e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-51251
(Exact name of registrant as specified in its charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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20-1538254
(I.R.S. Employer
Identification No.) |
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103 Powell Court |
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Brentwood, Tennessee
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37027 |
(Address of Principal Executive Offices)
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(Zip Code) |
(615) 372-8500
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of July 31, 2009, the number of outstanding shares of Common Stock of LifePoint Hospitals,
Inc. was 54,785,265.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share amounts)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(as adjusted) |
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(as adjusted) |
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Revenues |
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$ |
735.3 |
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$ |
665.7 |
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$ |
1,470.8 |
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$ |
1,350.8 |
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Salaries and benefits |
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292.7 |
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263.9 |
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579.2 |
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531.9 |
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Supplies |
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102.3 |
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93.0 |
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201.9 |
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186.3 |
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Other operating expenses |
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138.6 |
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122.9 |
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271.3 |
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243.9 |
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Provision for doubtful accounts |
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92.2 |
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74.9 |
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182.4 |
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155.8 |
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Depreciation and amortization |
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35.9 |
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33.5 |
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71.0 |
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65.6 |
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Interest expense, net |
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25.9 |
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26.8 |
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51.7 |
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53.7 |
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Impairment loss |
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0.3 |
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0.3 |
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687.6 |
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615.3 |
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1,357.5 |
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1,237.5 |
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Income from continuing operations before income taxes |
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47.7 |
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50.4 |
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113.3 |
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113.3 |
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Provision for income taxes |
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18.2 |
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20.3 |
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43.7 |
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44.5 |
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Income from continuing operations |
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29.5 |
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30.1 |
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69.6 |
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68.8 |
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Discontinued operations, net of income taxes: |
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Loss from discontinued operations |
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(2.1 |
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(1.4 |
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(3.2 |
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(3.2 |
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Impairment adjustment |
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2.3 |
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Loss on sale of hospital |
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(0.6 |
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(0.3 |
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(0.6 |
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(0.3 |
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Loss from discontinued operations |
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(2.7 |
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(1.7 |
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(3.8 |
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(1.2 |
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Net income |
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26.8 |
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28.4 |
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65.8 |
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67.6 |
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Less: Net income attributable to noncontrolling interests |
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(0.5 |
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(0.6 |
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(1.1 |
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(1.1 |
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Net income attributable to LifePoint Hospitals, Inc. |
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$ |
26.3 |
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$ |
27.8 |
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$ |
64.7 |
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$ |
66.5 |
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Basic earnings (loss) per share attributable to LifePoint
Hospitals, Inc. stockholders: |
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Continuing operations |
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$ |
0.55 |
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$ |
0.57 |
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$ |
1.31 |
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$ |
1.27 |
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Discontinued operations |
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(0.05 |
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(0.04 |
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(0.08 |
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(0.02 |
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Net income |
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$ |
0.50 |
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$ |
0.53 |
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$ |
1.23 |
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$ |
1.25 |
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Diluted earnings (loss) per share attributable to LifePoint
Hospitals, Inc. stockholders: |
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Continuing operations |
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$ |
0.54 |
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$ |
0.55 |
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$ |
1.29 |
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$ |
1.25 |
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Discontinued operations |
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(0.05 |
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(0.03 |
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(0.08 |
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(0.02 |
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Net income |
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$ |
0.49 |
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$ |
0.52 |
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$ |
1.21 |
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$ |
1.23 |
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Weighted average shares and dilutive securities outstanding: |
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Basic |
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52.8 |
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52.2 |
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52.5 |
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53.1 |
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Diluted |
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53.6 |
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53.2 |
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53.3 |
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54.2 |
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Amounts attributable to LifePoint Hospitals, Inc. stockholders: |
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Income from continuing operations, net of income taxes |
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$ |
29.0 |
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$ |
29.5 |
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$ |
68.5 |
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$ |
67.7 |
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Loss from discontinued operations, net of income taxes |
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(2.7 |
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(1.7 |
) |
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(3.8 |
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(1.2 |
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Net income |
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$ |
26.3 |
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$ |
27.8 |
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$ |
64.7 |
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$ |
66.5 |
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See accompanying notes.
3
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
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June 30, |
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December 31, |
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2009 |
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2008 (a) |
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(Unaudited) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
72.0 |
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$ |
75.7 |
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Accounts receivable, less allowances for doubtful accounts of $407.7 and $374.4
at June 30, 2009 and December 31, 2008, respectively |
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340.5 |
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315.9 |
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Inventories |
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72.5 |
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69.6 |
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Assets held for sale |
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7.1 |
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21.6 |
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Prepaid expenses |
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14.6 |
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12.0 |
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Income taxes receivable |
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11.9 |
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19.9 |
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Deferred tax assets |
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112.4 |
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103.4 |
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Other current assets |
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29.2 |
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19.2 |
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660.2 |
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637.3 |
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Property and equipment: |
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Land |
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74.9 |
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71.1 |
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Buildings and improvements |
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1,339.7 |
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1,257.2 |
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Equipment |
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792.4 |
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737.9 |
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Construction in progress (estimated cost to complete and equip after June 30,
2009 is $125.8) |
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34.4 |
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39.7 |
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2,241.4 |
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2,105.9 |
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Accumulated depreciation |
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(754.8 |
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(689.9 |
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1,486.6 |
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1,416.0 |
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Deferred loan costs, net |
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27.6 |
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31.3 |
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Intangible assets, net |
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69.5 |
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68.8 |
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Other |
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3.8 |
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10.4 |
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Goodwill |
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1,524.5 |
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1,516.5 |
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Total assets |
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$ |
3,772.2 |
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$ |
3,680.3 |
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LIABILITIES AND EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
76.6 |
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$ |
92.3 |
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Accrued salaries |
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82.3 |
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73.2 |
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Other current liabilities |
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110.1 |
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94.5 |
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Current maturities of long-term debt |
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1.1 |
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1.1 |
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270.1 |
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261.1 |
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Long-term debt |
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1,388.5 |
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1,392.1 |
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Deferred income taxes |
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152.6 |
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153.2 |
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Reserves for self-insurance claims and other liabilities |
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145.0 |
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146.2 |
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Long-term income tax liability |
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59.5 |
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59.4 |
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Total liabilities |
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2,015.7 |
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2,012.0 |
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Redeemable noncontrolling interests |
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12.0 |
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12.8 |
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Equity: |
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LifePoint Hospitals, Inc. stockholders equity: |
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Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued |
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Common stock, $0.01 par value; 90,000,000 shares authorized; 60,214,988 and
58,787,009 shares issued at June 30, 2009 and December 31, 2008,
respectively |
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0.6 |
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0.6 |
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Capital in excess of par value |
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1,234.7 |
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1,212.6 |
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Accumulated other comprehensive loss |
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(23.8 |
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(28.3 |
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Retained earnings |
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679.1 |
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614.4 |
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Common stock in treasury, at cost, 5,459,459 and 5,346,156 shares at June
30, 2009 and December 31, 2008, respectively |
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(149.9 |
) |
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(147.3 |
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Total LifePoint Hospitals, Inc. stockholders equity |
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1,740.7 |
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1,652.0 |
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Noncontrolling interests |
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3.8 |
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3.5 |
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Total equity |
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1,744.5 |
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1,655.5 |
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Total liabilities and equity |
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$ |
3,772.2 |
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$ |
3,680.3 |
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(a) |
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Derived from audited consolidated financial statements, as adjusted (see Note 2). |
See accompanying notes.
