-Lived Assets).
NOTE 17 -- SUBSEQUENT EVENT
Effective January 2, 2001, the Company entered into a two-year lease to
operate Bluegrass Community Hospital in Versailles, Kentucky.
F-30
97
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3,200,000 SHARES
(LIFEPOINT LOGO)
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
SUNTRUST EQUITABLE SECURITIES
UBS WARBURG LLC
MARCH 22, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
98
[ALTERNATE INTERNATIONAL PAGE]
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-55824
PROSPECTUS
3,200,000 SHARES
LIFEPOINT LOGO
COMMON STOCK
----------------------
We are offering 3,200,000 shares. The international managers are offering
640,000 shares outside the U.S. and Canada and the U.S. underwriters are
offering 2,560,000 shares in the U.S. and Canada.
Our shares are quoted on the Nasdaq National Market under the symbol
"LPNT." On March 22, 2001, the last price of our common stock as reported on the
Nasdaq National Market was $30 3/16 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
----------------------
PER SHARE TOTAL
--------- -----
Public offering price....................................... $29.00 $92,800,000
Underwriting discount....................................... $1.45 $4,640,000
Proceeds, before expenses, to LifePoint..................... $27.55 $88,160,000
The international managers may also purchase up to an additional 96,000
shares from us at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
U.S. underwriters may similarly purchase up to an additional 384,000 shares from
us.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery on or about March 28,
2001.
----------------------
MERRILL LYNCH INTERNATIONAL CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
SUNTRUST EQUITABLE SECURITIES
UBS WARBURG
----------------------
The date of this prospectus is March 22, 2001.
99
[ALTERNATE INTERNATIONAL PAGE]
LIFEPOINT MAP
[Map of the United States identifying 21 hospitals located in seven states]
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.............................. 3
Risk Factors.................................... 9
Forward-Looking Statements...................... 16
Use of Proceeds................................. 17
Dividend Policy................................. 17
Price Range of Common Stock..................... 18
Capitalization.................................. 19
Selected Consolidated Financial and Other
Operating Data................................ 20
Unaudited Pro Forma Condensed Consolidated
Financial Statements.......................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
PAGE
----
Business........................................ 35
Management...................................... 51
Principal Stockholders.......................... 53
Description of Capital Stock.................... 55
Material United States Federal Income and Estate
Tax Considerations for Non-United States
Holders....................................... 59
Underwriting.................................... 62
Legal Matters................................... 65
Experts......................................... 65
Where You Can Find Additional Information....... 66
Incorporation of Certain Information by
Reference..................................... 66
Index to Financial Statements................... F-1
2
100
[ALTERNATE INTERNATIONAL PAGE]
UNDERWRITING
We intend to offer the shares outside the U.S. and Canada through Merrill
Lynch International, Credit Suisse First Boston (Europe) Limited, Salomon
Brothers International Limited, SunTrust Equitable Securities Corporation and
UBS AG, acting through its business group UBS Warburg, as the international
managers. Subject to the terms and conditions described in an international
purchase agreement among us and the international managers, and concurrently
with the sale of 2,560,000 shares to the U.S. underwriters, we have agreed to
sell to the international managers, and the international managers severally
have agreed to purchase from us, the number of shares listed opposite their
names below.
NUMBER
INTERNATIONAL MANAGER OF SHARES
--------------------- ---------
Merrill Lynch International................................. 281,600
Credit Suisse First Boston (Europe) Limited................. 147,200
Salomon Brothers International Limited...................... 70,400
SunTrust Equitable Securities Corporation................... 70,400
UBS AG, acting through its business group UBS Warburg....... 70,400
-------
Total.......................................... 640,000
=======
We have also entered into a U.S. purchase agreement with the U.S.
underwriters for sale of the shares in the U.S. and Canada. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation,
Salomon Smith Barney Inc., SunTrust Equitable Securities Corporation and UBS
Warburg LLC are acting as U.S. underwriters. Subject to the terms and conditions
in the U.S. purchase agreement, and concurrently with the sale of 640,000 shares
to the pursuant to the international purchase agreement, we have agreed to sell
to the U.S. underwriters, and U.S. underwriters severally have agreed to
purchase 2,560,000 shares from us. The public offering price per share and the
total underwriting discount per share are identical under the international
purchase agreement and the U.S. purchase agreement.