4
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(as adjusted) |
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(as adjusted) |
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Cash flows from operating activities: |
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Net income |
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$ |
26.8 |
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$ |
28.4 |
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$ |
65.8 |
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$ |
67.6 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
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Loss from discontinued operations |
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2.7 |
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1.7 |
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3.8 |
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1.2 |
|
Stock-based compensation |
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4.7 |
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5.7 |
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10.6 |
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12.1 |
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ESOP expense (non-cash portion) |
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2.1 |
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3.9 |
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Depreciation and amortization |
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35.9 |
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33.5 |
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71.0 |
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65.6 |
|
Amortization of physician minimum revenue guarantees |
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3.1 |
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2.2 |
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6.2 |
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4.2 |
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Amortization of convertible debt discounts |
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5.2 |
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4.8 |
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10.3 |
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9.6 |
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Amortization of deferred loan costs |
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1.8 |
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1.9 |
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3.7 |
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3.7 |
|
Deferred income taxes (benefit) |
|
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(4.7 |
) |
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6.6 |
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(10.7 |
) |
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6.1 |
|
Reserves for self-insurance claims, net of payments |
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5.5 |
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6.9 |
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11.1 |
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8.1 |
|
Increase (decrease) in cash from operating assets and
liabilities, net of effects from acquisitions and
divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
6.0 |
|
|
|
5.8 |
|
|
|
(15.4 |
) |
|
|
(2.8 |
) |
Inventories and other current assets |
|
|
(3.2 |
) |
|
|
7.6 |
|
|
|
(2.9 |
) |
|
|
4.5 |
|
Accounts payable and accrued expenses |
|
|
3.1 |
|
|
|
(6.7 |
) |
|
|
(5.7 |
) |
|
|
(3.9 |
) |
Income taxes payable/receivable |
|
|
(20.2 |
) |
|
|
(27.8 |
) |
|
|
11.0 |
|
|
|
(4.0 |
) |
Other |
|
|
0.4 |
|
|
|
0.8 |
|
|
|
0.2 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing
operations |
|
|
67.1 |
|
|
|
73.5 |
|
|
|
159.0 |
|
|
|
178.2 |
|
Net cash used in operating activities discontinued operations |
|
|
(1.4 |
) |
|
|
(1.4 |
) |
|
|
(2.9 |
) |
|
|
(5.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
65.7 |
|
|
|
72.1 |
|
|
|
156.1 |
|
|
|
173.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(42.0 |
) |
|
|
(41.1 |
) |
|
|
(85.1 |
) |
|
|
(74.0 |
) |
Acquisitions, net of cash acquired |
|
|
(1.5 |
) |
|
|
(9.3 |
) |
|
|
(79.7 |
) |
|
|
(9.3 |
) |
Proceeds from sale of business |
|
|
3.9 |
|
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities continuing operations |
|
|
(39.6 |
) |
|
|
(50.4 |
) |
|
|
(160.9 |
) |
|
|
(83.3 |
) |
Net cash provided by (used in) investing activities
discontinued operations |
|
|
10.4 |
|
|
|
(4.5 |
) |
|
|
10.4 |
|
|
|
(5.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(29.2 |
) |
|
|
(54.9 |
) |
|
|
(150.5 |
) |
|
|
(88.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
|
|
|
|
10.4 |
|
|
|
|
|
|
|
10.4 |
|
Payments on borrowings |
|
|
(13.5 |
) |
|
|
|
|
|
|
(13.5 |
) |
|
|
|
|
Repurchases of common stock |
|
|
(1.0 |
) |
|
|
(30.5 |
) |
|
|
(2.6 |
) |
|
|
(118.1 |
) |
Proceeds from exercise of stock options |
|
|
7.9 |
|
|
|
0.1 |
|
|
|
9.6 |
|
|
|
0.1 |
|
Proceeds from employee stock purchase plans, net of refunds |
|
|
|
|
|
|
(0.1 |
) |
|
|
0.4 |
|
|
|
0.3 |
|
Distributions to noncontrolling interests, net of proceeds |
|
|
(0.3 |
) |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
(1.0 |
) |
Purchase of redeemable noncontrolling interests |
|
|
(0.8 |
) |
|
|
|
|
|
|
(0.8 |
) |
|
|
|
|
Capital lease payments and other |
|
|
(1.3 |
) |
|
|
(4.7 |
) |
|
|
(1.7 |
) |
|
|
(5.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(9.0 |
) |
|
|
(25.5 |
) |
|
|
(9.3 |
) |
|
|
(113.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
27.5 |
|
|
|
(8.3 |
) |
|
|
(3.7 |
) |
|
|
(28.5 |
) |
Cash and cash equivalents at beginning of period |
|
|
44.5 |
|
|
|
32.9 |
|
|
|
75.7 |
|
|
|
53.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
72.0 |
|
|
$ |
24.6 |
|
|
$ |
72.0 |
|
|
$ |
24.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments |
|
$ |
22.5 |
|
|
$ |
24.0 |
|
|
$ |
38.7 |
|
|
$ |
41.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest |
|
$ |
0.3 |
|
|
$ |
0.2 |
|
|
$ |
0.6 |
|
|
$ |
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net |
|
$ |
43.1 |
|
|
$ |
40.8 |
|
|
$ |
43.6 |
|
|
$ |
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
LIFEPOINT HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
For the Six Months Ended June 30, 2009
Unaudited
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LifePoint Hospitals, Inc. Stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Excess of |
|
|
Comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Noncontrolling |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Par Value |
|
|
Income (loss) |
|
|
Earnings |
|
|
Stock |
|
|
Interests |
|
|
Total |
|
Balance at December 31, 2008 (a) |
|
|
53.4 |
|
|
$ |
0.6 |
|
|
$ |
1,212.6 |
|
|
$ |
(28.3 |
) |
|
$ |
614.4 |
|
|
$ |
(147.3 |
) |
|
$ |
3.5 |
|
|
$ |
1,655.5 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64.7 |
|
|
|
|
|
|
|
1.1 |
|
|
|
65.8 |
|
Net change in fair value of
interest rate swap, net of tax
provision of $2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and
tax benefits of
stock-based awards |
|
|
0.8 |
|
|
|
|
|
|
|
11.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.0 |
|
Stock activity in connection with
employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
Stock-based compensation |
|
|
0.8 |
|
|
|
|
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6 |
|
Repurchases of common stock, at cost |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
|
|
(2.6 |
) |
Cash proceeds from (cash distributions
to) noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.8 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
54.8 |
|
|
$ |
0.6 |
|
|
$ |
1,234.7 |
|
|
$ |
(23.8 |
) |
|
$ |
679.1 |
|
|
$ |
(149.9 |
) |
|
$ |
3.8 |
|
|
$ |
1,744.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Derived from audited consolidated financial statements, as adjusted (see Note 2). |
See accompanying notes.
6
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
Unaudited
Note 1. Basis of Presentation
LifePoint Hospitals, Inc., a Delaware corporation, acting through its subsidiaries, operates
general acute care hospitals in non-urban communities in the United States. Unless the context
otherwise indicates, LifePoint and its subsidiaries are referred to herein as LifePoint, the
Company, we, our, or us. At June 30, 2009, on a consolidated basis, the Companys
subsidiaries owned or leased 48 hospitals, including one hospital that was held for sale, serving
non-urban communities in 18 states. Unless noted otherwise, discussions in these notes pertain to
the Companys continuing operations.
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles (GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by GAAP for complete
financial statements. In the opinion of management, all adjustments (consisting of normal recurring
adjustments) and disclosures considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 30, 2009 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2009. For further information,
refer to the consolidated financial statements and notes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2008.
The majority of the Companys expenses are cost of revenue items. Costs that could be
classified as general and administrative by the Company include LifePoint corporate overhead
costs, which were $24.5 million and $23.3 million for the three months ended June 30, 2009 and
2008, respectively, and $50.9 million and $47.5 million for the six months ended June 30, 2009 and
2008, respectively.
Certain prior year amounts have been reclassified to conform to the current year presentation
for discontinued operations and for the Companys January 1, 2009 adoptions of Statement of
Financial Accounting Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated
Financial Statements An Amendment of ARB No. 51 (SFAS No. 160), and FSP APB 14-1, Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) (FSP APB 14-1), as further discussed in Note 2.
Note 2. New Accounting Standards
SFAS No. 160
Effective January 1, 2009, the Company adopted SFAS No. 160. SFAS No. 160 defines a
noncontrolling interest in a consolidated subsidiary as the portion of the equity (net assets) in
a subsidiary not attributable, directly or indirectly, to a parent and requires noncontrolling
interests to be presented as a separate component of equity in the consolidated balance sheet
subject to the provisions of Financial Accounting Standards Board (FASB) Emerging Issues Task
Force (EITF) Topic D-98, Classification and Measurement of Redeemable Securities (EITF Topic
D-98). SFAS No. 160 also modifies the presentation of net income by requiring earnings and other
comprehensive income to be attributed to controlling and noncontrolling interests. The following is
a summary of the changes the Company made as a result of the implementation of this standard:
|
|
|
The Company reclassified a portion of its noncontrolling interests from the
mezzanine section of its accompanying condensed consolidated balance sheets to equity.
As of December 31, 2008, this reclassification totaled $3.5 million. Certain of the
Companys noncontrolling interests will continue to be classified in the mezzanine
section of its accompanying condensed consolidated balance sheets as these
noncontrolling interests include redemption features that cause these interests not to meet the
requirements for classification as equity in accordance with EITF Topic D-98.
Redemption of these interests features would require the delivery of cash. |
7
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
Net income attributable to noncontrolling interests is no longer deducted to
arrive at net income. Instead, net income is attributed to the controlling and
noncontrolling interests in the accompanying condensed consolidated statements of
operations. As a result, net income for the three and six months ended June 30, 2008
increased by $0.6 million and $1.1 million, respectively, from net income previously
reported. These changes had no impact on the Companys earnings per share calculations. |
FSP APB 14-1
Effective January 1, 2009, the Company adopted the provisions of FSP APB 14-1. FSP APB 14-1
specifies that issuers of convertible debt instruments should separately account for the liability
and equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate
on the instruments issuance date when interest cost is recognized. The Companys 3 1/2% Convertible
Senior Subordinated Notes due May 15, 2014 (3 1/2% Notes) and its 3 1/4% Convertible Senior
Subordinated Debentures due August 15, 2025 (3 1/4% Debentures) are within the scope of FSP APB
14-1. Therefore, the Company recorded the debt components of its 3 1/2% Notes and its 3 1/4% Debentures
at fair value as of the date of issuance and began amortizing the resulting discount as an increase
to interest expense over the expected life of the debt. The Company measured the fair value of the
debt components of its 3 1/2% Notes at issuance based on an effective interest rate of 7.375% and its
3 1/4% Debentures at issuance based on an effective interest rate of 6.5%. As a result, the Company
has attributed $162.6 million of the proceeds received in connection with the original issuances to
the conversion feature of both of its convertible debt instruments. This amount represents the
excess proceeds received over the fair value of the debt at the date of issuance and is included in
capital in excess of par value in the accompanying condensed consolidated balance sheets.
The implementation of FSP APB 14-1 resulted in a decrease to the Companys net income and
earnings per share for all periods presented. However, there is no effect on the Companys cash
interest payments.
During the
three months ended March 31, 2009, the Company determined that the adoption of FSP APB 14-1
resulted in the recognition of a deferred income tax liability in the amount of $59.4 million.
During the three months ended June 30, 2009, the Company determined that the actual amount of
deferred income tax liability recognized in connection with the adoption of FSP APB 14-1 was $66.3
million. The following is a summary of the line items in the Companys December 31, 2008
accompanying condensed consolidated balance sheet impacted by the adjustment made during the three
months ended June 30, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
|
Reported in the |
|
|
|
|
|
|
Company's |
|
Adjustment |
|
|
|
|
Form 10-Q for |
|
Made During |
|
|
|
|
the Three |
|
the Three |
|
|
|
|
Months Ended |
|
Months Ended |
|
As Currently |
|
|
March 31, 2009 |
|
June 30, 2009 |
|
Reported |
Condensed consolidated balance sheet as of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
$ |
146.8 |
|
|
$ |
6.4 |
|
|
$ |
153.2 |
|
Capital in excess of par value |
|
$ |
1,219.5 |
|
|
$ |
(6.9 |
) |
|
$ |
1,212.6 |
|
Retained earnings |
|
$ |
613.9 |
|
|
$ |
0.5 |
|
|
$ |
614.4 |
|
8
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a summary of the line items impacted by the adoption of FSP APB 14-1 in the
Companys December 31, 2008 accompanying condensed consolidated balance sheet and accompanying condensed consolidated statements of
operations for the three and six months ended June 30, 2008 (in millions, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
for |
|
|
|
|
As Originally |
|
Adjustments for the |
|
Discontinued |
|
As Currently |
|
|
Reported |
|
Adoption of FSP APB 14-1 |
|
Operations |
|
Reported |
Condensed consolidated balance sheet as of December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
1,515.6 |
|
|
$ |
(123.5 |
) |
|
$ |
|
|
|
$ |
1,392.1 |
|
Deferred income taxes |
|
$ |
103.1 |
|
|
$ |
50.1 |
|
|
$ |
|
|
|
$ |
153.2 |
|
Capital in excess of par value |
|
$ |
1,116.3 |
|
|
$ |
96.3 |
|
|
$ |
|
|
|
$ |
1,212.6 |
|
Retained earnings |
|
$ |
637.3 |
|
|
$ |
(22.9 |
) |
|
$ |
|
|
|
$ |
614.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed consolidated statement of operations for the three
months ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
22.2 |
|
|
$ |
4.8 |
|
|
$ |
(0.2 |
) |
|
$ |
26.8 |
|
Provision for income taxes |
|
$ |
21.9 |
|
|
$ |
(2.1 |
) |
|
$ |
0.5 |
|
|
$ |
20.3 |
|
Net income attributable to LifePoint Hospitals, Inc. |
|
$ |
30.5 |
|
|
$ |
(2.7 |
) |
|
$ |
|
|
|
$ |
27.8 |
|
Basic earnings per share attributable to LifePoint Hospitals,
Inc. stockholders |
|
$ |
0.58 |
|
|
$ |
(0.05 |
) |
|
$ |
|
|
|
$ |
0.53 |
|
Diluted earnings per share attributable to LifePoint
Hospitals, Inc. stockholders |
|
$ |
0.57 |
|
|
$ |
(0.05 |
) |
|
$ |
|
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed consolidated statement of operations for the six months
ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
44.7 |
|
|
$ |
9.6 |
|
|
$ |
(0.6 |
) |
|
$ |
53.7 |
|
Provision for income taxes |
|
$ |
46.7 |
|
|
$ |
(3.8 |
) |
|
$ |
1.6 |
|
|
$ |
44.5 |
|
Net income attributable to LifePoint Hospitals, Inc. |
|
$ |
72.3 |
|
|
$ |
(5.8 |
) |
|
$ |
|
|
|
$ |
66.5 |
|
Basic earnings per share attributable to LifePoint Hospitals,
Inc. stockholders |
|
$ |
1.36 |
|
|
$ |
(0.11 |
) |
|
$ |
|
|
|
$ |
1.25 |
|
Diluted earnings per share attributable to LifePoint
Hospitals, Inc. stockholders |
|
$ |
1.33 |
|
|
$ |
(0.10 |
) |
|
$ |
|
|
|
$ |
1.23 |
|
The principal balance, unamortized discount and net carrying balance of the Companys
convertible debt instruments as of June 30, 2009 and December 31, 2008 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
3 1/2% Notes: |
|
|
|
|
|
|
|
|
Principal balance |
|
$ |
575.0 |
|
|
$ |
575.0 |
|
Unamortized discount |
|
|
(89.9 |
) |
|
|
(97.4 |
) |
|
|
|
|
|
|
|
Net carrying balance |
|
$ |
485.1 |
|
|
$ |
477.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 1/4% Debentures: |
|
|
|
|
|
|
|
|
Principal balance |
|
$ |
225.0 |
|
|
$ |
225.0 |
|
Unamortized discount |
|
|
(23.3 |
) |
|
|
(26.1 |
) |
|
|
|
|
|
|
|
Net carrying balance |
|
$ |
201.7 |
|
|
$ |
198.9 |
|
|
|
|
|
|
|
|
The Company is amortizing the discounts for its 3 1/4% Debentures and 3 1/2% Notes over the
expected life of a similar liability that does not have an associated equity component, in
accordance with FSP APB 14-1. The Company is amortizing the discount for its 3 1/4 % Debentures
through February 2013, which is the first date that the holders of the 3 1/4% Debentures can redeem
their debentures. In addition, the Company is amortizing the discount for its 3 1/2% Notes through
May 2014, which is the maturity date of these notes.
9
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and six months ended June 30, 2009 and 2008, the contractual cash interest
expense and non-cash interest expense (discount amortization) for the Companys convertible debt
instruments were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
3 1/2% Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual cash interest expense |
|
$ |
5.1 |
|
|
$ |
5.1 |
|
|
$ |
10.1 |
|
|
$ |
10.1 |
|
Non-cash interest expense (discount amortization) |
|
|
3.8 |
|
|
|
3.5 |
|
|
|
7.5 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
8.9 |
|
|
$ |
8.6 |
|
|
$ |
17.6 |
|
|
$ |
17.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 1/4% Debentures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual cash interest expense |
|
$ |
1.8 |
|
|
$ |
1.8 |
|
|
$ |
3.6 |
|
|
$ |
3.6 |
|
Non-cash interest expense (discount amortization) |
|
|
1.4 |
|
|
|
1.3 |
|
|
|
2.8 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
3.2 |
|
|
$ |
3.1 |
|
|
$ |
6.4 |
|
|
$ |
6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 141(R), Business Combinations, (SFAS No. 141(R))
On January 1, 2009, the Company adopted the provisions of SFAS No. 141(R), which retains the
underlying concepts of SFAS No. 141 in that all business combinations are still required to be
accounted for at fair value under the acquisition method of accounting, but changes the method of
applying the acquisition method in a number of ways. Acquisition costs are no longer considered
part of the fair value of an acquisition and must be expensed as incurred, noncontrolling interests
are valued at fair value at the acquisition date, restructuring costs associated with a business
combination are generally expensed subsequent to the acquisition date and changes in deferred tax
asset valuation allowances and income tax uncertainties after the acquisition date generally will
affect income tax expense.
In April 2009, the FASB issued FSP SFAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies, ( FSP SFAS
141(R)-1) which amends the guidance in SFAS No. 141(R) to require contingent assets acquired and
liabilities assumed in a business combination to be recognized at fair value on the acquisition
date if the fair value can be reasonably estimated during the measurement period. If fair value
cannot be reasonably estimated during the measurement period, the contingent asset or liability
would be recognized in accordance with SFAS No. 5, Accounting for Contingencies, and FASB
Interpretation (FIN) No. 14, Reasonable Estimation of the Amount of a Loss. Further, FSP SFAS
141(R)-1 eliminated the specific subsequent accounting guidance for contingent assets and
liabilities from SFAS No. 141(R), without significantly revising the guidance in SFAS No. 141.
However, contingent consideration arrangements of an acquiree assumed by the acquirer in a business
combination would still be initially and subsequently measured at fair value in accordance with
SFAS No. 141(R). FSP SFAS 141(R)-1 was effective for all business combinations occurring on or
after the beginning of the first annual reporting period beginning on or after December 15, 2008.
The Company adopted the provisions of SFAS No. 141(R) and FSP SFAS 141(R)-1 for business
combinations with an acquisition date on or after January 1, 2009, without a material impact to its condensed consolidated financial statements.
10
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SFAS No. 157, Fair Value Measurements, (SFAS No. 157)
In September 2006, the FASB issued SFAS No. 157, which is intended to increase consistency and
comparability in fair value measurements by defining fair value, establishing a framework for
measuring fair value, and expanding disclosures about fair value measurements. SFAS No. 157 applies
to other accounting pronouncements that require or permit fair value measurements and was effective
for financial statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. In February 2008, the FASB issued FSP SFAS 157-1, Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,
which removes certain leasing transactions from the scope of SFAS No. 157, and FSP SFAS 157-2,
Effective Date of FASB Statement No. 157, which defers the effective date of SFAS No. 157 for one
year for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis. In October 2008, the
FASB also issued FSP SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in an inactive
market and illustrates how an entity would determine fair value when the market for a financial
asset is not active. On January 1, 2008, the Company adopted without material impact to its
condensed consolidated financial statements the provisions of SFAS No. 157 related to financial
assets and liabilities and to nonfinancial assets and liabilities measured at fair value on a
recurring basis.
On January 1, 2009, the Company adopted without material impact to its condensed consolidated
financial statements the provisions of SFAS No. 157 related to nonfinancial assets and nonfinancial
liabilities that are not required or permitted to be measured at fair value on a recurring basis,
which include those measured at fair value in goodwill impairment testing, indefinite-lived
intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets
measured at fair value for impairment assessment, asset retirement obligations initially measured
at fair value, and those initially measured at fair value in a business combination.
In April 2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, (FSP SFAS 157-4) which provides additional guidance for
estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the
asset or liability have significantly decreased. FSP SFAS 157-4 re-emphasizes that regardless of
market conditions the fair value measurement is an exit price concept as defined in SFAS No. 157.