The international managers and the U.S. underwriters have agreed to
purchase all of the shares sold under the international and U.S. purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
international and U.S. purchase agreements provide that the purchase commitments
of the non-defaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
international managers and the U.S. underwriters are conditioned on one another.
We have agreed to indemnify the international managers and the U.S.
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the international managers
and U.S. underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The international managers have advised us that they propose initially to
offer the shares of our common stock to the public at the public offering price
on the cover page of this prospectus and to dealers at the price less a
concession not in excess of $.84 per share. The international managers may
allow, and the dealers may reallow, a discount not in excess of $.10 per share
to other dealers. After the offering, the public offering price, concession and
discount may be changed.
62
101
[ALTERNATE INTERNATIONAL PAGE]
The following table shows the public offering price, underwriting discount
and proceeds before expenses to us. The information assumes either no exercise
or full exercise by the international managers and the U.S. underwriters of
their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- ------------
Public offering price.................................... $29.00 $92,800,000 $106,720,000
Underwriting discount.................................... $1.45 $4,640,000 $5,336,000
Proceeds, before expenses, to LifePoint.................. $27.55 $88,160,000 $101,384,000
The expenses of the offering, not including the underwriting discount, are
estimated at $1.5 million and are payable by LifePoint.
OVER-ALLOTMENT OPTION
The international managers may also purchase up to 96,000 additional shares
from us at the public offering price, less the underwriting discount. The
international managers may exercise this option for 30 days from the date of
this prospectus solely to cover any over-allotments. If the international
managers exercise this option, each will be obligated, subject to conditions
contained in the international purchase agreement, to purchase a number of
additional shares proportionate to that international managers initial amount
reflected in the above table.
The U.S. underwriters may also purchase up to 384,000 additional shares
from us to cover any over-allotments on terms similar to those granted to the
international managers. The U.S. underwriters may exercise this option for 30
days from the date of this prospectus.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares to each other for purposes of resale at the public
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the international managers and any dealer to whom
they sell shares will not offer to sell or sell shares to persons who are U.S.
or Canadian persons or to persons they believe intend to resell to persons who
are U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement. Similarly, the U.S. underwriters and any dealer to
whom they sell shares will not offer to sell or sell shares to non-U.S. or
non-Canadian persons or to persons they believe intend to resell to non-U.S. or
non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and these other individuals have agreed not directly or
indirectly to:
- offer, pledge, sell or contract to sell any common stock;
- sell any option or contract to purchase any common stock;
- purchase any option or contract to sell any common stock;
- grant any option, right or warrant for the sale of any common stock;
- lend or otherwise dispose of or transfer any common stock;
- request or demand that we file a registration statement related to the
common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
63
102
[ALTERNATE INTERNATIONAL PAGE]
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
Notwithstanding the foregoing, Merrill Lynch has agreed to an exception to
these agreements to permit the sale of up to 250,000 shares of common stock in
the aggregate by six of our executive officers. We may also issue shares of
common stock or options to purchase shares of common stock pursuant to our
existing employee benefit plans or upon exercise or conversion of any security
outstanding on the date hereof.
QUOTATION ON THE NASDAQ NATIONAL MARKET
Our shares are quoted on the Nasdaq National Market under the symbol
"LPNT."
NASD REGULATION
More than ten percent of the proceeds of the offering will be applied to
pay down debt obligations owed to affiliates of SunTrust Equitable Securities
Corporation. Because more than ten percent of the net proceeds of the offering
will be paid to members or affiliates of members of the National Association of
Securities Dealers, Inc. participating in the offering, the offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8).