FSP SFAS 157-4 clarifies and includes additional factors to consider in determining whether there
has been a significant decrease in market activity for an asset or liability and provides
additional clarification on estimating fair value when the market activity for an asset or
liability has declined significantly. The scope of FSP SFAS 157-4 does not include assets and
liabilities measured under level 1 inputs. FSP SFAS 157-4 is applied prospectively to all fair
value measurements where appropriate. The Company adopted the provisions of FSP SFAS 157-4
effective April 1, 2009, without a material impact to its condensed consolidated financial
statements.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of
FASB Statement No. 133, (SFAS No. 161)
In March 2008, the FASB issued SFAS No. 161, which requires entities that use derivative
instruments to provide qualitative disclosures about their objectives and strategies for using such
instruments, as well as any details of credit-risk-related contingent features contained within
derivatives. SFAS No. 161 also requires entities to disclose additional information about the
amounts and location of derivatives located within the financial statements, how the provisions of
SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS No.
133), have been applied, and the impact that hedges have on an entitys financial position,
financial performance, and cash flows. The Company adopted the provisions of SFAS No. 161 effective
January 1, 2009. Since SFAS No. 161 requires only additional disclosures concerning derivatives and
hedging activities, the adoption of SFAS No. 161 did not affect the presentation of the Companys
financial position or results of operations. The Companys derivative instrument and hedging
activities are further described in Note 8.
11
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FSP SFAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments, (FSP SFAS No. 107-1 and APB 28-1)
In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1, which amend SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, and require publicly-traded companies, as
defined in APB Opinion No. 28, Interim Financial Reporting, to provide disclosures on the fair
value of financial instruments in interim financial statements. FSP SFAS No. 107-1 and APB 28-1 are
effective for interim periods ending after June 15, 2009. The Company adopted the provisions of FSP
SFAS No. 107-1 and APB 28-1 effective April 1, 2009, without a material impact to its condensed
consolidated financial statements. The fair value of the Companys financial instruments are
further described below.
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable. The carrying amounts
reported in the accompanying condensed consolidated balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value because of the short-term maturity
of these instruments.
LongTerm Debt. The Companys term B loans under its credit agreement (the Term B Loans),
31/2% Notes and 31/4% Debentures were the only
long-term debt instruments where the carrying amounts differed from their fair value as of June 30,
2009 and December 31, 2008. The carrying amount and fair value of these instruments as of June 30,
2009 and December 31, 2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount |
|
Fair Value |
|
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Term B Loans |
|
$ |
692.9 |
|
|
$ |
706.4 |
|
|
$ |
654.8 |
|
|
$ |
586.3 |
|
31/2% Notes, excluding unamortized discount |
|
$ |
575.0 |
|
|
$ |
575.0 |
|
|
$ |
465.8 |
|
|
$ |
387.3 |
|
31/4% Debentures, excluding unamortized discount |
|
$ |
225.0 |
|
|
$ |
225.0 |
|
|
$ |
181.1 |
|
|
$ |
162.0 |
|
The fair values of our Term B Loans, 31/4% Debentures and 31/2% Notes were based on the quoted
prices at June 30, 2009 and December 31, 2008.
Interest Rate Swap. The Company has designated its interest rate swap as a cash flow hedge
instrument, which is recorded in the Companys accompanying condensed consolidated balance sheets
at its fair value. The fair value of the Companys interest rate swap agreement is determined in
accordance with SFAS No. 157 based on the amount at which it could be settled, which is referred to
in SFAS No. 157 as the exit price. The exit price is based upon observable market assumptions and
appropriate valuation adjustments for credit risk. The Company has categorized its interest rate
swap as Level 2 under SFAS No. 157.
The fair value of the Companys interest rate swap at June 30, 2009 and December 31, 2008
reflects a liability of approximately $38.1 million and $45.0 million, respectively, and is
included in reserves for self-insurance claims and other liabilities in the accompanying condensed
consolidated balance sheets. The Companys interest rate swap is further described in Note 8.
SFAS No. 165, Subsequent Events, (SFAS No. 165)
In May 2009, the FASB issued SFAS No. 165, which established general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. SFAS No. 165 requires the Company to disclose the
date through which the Company has evaluated subsequent events and the basis for the date. SFAS
No. 165 was effective on June 30, 2009 for the Company. See Note 11, Subsequent Events, for
disclosure of the date through which subsequent events are disclosed.
12
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SFAS No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of
Generally Accepted Accounting Principles A Replacement of FASB Statement No. 162, (SFAS No.
168)
In June 2009, the FASB issued SFAS No. 168, which establishes the FASB Accounting Standards
CodificationTM as the single source of authoritative accounting principles recognized by
the FASB to be applied to nongovernmental entities in the preparation of financial statements in
conformity with GAAP. SFAS No. 168 is effective for the Company in the third quarter of 2009. The
adoption of SFAS No. 168 will not have a material impact on the Companys consolidated financial
statements. However, all references to GAAP provided in the notes to the Companys consolidated financial
statements will be updated to conform to the FASB Accounting Standards CodificationTM.
Note 3. Acquisition
Effective February 1, 2009, the Company acquired Rockdale Medical Center (Rockdale), a 138
bed hospital located in Conyers, Georgia, from the Hospital Authority of Rockdale County and
Rockdale Medical Center, Inc. The Company funded the purchase price of Rockdale of $80.0 million
plus net working capital with available cash.
Under the acquisition method of accounting, in accordance with SFAS No. 141(R), the purchase
price of Rockdale was allocated to the identifiable assets acquired and liabilities assumed based
upon their estimated fair values as of February 1, 2009. The excess of the purchase price over the
estimated fair value of the identifiable assets acquired and liabilities assumed was recorded as
goodwill. The results of operations of Rockdale are included in the Companys results of operations
beginning February 1, 2009.
The fair values of assets acquired and liabilities assumed at the date of acquisition were as
follows (in millions):
|
|
|
|
|
Accounts receivable |
|
$ |
12.4 |
|
Inventories |
|
|
2.1 |
|
Prepaid expenses and other current assets |
|
|
0.6 |
|
Property and equipment |
|
|
71.4 |
|
Goodwill |
|
|
8.6 |
|
|
|
|
|
Total assets acquired, excluding cash |
|
|
95.1 |
|
|
|
|
|
Accounts payable |
|
|
6.2 |
|
Accrued salaries |
|
|
3.6 |
|
Other current liabilities |
|
|
1.4 |
|
Capital leases |
|
|
1.3 |
|
|
|
|
|
Total liabilities assumed |
|
|
12.5 |
|
|
|
|
|
Net assets acquired |
|
$ |
82.6 |
|
|
|
|
|
The valuation of accounts receivable has been prepared on a preliminary basis. The Company is
currently assessing the valuation of the accounts receivable acquired and expects to finalize its
analysis during the third quarter of 2009. Once finalized, the Company will adjust the purchase
price allocation to reflect its final assessment.
Note 4. Discontinued Operations
In September 2008, the Companys management committed to sell Doctors Hospital of Opelousas
(Opelousas), a 171 bed facility located in Opelousas, Louisiana, and Starke Memorial Hospital
(Starke), a 53 bed facility located in Knox, Indiana. The Company sold Opelousas effective May 1,
2009 for $13.7 million, including working capital, which was comprised of approximately $4.7
million in cash and a $9.0 million note. The note was
repaid in full to the Company in July 2009. In connection with the Companys disposal of
Opelousas, it recognized a loss on sale of $0.6 million, net of income tax benefits. Additionally,
the Company completed its sale of Starke effective July 1, 2009 for $6.3 million, including net working capital.
13
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In March 2007, the Company signed a letter of intent to transfer substantially all of the
operating assets and net working capital of Colorado River Medical Center (Colorado River), a
25 bed facility located in Needles, California to the Board of Trustees of Needles Desert
Communities Hospital (the Needles Board of Trustees) and to terminate the existing lease
agreement between the two parties. Effective April 1, 2008, the Company terminated the lease
agreement and transferred Colorado River to the Needles Board of Trustees. In connection with the
signing of the letter of intent in March 2007, the Company recognized an impairment charge of $8.7
million, net of income taxes, for the year ended December 31, 2007. During the six months ended
June 30, 2008, the Company recognized a favorable impairment adjustment of $2.3 million, net of
income taxes, or $0.04 per diluted share related to the reversal of a portion of the previously
recognized impairment charge for certain net working capital components that were ultimately
excluded from the assets transferred effective April 1, 2008.
The results of operations, net of income taxes, of Opelousas, Starke and Colorado River, as
well as the Companys other previously disposed facilities, are reflected in the accompanying
condensed consolidated financial statements as discontinued operations in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Interest expense was allocated to discontinued operations based on the ratio of disposed net
assets to the sum of total net assets of the Company plus the Companys total outstanding debt. The
Company allocated to discontinued operations interest expense of $0.2 million for the three months
ended June 30, 2008 and $0.3 million and $0.6 million for the six months ended June 30, 2009 and
2008, respectively. There was no allocation of interest expense to discontinued operations for the
three months ended June 30, 2009.
The revenues, loss before income taxes, and net loss, excluding impairment adjustment and loss
on sale of hospital of discontinued operations for the three and six months ended June 30, 2009 and
2008 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Revenues |
|
$ |
5.3 |
|
|
$ |
14.7 |
|
|
$ |
16.1 |
|
|
$ |
30.8 |
|
Loss before income tax benefits |
|
$ |
(4.0 |
) |
|
$ |
(2.2 |
) |
|
$ |
(5.7 |
) |
|
$ |
(5.1 |
) |
Net loss |
|
$ |
(2.1 |
) |
|
$ |
(1.4 |
) |
|
$ |
(3.2 |
) |
|
$ |
(3.2 |
) |
Note 5. Repurchases of Common Stock
In November 2007, the Companys Board of Directors authorized the repurchase of up to $150.0
million of outstanding shares of the Companys common stock either in the open market or through
privately negotiated transactions, subject to market conditions, regulatory constraints and other
factors. During the three and six months ended June 30, 2008, the Company repurchased approximately
0.9 million and 3.9 million shares for an aggregate purchase price, including commissions, of
approximately $28.3 million and $103.7 million at an average purchase price of $31.25 and $26.57
per share, respectively. At the time the program expired on November 26, 2008, the Company had repurchased in the aggregate,
approximately 5.3 million shares at an aggregate purchase price, including commissions, of
approximately $144.9 million with an average purchase price of $27.55 per share. These shares have
been designated by the Company as treasury stock.
In August 2009, the Companys Board of Directors authorized the repurchase over the next 18 months of up to
$ 100.0 million of outstanding shares of the Companys common stock either in the open market or
through privately negotiated transactions, subject to certain limitations. The Company is not obligated to repurchase any specific number of shares under the
program.
Additionally, the Company redeems shares from
employees upon vesting of the Companys Amended and Restated 1998 Long-Term Incentive Plan (LTIP)
and Management Stock Purchase Plan (MSPP) stock awards for minimum statutory tax withholding
purposes. The Company redeemed approximately 0.1 million and 0.1 million shares of certain vested LTIP and
MSPP shares for an aggregate price of approximately $1.0 million and $2.2 million during the three months
ended June 30, 2009 and 2008, respectively. Additionally, the Company redeemed approximately 0.2 million and 0.1 million
shares of certain vested LTIP and MSPP shares for an aggregate price of approximately $2.6 million and $2.2
million during the six months ended June 30, 2009 and 2008, respectively. These shares have been designated by
the Company as treasury stock.
14
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6. Goodwill and Intangible Assets
Goodwill
SFAS No. 142, Goodwill and Other Intangible Assets, requires goodwill and intangible assets
with indefinite lives to be tested at least annually for impairment and if certain events or
changes in circumstances indicate that an impairment loss may have been incurred, on an interim
basis. The Companys business comprises a single operating reporting unit for impairment test
purposes. For the purposes of these analyses, the Companys estimates of fair value are based on a
combination of the income approach, which estimates the fair value of the Company based on its
future discounted cash flows, and the market approach, which estimates the fair value of the
Company based on comparable market prices.
The Company performed its most recent goodwill impairment testing as of December 31, 2008 and determined that a goodwill impairment charge was not required. However, the Company will continue to monitor
the relationship of its fair value to its book value as economic events and changes to its stock
price occur.
Contract-Based Physician Minimum Revenue Guarantees
The Company has committed to provide certain financial assistance pursuant to recruiting
agreements, or physician minimum revenue guarantees, with various physicians practicing in the
communities it serves. In consideration for a physician relocating to one of its communities and
agreeing to engage in private practice for the benefit of the respective community, the Company may
advance certain amounts of money to a physician to assist in establishing his or her practice.
The Company accounts for its physician minimum revenue guarantees in accordance with the
provisions of FASB Staff Position No. FIN 45-3, Application of FASB Interpretation No. 45 to
Minimum Revenue Guarantees Granted to a Business or Its Owners (FSP FIN 45-3). In accordance
with the provisions of FSP FIN 45-3, the Company records a contract-based intangible asset and a
related guarantee liability for new physician minimum revenue guarantees. The contract-based
intangible asset is amortized to other operating expenses, in the accompanying condensed
consolidated statements of operations, over the period of the physician contract, which typically
ranges from four to five years. As of June 30, 2009 and December 31, 2008, the Companys liability
for contract-based physician minimum revenue guarantees was $21.3 million and $22.2 million,
respectively. These amounts are included in other current liabilities in the Companys accompanying
condensed consolidated balance sheets.
Non-Competition Agreements
The Company has entered into non-competition agreements with certain physicians and other
individuals which are amortized on a straight-line basis over the term of the agreements.
Certificates of Need
The construction of new facilities, the acquisition or expansion of existing facilities and
the addition of new services and certain equipment at the Companys facilities may be subject to
state laws that require prior approval by state regulatory agencies. These 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. The Company operates
hospitals in certain states that have adopted certificate of need laws. If the Company fails to
obtain necessary state approval, the Company will not be able to expand its facilities, complete
acquisitions or add new services at its facilities in these states. These intangible assets have
been determined to have indefinite lives and, accordingly, are not amortized.
15
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary of Intangible Assets
The following table provides information regarding the Companys intangible assets, which are
included in the accompanying condensed consolidated balance sheets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Net |
|
Class of Intangible Asset |
|
Amount |
|
|
Amortization |
|
|
Total |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Contract-based physician minimum revenue guarantees: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
66.4 |
|
|
$ |
(16.2 |
) |
|
$ |
50.2 |
|
Additions, net of terminations |
|
|
5.7 |
|
|
|
1.9 |
|
|
|
7.6 |
|
Amortization expense |
|
|
|
|
|
|
(6.2 |
) |
|
|
(6.2 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
72.1 |
|
|
$ |
(20.5 |
) |
|
$ |
51.6 |
|
|
|
|
|
|
|
|
|
|
|
Non-competition agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
20.2 |
|
|
$ |
(8.1 |
) |
|
$ |
12.1 |
|
Amortization expense |
|
|
|
|
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
20.2 |
|
|
$ |
(8.8 |
) |
|
$ |
11.4 |
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of need: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 and June 30, 2009 |
|
$ |
6.5 |
|
|
$ |
|
|
|
$ |
6.5 |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
93.1 |
|
|
$ |
(24.3 |
) |
|
$ |
68.8 |
|
Additions, net of terminations |
|
|
5.7 |
|
|
|
1.9 |
|
|
|
7.6 |
|
Amortization expense |
|
|
|
|
|
|
(6.9 |
) |
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
98.8 |
|
|
$ |
(29.3 |
) |
|
$ |
69.5 |
|
|
|
|
|
|
|
|
|
|
|
Note 7. Stock-Based Compensation
The Company issues stock options and other stock-based awards (nonvested stock, restricted
stock units, and deferred stock units) to key employees and directors under its LTIP, Outside Directors
Stock and Incentive Compensation Plan (ODSICP) and MSPP. The Company accounts for its stock-based
awards in accordance with the provisions of SFAS No. 123(R), Share-Based Payment (SFAS No.
123(R)). In accordance with SFAS No. 123(R), the Company recognizes compensation expense based on
the estimated grant date fair value of each stock-based award.
Stock Options
The Company estimated the fair value of stock options granted during the three and six months
ended June 30, 2009 and 2008 using the Hull-White II (HW-II) lattice option valuation model and a
single option award approach. The Company is amortizing the fair value on a straight-line basis
over the requisite service period of the awards, which is the vesting period of three years. The
Company granted stock options to purchase 874,725 and 1,091,500 shares of the Companys common
stock to certain key employees under the LTIP during the six months ended June 30, 2009 and 2008,
respectively. The stock options that were granted during the six months ended June 30, 2009 and
2008 vest 33.3% on each grant anniversary date over three years of continued employment.
The following table shows the weighted average assumptions the Company used to develop the
fair value estimates under its HW-II option valuation model and the resulting estimates of
weighted-average fair value per share of stock options granted during the six months ended June 30,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2009 |
|
2008 |
Expected volatility |
|
|
40.2 |
% |
|
|
32.0 |
% |
Risk free interest rate (range) |
|
|
0.10% - 2.92 |
% |
|
|
1.07% - 3.74 |
% |
Expected dividends |
|
|
|
|
|
|
|
|
Average expected term (years) |
|
|
5.4 |
|
|
|
5.3 |
|
Fair value per share of stock options granted |
|
$ |
7.92 |
|
|
$ |
8.08 |
|
16
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The total intrinsic value of stock options exercised during the six months ended June 30, 2009
was $7.9 million. The Company received $7.9 million and $9.6 million in cash from stock option
exercises during the three and six months ended June 30, 2009, respectively. The actual tax benefit realized for
the tax deductions from stock option exercises totaled $2.3 million and $3.2 million for the three
and six months ended June 30, 2009, respectively. There was a nominal amount of cash received and tax benefits
realized from stock option exercises for the three and six months ended June 30, 2008.
As of June 30, 2009, there was $10.6 million of total estimated unrecognized compensation cost
related to stock option compensation arrangements. Total estimated unrecognized compensation cost
will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that
cost over a weighted average period of 1.5 years.
Other Stock-Based Awards
The fair value of other stock-based awards is determined based on the closing price of the Companys common stock on the day
prior to the grant date. Stock-based compensation expense for the Companys other stock-based
awards is recorded equally over the vesting periods generally ranging from six months to five
years.
During the six months ended June 30, 2009 and 2008, the Company granted 830,668 and 506,698
shares, respectively, of other stock-based awards under its LTIP, ODSICP and MSPP plans to certain
key employees and non-management members of the Board of Directors. Of the 830,668 other
stock-based awards granted during the six months ended June 30, 2009, 358,406 ratably vest over the
three year period from the grant date; 337,500 cliff-vest three years from the grant date; 50,000
cliff-vest four years from the grant date; 50,000 cliff-vest five years from the grant date; and
34,762 cliff-vest six months and one day from the grant date. Of the 506,698 other stock-based
awards granted during the six months ended June 30, 2008, 478,698 cliff-vest three years from the
grant date and 28,000 vested during the year ended December 31, 2008. The fair market value at the
date of grant of the 830,668 and 506,698 shares of nonvested stock awards was $21.31 and $25.57 per
share, respectively.