PRICE STABILIZATION, SHORT POSITIONS
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit underwriters from bidding for and
purchasing our common stock. However, the U.S. underwriters may engage in
transactions that stabilize the price of the common stock, such as bids or
purchases to peg, fix or maintain that price.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. underwriters may reduce that short
position by purchasing shares in the open market. The U.S. underwriters may also
elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short term position may cause the price of
the common stock to be higher than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
underwriters or the international managers will engage in these transactions or
that these transactions, once commenced, will not be discontinued without
notice.
UK SELLING RESTRICTIONS
Each international manager has agreed that
- it has not offered or sold and will not offer or sell any shares of
common stock to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing, or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which do not constitute an
offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from, or otherwise involving the United
Kingdom; and
64
103
[ALTERNATE INTERNATIONAL PAGE]
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial
Services Act of 1986 (Investment Advertisements) (Exemptions) Order 1997
or is a person to whom such document may otherwise lawfully be issued or
passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation, or distribution of this prospectus or any
other material relating to our company, or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering materials or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions. An affiliate of SunTrust Equitable
Securities Corporation is a participating lender under our bank credit
agreement.
Merrill Lynch will be facilitating internet distribution for the offering
to some of its internet subscription customers. Merrill Lynch intends to
allocate a limited number of shares for sale to its online brokerage customers.
An electronic prospectus is available on the website maintained by Merrill
Lynch. Other than the prospectus in electronic format, the information on the
Merrill Lynch website relating to the offering is not a part of this prospectus.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares offered
hereby will be passed upon for LifePoint by Waller Lansden Dortch & Davis, A
Professional Limited Liability Company, Nashville, Tennessee. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Dewey Ballantine LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and 2000, and for each of the three
years in the period ended December 31, 2000, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our annual report on Form 10-K for the year
ended December 31, 2000, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Our SEC filings are also available over the Internet at
the SEC's website at http://www.sec.gov. You may also read and copy any document
we file at the SEC's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference rooms and their copy charges. Reports and
other information concerning us can also be inspected at the offices of Nasdaq,
33 Whitehall Street, New York, New York 10004-2193.
We have filed a registration statement on Form S-3 with the SEC covering
the common stock. For further information on LifePoint and the securities we are
offering in this prospectus, you should refer to our registration statement, its
exhibits and the documents incorporated by reference therein. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Since this prospectus may not contain all the information that you may
find important, you should review the full text of those documents.
You should rely only on the information contained and incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus,
as well as information we previously filed with the SEC and incorporated by
reference, is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means:
- incorporated documents are considered part of the prospectus;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supercede this prospectus.
We incorporate by reference the documents listed below which we filed with
the SEC under the Securities Exchange Act of 1934:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
2000;
- our Current Report on Form 8-K filed on February 16, 2001; and
- the description of our capital stock contained in our registration
statement on Form 10, dated December 11, 1998, as amended.
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You may request a copy of these filings, at no cost, by writing or
telephoning our Corporate Secretary at the following address:
LifePoint Hospitals, Inc.
103 Powell Court, Suite 200
Brentwood, Tennessee 37027
Attention: Corporate Secretary
(615) 372-8500
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus but before all the
common stock offered by this prospectus has been sold:
- reports filed under Sections 13(a) and (c) of the Securities Exchange Act
of 1934;
- definitive proxy or information statements filed under Section 14 of the
Securities Exchange Act of 1934 in connection with any subsequent
stockholders' meeting; and
- any reports filed under Section 15(d) of the Securities Exchange Act of
1934.
Such documents will become a part of this prospectus from the date such
document is filed.
Any statement contained in this prospectus or in a document incorporated by
reference are modified or superseded for purposes of this prospectus to the
extent that a statement contained in any such document modifies or supersedes
such statement. Any such statement so modified or superseded shall be deemed, as
so modified or superseded, to constitute a part of this prospectus.
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospects may have changed since that date.
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3,200,000 SHARES
(LIFEPOINT LOGO)
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
MERRILL LYNCH INTERNATIONAL
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
SUNTRUST EQUITABLE SECURITIES
UBS WARBURG
MARCH 22, 2001
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