Of the other stock-based awards granted under the LTIP during the six months ended June 30,
2009 and 2008, 307,500 and 247,500 shares, respectively, are performance-based. In addition to
requiring continuing service of an employee, the vesting of these other stock-based awards is
contingent upon the satisfaction of certain financial goals, specifically related to the
achievement of budgeted annual revenues and earnings targets within a three-year period. Under the
LTIP, if these goals are achieved, the other stock-based awards will cliff-vest three years after
the grant date. The fair value for each of these other stock-based awards was determined based on
the closing price of the Companys common stock on the day prior to the grant date and assumes that
the performance goals will be achieved. If these performance goals are not met, no compensation
expense will be recognized, and any previously recognized compensation expense will be reversed.
As of June 30, 2009, there was $22.1 million of total estimated unrecognized compensation cost
related to other stock-based awards granted under the LTIP, ODSICP and MSPP plans. Total estimated
unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The
Company expects to recognize that cost over a weighted average period of 1.9 years.
Summary
The following table summarizes the Companys total stock-based compensation expense as well as
the total recognized tax benefits related thereto for the three and six months ended June 30, 2009
and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Other stock-based awards |
|
$ |
3.2 |
|
|
$ |
3.9 |
|
|
$ |
7.2 |
|
|
$ |
8.2 |
|
Stock options |
|
|
1.5 |
|
|
|
1.8 |
|
|
|
3.4 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
4.7 |
|
|
$ |
5.7 |
|
|
$ |
10.6 |
|
|
$ |
12.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits on stock-based compensation expense |
|
$ |
2.1 |
|
|
$ |
2.5 |
|
|
$ |
4.6 |
|
|
$ |
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company did not capitalize any stock-based compensation cost during the three and six
months ended June 30, 2009 and 2008. As of June 30, 2009, there was $32.7 million of total estimated
unrecognized compensation cost related to all of the Companys stock compensation arrangements.
Total estimated unrecognized compensation cost may be adjusted for future changes in estimated
forfeitures. The Company expects to recognize that cost over a weighted-average period of 1.8
years.
Note 8. Interest Rate Swap
On June 1, 2006, the Company entered into an interest rate swap agreement with Citibank, N.A.
(Citibank) as counterparty. The interest rate swap agreement, as amended, was effective as of
November 30, 2006 and has a maturity date of May 30, 2011. The interest rate swap agreement
requires the Company to make quarterly fixed rate payments to Citibank calculated on a notional
amount as set forth in the table below at an annual fixed rate of 5.585% while Citibank is
obligated to make quarterly floating payments to the Company based on the three-month LIBOR on the
same referenced notional amount. Notwithstanding the terms of the interest rate swap transaction,
the Company is ultimately obligated for all amounts due and payable under its Credit Agreement, as
amended and restated, supplemented or otherwise modified from time to time (the Credit
Agreement), entered into on April 15, 2005, with Citicorp North America, Inc., as administrative
agent and the lenders party thereto, Bank of America, N.A., CIBC World Markets Corp., SunTrust Bank
and UBS Securities LLC, as co-syndication agents and Citigroup Global Markets Inc., as sole lead
arranger and sole book runner. The following table provides information regarding the notional
amounts in effect for the indicated date ranges for the Companys interest rate swap agreement:
|
|
|
|
|
|
|
Notional Amount |
Date Range |
|
(In millions) |
November 30, 2007 to November 28, 2008 |
|
$ |
750.0 |
|
November 28, 2008 to November 30, 2009 |
|
|
600.0 |
|
November 30, 2009 to November 30, 2010 |
|
|
450.0 |
|
November 30, 2010 to May 30, 2011 |
|
|
300.0 |
|
The Company entered into the interest rate swap agreement to mitigate the floating interest
rate risk on a portion of its outstanding borrowings under its Credit Agreement. SFAS No. 133
requires companies to recognize all derivative instruments as either assets or liabilities at fair
value in a companys balance sheets. In accordance with SFAS No. 133, the Company designates its
interest rate swap as a cash flow hedge. For derivative instruments that are designated and qualify
as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income (OCI) and reclassified into earnings in the same period
or periods during which the hedged transactions affects earnings. Gains and losses on the
derivative representing either hedge ineffectiveness or hedge components excluded from the
assessment of effectiveness are recognized in current earnings.
The Company assesses the effectiveness of its interest rate swap on a quarterly basis. The
Company completed its quarterly assessments during the three and six months ended June 30, 2009 and
determined that its cash flow hedge was effective. The Company completed its quarterly assessments
during the three and six months ended June 30, 2008 and determined that its cash flow hedge was
partially ineffective because the notional amount of the interest rate swap in effect during the
indicated periods exceeded the Companys outstanding borrowings under its variable rate debt Credit
Agreement.
At June 30, 2009 and December 31, 2008, the fair value and line item caption of the Companys
interest rate swap derivative instrument was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location |
|
June 30, 2009 |
|
|
December 31, 2008 |
|
Derivative
designated as a
hedging instrument
under SFAS No. 133: |
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Reserves for self-insurance claims and |
|
|
|
|
|
|
|
|
|
|
other liabilities |
|
$ |
38.1 |
|
|
$ |
45.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows the effect of the Companys interest rate swap derivative instrument
qualifying and designated as a hedging instrument in cash flow hedges for the three and six months
ended June 30, 2009 and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of gain (loss) |
|
|
Amount of gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recognized in Income on |
|
|
recognized in Income on |
|
|
|
Amount of gain (loss) |
|
|
Derivative (Ineffective |
|
|
Derivative (Ineffective |
|
|
|
recognized in OCI on |
|
|
Portion and Amount |
|
|
Portion and Amount |
|
|
|
Derivative (Effective |
|
|
Excluded from |
|
|
Excluded from |
|
|
|
Portion) |
|
|
Effectiveness Testing) |
|
|
Effectiveness Testing) |
|
|
|
For the Three |
|
|
For the Six |
|
|
|
|
|
|
For the Three |
|
|
For the Six |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Derivative in
SFAS No. 133 cash
flow hedging
relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
4.9 |
|
|
$ |
19.7 |
|
|
$ |
6.9 |
|
|
$ |
1.2 |
|
|
Interest expense, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Since the Companys interest rate swap is not traded on a market exchange, the fair value is
determined using a valuation model that involves a discounted cash flow analysis on the expected
cash flows. This cash flow analysis reflects the contractual terms of the interest rate swap
agreement, including the period to maturity, and uses observable market-based inputs, including the
three-month LIBOR forward interest rate curve. The fair value of the Companys interest rate swap
agreement is determined by netting the discounted future fixed cash payments and the discounted
expected variable cash receipts. The variable cash receipts are based on the expectation of future
interest rates based on the observable market three-month LIBOR forward interest rate curve and the
notional amount being hedged. In addition, the Company incorporates credit valuation adjustments to
appropriately reflect both its own and Citibanks non-performance or credit risk in the fair value
measurements. The interest rate swap agreement exposes the Company to credit risk in the event of
non-performance by Citibank. However, the Company does not anticipate non-performance by Citibank.
The majority of the inputs used to value its interest rate swap agreement, including the
three-month LIBOR forward interest rate curve and market perceptions of the Companys credit risk
used in the credit valuation adjustments, are observable inputs available to a market participant.
As a result, the Company has determined that the interest rate swap valuation is classified in
Level 2 of the fair value hierarchy, in accordance with SFAS No. 157.
19
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share
for the three and six months ended June 30, 2009 and 2008 (dollars and shares in millions, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Numerator for basic and diluted earnings per share
attributable to LifePoint Hospitals, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
29.5 |
|
|
$ |
30.1 |
|
|
$ |
69.6 |
|
|
$ |
68.8 |
|
Less: Net income attributable to noncontrolling interests |
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
(1.1 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to
LifePoint Hospitals, Inc.
stockholders |
|
|
29.0 |
|
|
|
29.5 |
|
|
|
68.5 |
|
|
|
67.7 |
|
Loss from discontinued operations, net of income taxes |
|
|
(2.7 |
) |
|
|
(1.7 |
) |
|
|
(3.8 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to LifePoint Hospitals, Inc. |
|
$ |
26.3 |
|
|
$ |
27.8 |
|
|
$ |
64.7 |
|
|
$ |
66.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
52.8 |
|
|
|
52.2 |
|
|
|
52.5 |
|
|
|
53.1 |
|
Effect of dilutive securities: stock options and other
stock-based awards |
|
|
0.8 |
|
|
|
1.0 |
|
|
|
0.8 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
53.6 |
|
|
|
53.2 |
|
|
|
53.3 |
|
|
|
54.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to LifePoint
Hospitals, Inc. stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.55 |
|
|
$ |
0.57 |
|
|
$ |
1.31 |
|
|
$ |
1.27 |
|
Discontinued operations |
|
|
(0.05 |
) |
|
|
(0.04 |
) |
|
|
(0.08 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.50 |
|
|
$ |
0.53 |
|
|
$ |
1.23 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to LifePoint
Hospitals, Inc. stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.54 |
|
|
$ |
0.55 |
|
|
$ |
1.29 |
|
|
$ |
1.25 |
|
Discontinued operations |
|
|
(0.05 |
) |
|
|
(0.03 |
) |
|
|
(0.08 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.49 |
|
|
$ |
0.52 |
|
|
$ |
1.21 |
|
|
$ |
1.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys 31/2% Notes and 31/4% Debentures are included in the calculation of diluted earnings
per share whether or not the contingent requirements have been met for conversion using the
treasury stock method if the conversion price of $51.79 and $61.22, respectively, is less than the
average market price of the Companys common stock for the period. Upon conversion, the par value
is settled in cash, and only the conversion premium is settled in shares of the Companys common
stock. The impact of the 31/4% Debentures and 31/2% Notes have been excluded because the effects would
have been anti-dilutive for the three and six months ended June 30, 2009 and 2008.
Note 10. Contingencies
Legal Proceedings and General Liability Claims
The Company is, from time to time, subject to claims and suits arising in the ordinary course
of business, including claims for damages for personal injuries, medical malpractice, breach of
contracts, wrongful restriction of or interference with physicians staff privileges and employment
related claims. In certain of these actions, plaintiffs request payment for damages, including
punitive damages that may not be covered by insurance. The Company is currently not a party to any
pending or threatened proceeding, which, in managements opinion, would have a material adverse
effect on the Companys business, financial condition or results of operations.
In May 2009, the Companys hospital in Andalusia, Alabama (Andalusia Regional Hospital)
produced documents responsive to a request received from the U.S. Attorneys Office for the Western
District of New York regarding an investigation they are conducting with respect to the billing of
kyphoplasty procedures. Kyphoplasty is a surgical spine procedure that returns a compromised
vertebrae (either from trauma or osteoporotic disease process) to its previous height, reducing or
eliminating severe pain. It has been reported that hospitals in multiple states including
Indiana, Florida, Alabama, South Carolina, New York and Minnesota have received similar requests
for information. The Company believes that this investigation is related to the May 22, 2008 qui
tam settlement between the same U.S. Attorneys office and the manufacturer and distributor of the
product used in performing the kyphoplasty procedure. The Company is cooperating with the
governments investigation. In addition, the Company is reviewing whether its hospitals have
engaged in inappropriate billing for kyphoplasty procedures.
20
LIFEPOINT HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Physician Commitments
The Company has committed to provide certain financial assistance pursuant to recruiting
agreements with various physicians practicing in the communities it serves. In consideration for a
physicians relocating to one of its communities and agreeing to engage in private practice for the
benefit of the respective community, the Company may advance certain amounts of money to a
physician, normally over a period of one year, to assist in establishing the physicians practice.
The Company has committed to advance a maximum amount of approximately $60.3 million at June 30,
2009. The actual amount of such commitments to be subsequently advanced to physicians is estimated
at $21.3 million at June 30, 2009 and often depends upon the financial results of a physicians private practice
during the guarantee period. Generally, amounts advanced under the recruiting agreements may be
forgiven pro rata over a period of 36 to 48 months contingent upon the physician continuing to
practice in the respective community. Pursuant to the Companys standard physician recruiting
agreement, any breach or non-fulfillment by a physician under the physician recruiting agreement
gives the Company the right to recover any payments made to the physician under the agreement.
Capital Expenditure Commitments
The Company is reconfiguring some of its facilities to accommodate patient services more
effectively and is restructuring existing surgical capacity in some of its hospitals to permit
additional patient volume and a greater variety of services. The Company has incurred approximately
$34.4 million in uncompleted projects as of June 30, 2009, which is included as construction in
progress in the Companys accompanying condensed consolidated balance sheet. At June 30, 2009, the
Company had projects under construction with an estimated cost to complete and equip of
approximately $125.8 million. The Company is subject to annual capital expenditure commitments in
connection with several of its facilities.
Acquisitions
The Company has historically acquired businesses with prior operating histories. Acquired
companies may have unknown or contingent liabilities, including liabilities for failure to comply
with healthcare laws and regulations, medical and general professional liabilities, workers
compensation liabilities, previous tax liabilities and unacceptable business practices. Although
the Company institutes policies designed to conform practices to its standards following completion
of acquisitions, there can be no assurance that the Company will not become liable for past
activities that may later be asserted to be improper by private plaintiffs or government agencies.
Although the Company generally seeks to obtain indemnification from prospective sellers covering
such matters, there can be no assurance that any such matter will be covered by indemnification, or
if covered, that such indemnification will be adequate to cover potential losses and fines.
Note 11. Subsequent Events
In accordance with the provisions of SFAS No. 165, the Company evaluated all material events
occurring subsequent to the balance sheet date through the time of filing of this Form 10-Q with
the United States Securities and Exchange Commission on August 7, 2009, the date the financial statements were
issued, for events requiring disclosure or recognition in the consolidated financial statements.
In July 2009, the Company collected the $9.0 million note issued in connection with its sale of Opelousas and completed its sale of Starke, as further discussed in Note 4.
In August 2009, the Companys Board of Directors authorized the repurchase over the next 18 months of up to $ 100.0 million of outstanding shares of the Companys common stock, as further discussed in Note 5.
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
We recommend that you read this discussion together with our unaudited condensed consolidated
financial statements and related notes included elsewhere in this report, as well as our Form 10-K
for the year ended December 31, 2008 (the 2008 Annual Report on Form 10-K). Unless otherwise
indicated, all relevant financial and statistical information included herein relates to our
continuing operations, inclusive of the operations of Rockdale. The results of operations of
Rockdale are included in our results of operations beginning February 1, 2009.
We make forward-looking statements in this report, other reports and in statements we file
with the United States Securities and Exchange Commission and/or release to the public. In addition, our senior
management makes forward-looking statements orally to analysts, investors, the media and others.
Broadly speaking, forward-looking statements include projections of our revenues; net income;
earnings per share; capital expenditures; cash flows; debt repayments; interest rates; operating
statistics and data or other financial items; descriptions of plans or objectives of our management
for future operations; services or growth plans including acquisitions, divestitures, business
strategies and initiatives; interpretations of Medicare and Medicaid laws and regulations and their
effect on our business; and descriptions of assumptions underlying or relating to any of the
foregoing.
In this report, for example, we make forward-looking statements, including statements
discussing our expectations about: future financial performance and condition; future liquidity and
capital resources; future cash flows; existing and future debt and equity structure; our strategic
goals; future acquisitions; our business strategy and operating philosophy, including the manner in
which potential acquisitions or divestitures are evaluated; costs of providing care to our
patients; changes in interest rates; our compliance with new and existing laws and regulations; the
performance of counterparties to our agreements; effect of credit ratings; professional fees;
increased costs of salaries and benefits; industry and general economic trends; reimbursement
changes; patient volumes and related revenues; future capital expenditures; the impact of changes
in our critical accounting estimates; claims and legal actions relating to professional liabilities
and other matters; the impact and applicability of new accounting standards; and physician
recruiting and retention.
Forward-looking statements discuss matters that are not historical facts. Because they discuss
future events or conditions, forward-looking statements often include words such as can, could,
may, should, believe, will, would, expect, project, estimate, seek, anticipate,
plan, intend, target, continue or similar expressions. Do not unduly rely on
forward-looking statements, which give our expectations about the future and are not guarantees.
Forward-looking statements speak only as of the date they are made. We do not undertake any
obligation to update our forward-looking statements to reflect events or circumstances after the
date of this document or to reflect the occurrence of unanticipated events.
There are several factors, some beyond our control that could cause results to differ
significantly from our expectations. Some of these factors are described in Part I, Item 1A. Risk
Factors of our 2008 Annual Report on Form 10-K. Any factor
described in our 2008 Annual Report on Form 10-K could by itself,
or together with one or more factors, adversely affect our business, results of operations and/or
financial condition. There may be factors not described in our 2008 Annual Report on Form 10-K that
could also cause results to differ from our expectations.
Overview
We operate general acute care hospitals in non-urban communities in the United States. At June
30, 2009, we owned or leased through our subsidiaries 48 hospitals, having a total of 5,585
licensed beds and serving non-urban communities in 18 states. One of these hospitals was held for
sale and classified as discontinued operations in our condensed consolidated financial statements,
and eight were owned by third parties and leased by our subsidiaries. Effective February 1, 2009,
we acquired Rockdale, a 138 bed acute care hospital located in Conyers, Georgia. The results of
operations of Rockdale are included in our results of operations beginning February 1, 2009.
22
We generate revenues primarily through hospital services offered at our facilities. We
generated $735.3 million and $665.7 million in revenues during the three
months ended June 30, 2009 and 2008, respectively, and $1,470.8 million and $1,350.8 million in revenues during
the six months ended June 30, 2009 and 2008, respectively. For the three months ended June 30, 2009
and 2008, we derived 39.8% and 40.6%, respectively, and 40.5% and 41.6% for the six months ended
June 30, 2009 and 2008, respectively, of our revenues collectively from the Medicare and Medicaid programs.
Payments made to our hospitals pursuant to the Medicare and Medicaid programs for services rendered
rarely exceed our costs for such services. As a result, we rely largely on payments made by private
or commercial payors, together with certain limited services provided to Medicare recipients, to
generate an operating profit.
Our hospitals typically provide the range of medical and surgical services commonly available
in hospitals in non-urban markets, although the services provided at any specific hospital depend
on factors such as community need for the service, whether physicians necessary to operate the
service line safely are members of the medical staff of that hospital, whether the service might be
economically viable, and any contractual or certificate of need obligations that might exist.
Competitive and Regulatory Environment
The environment in which our hospitals operate is extremely competitive. We face competition
from other acute care hospitals, including larger tertiary hospitals located in larger markets
and/or affiliated with universities; specialty hospitals that focus on one or a small number of
very lucrative service lines but that are not required to operate emergency departments;
stand-alone centers at which surgeries or diagnostic tests can be performed; and physicians on the
medical staffs of our hospitals. In many cases, our competitors focus on the service lines that
offer the highest margins. By doing so, our competitors can potentially draw the best-paying
business out of our hospitals. This, in turn, can reduce the overall operating profit of our
hospitals as we are often obligated to offer service lines that operate at a loss or that have much
lower profit margins. We continue to see growth in a general shift of lower acuity procedures to
outpatient settings. We have also seen the shift of increasingly complex procedures from the
inpatient to the outpatient setting.
The competition from physicians on the medical staffs of our hospitals can be especially
challenging. Within their offices, physicians may provide a vast range of services that might
otherwise be provided in acute care hospitals. Physicians also have a high level of influence with
respect to where their patients receive healthcare services and have the sole authority to order
tests. As a result of declining reimbursements to physicians, and as a result of these unique
competitive advantages, we believe that physicians often provide high margin services in their
offices to patients whose insurance plans pay reimbursement rates much higher than those set by
Medicare or Medicaid. This trend has, to some extent, offset our efforts to improve equivalent
admission rates at many of our hospitals.
Our hospitals also face extreme competition in their efforts to recruit and retain physicians
on their medical staffs. It is widely recognized that the United States has a shortage of
physicians in certain practice areas, including specialists such as cardiologists and orthopedists,
in various areas of the country.
The environment in which our hospitals operate is highly regulated, and the penalties for
noncompliance are severe. We are required to comply with extensive, extremely complicated and
overlapping government laws and regulations at the federal, state and local levels. These regulate
every aspect of how our hospitals conduct their operations, from what service lines must be offered
in order to be licensed as an acute care hospital, to whether our hospitals may employ physicians
to how (and whether) our hospitals may receive payments pursuant to the Medicare and Medicaid
programs. The failure to comply with these laws and regulations can result in severe penalties
including criminal penalties and civil sanctions, and the loss of our ability to receive
reimbursements through the Medicare and Medicaid programs.
23
Not only are our hospitals heavily regulated, the rules, regulations and laws to which they
are subject often change, with little or no notice, and are often interpreted and applied
differently by various regulatory agencies with authority to enforce such requirements. Each change
or conflicting interpretation may require our hospitals to make changes in their facilities,
equipment, personnel or services, and may also require that standard operating policies and
procedures be re-written and re-implemented. The cost of complying with such laws is a significant
component of our overall expenses. Further, this expense has grown in recent periods due to the
requirements of new regulations and the severity of the penalties associated with non-compliance,
and management believes compliance expenses will continue to grow in the foreseeable future.
The hospital industry is also enduring a period where the costs of providing care are rising
faster than reimbursement rates. This places a premium on efficient operation, the ability to
reduce or control costs and the need to leverage the benefits of our organization across all of our
hospitals.
The healthcare industry continues to attract much legislative interest and public attention,
and the regulatory, enforcement and reimbursement environment could change substantially during
2009. President Obama has said that healthcare reform is among his administrations highest
priorities, and Congress is currently considering a number of pending and proposed bills that would
dramatically alter the U.S. healthcare system. All of the currently proposed legislation is
intended to provide coverage and access to substantially all Americans and to reduce the rate of
growth in healthcare expenditures. The changes being considered include, among other things,
reducing payments to Medicare Advantage plans, expanding the Medicare programs use of value-based
purchasing programs and tying hospital payments to the satisfaction of certain quality criteria,
reducing Medicare and Medicaid payments, including disproportionate share payments, expanding
Medicaid eligibility, and creating new public health insurance options that would be based on
Medicare payment rates. We cannot predict the impact that the proposed healthcare reform plans
would have on us, and it is uncertain whether any major reform will be enacted in 2009.
Medicare Reimbursement
Medicare payment methodologies have been, and can be expected to continue to be, subject to
significant revisions based on cost containment and policy considerations, and changes with respect
to governmental reimbursement affect our revenues and earnings. On July 31, 2009, the Centers for
Medicare and Medicaid Services (CMS) issued its hospital inpatient prospective payment system
(IPPS) final rule for federal fiscal year (FFY) 2010, which will begin on October 1, 2009.
Among other things, the rule provides for a market basket update of 2.1% for hospitals that
successfully report the 2010 quality measures included in the Reporting Hospital Quality Data for
Annual Payment Update (RHQDAPU) program and an update of 0.1% for hospitals that do not. The
final rule also increases the cost outlier threshold from $20,045 to $23,140. After accounting for
various other adjustments, CMS estimates that Medicare inpatient payments to hospitals will
increase by an average of 1.6% for FFY 2010.
In FFY 2008, CMS adopted 745 new severity-adjusted diagnosis-related groups (MS-DRGs) to
better account for the severity of patient illnesses and the cost of treating Medicare patients.
However, CMS believed that hospitals would likely change their coding practices as they adopted the
new classifications, which would cause Medicare spending to increase without a corresponding
increase in the severity of patient conditions being treated. Therefore, in the IPPS final rule
for FFY 2008, CMS adopted adjustments to hospital rates in FFYs 2008 through 2010 to ensure that
Medicare spending for inpatient stays neither increased nor decreased as a result of the
implementation of the MS-DRGs. Congress later halved the adjustments for FFYs 2008 and 2009 but
directed CMS to adjust future rates and recoup excess spending for FFYs 2008 and 2009 if the lower
adjustments under the new system led to increased spending due solely to hospitals documentation
and coding practices. In the proposed IPPS rule for FFY 2010, CMS proposed to reduce inpatient
payment rates for hospitals by 1.9% to account for the increase in spending in FFY 2008 due to
changes in hospital coding practices that did not reflect actual increases in patient severity of
illness. However, information on the extent of documentation and coding effects on FFY 2009
spending is not yet known, and, as a result, CMS has decided not to implement an adjustment for FFY
2010 until it has a full year of 2009 claims data. Based on a complete analysis of FFY 2008 and
2009 data, CMS will consider phasing in future adjustments over an extended period beginning in FFY
2011.
In addition, in the IPPS final rule for FFY 2010, CMS is also finalizing an expansion of the
hospital quality measurements. The final rule adds four new measures for which hospitals must
submit data under the RHQDAPU program to receive the full market basket update. Two of these
measures are additions to the existing Surgical Care Improvement Project (SCIP) measure set, and
CMS believes that the other two measures will promote hospital participation in nursing-sensitive
care and stroke care registries.
24
On July 31, 2009, CMS published its Medicare inpatient rehabilitation facility (IRF)
prospective payment system final rule for FFY 2010. Among other things, the final rule increased
the IRF payment rate by 2.5% and set the high-cost outlier to $10,652. The final rule also
established new IRF coverage requirements for patient assessment, treatment planning, and care
provision. CMS anticipates that the final rule will increase aggregate payments to IRFs by $145
million in FFY 2010.
On May 1, 2009, CMS issued its inpatient psychiatric facility (IPF) prospective payment
system update for the rate year (RY) beginning July 1, 2009. The notice, among other things,
increased the IPF payment by an amount equal to the market basket increase of 2.1% and increased
the fixed dollar loss threshold amount from $6,113 to $6,565. CMS anticipates that the changes
will result in an overall $87 million (2%) increase in payments to IPFs from RY 2009 to RY 2010.
Business Strategy
We seek to fulfill our mission of Making Communities Healthier® by striving to improve the
quality and types of healthcare services available in our communities, provide physicians with a
positive environment in which to practice medicine, with access to necessary equipment and
resources, develop and provide a positive work environment for employees, expand each hospitals
role as a community asset, and improve each hospitals financial performance. We expect our
hospitals to be the place where patients want to come for care, where physicians want to practice
medicine and where employees want to work.
We believe that growth opportunities remain in our existing markets. Growth at our hospitals
is dependent in part on how successful our hospitals are in their efforts to recruit physicians to
their respective medical staffs, whether such physicians are active members of such medical staffs
over a long period of time and whether and to what extent members of our hospitals medical staffs
admit patients to our hospitals. During 2008, we refined our recruiting process in an effort to
better identify and focus on those physicians most likely to desire to practice in our communities
and to better tailor our communications to the physicians who want to practice in non-urban
communities. During the first half of 2009, we have continued to strive to improve our recruiting
and retention efforts including centralizing at our corporate office many of the recruiting
functions and efforts that have in the past been performed by vendors on a contract basis.
The quality of healthcare services provided at our hospitals (and the perceived quality of
such services) is an increasingly important factor to patients when deciding where to seek care
and to physicians when deciding where to practice. Because in virtually every case the core measure
scores ascribed to our hospitals are determined based on the practice behaviors of the physicians
on our medical staffs, we have implemented new strategies to work with medical staff members to
improve scores at all of our hospitals, especially those that are below our average or below
managements expectation.
In many of our markets, a significant portion of patients who require the services available
at acute care hospitals leave our markets to receive such care. We believe this fact presents an
opportunity for growth, and we are working with the hospitals in communities where this phenomenon
exists to implement new strategies or enhance existing strategies.
Additionally, we believe that growth can also be achieved as we add new service lines in our
existing markets, invest in new technologies desired by physicians and patients, and demonstrate
the quality of the care provided in our facilities. For the past two years, we have undertaken
redesigned operating reviews of our hospitals to pinpoint new service lines or technologies that
could reduce the outmigration of patients leaving our markets to receive health care services.
Where needed service lines have been identified, we have focused on recruiting the physicians
necessary to correctly operate such service lines. For example, our hospitals have responded to
physician interest in requests for hospitalists by introducing or strengthening hospitalist
programs where appropriate. Our hospitals have taken other steps, such as structured efforts to
solicit input from medical staff members and to promptly respond to legitimate unmet physicians
needs, to limit or offset the impact of outmigration and to grow.
While responsibly managing our operating expenses, we have also made significant, targeted
investments at our hospitals to add new technologies, modernize facilities and expand the services
available. These investments should assist in our efforts to attract and retain physicians, to
offset outmigration of patients and to make our hospitals more desirable to our employees and
potential patients.
25
We also continue to strive to improve our operating performance by improving on our revenue
cycle processes, making an even higher level of purchases through our group purchasing
organization, operating more efficiently and effectively, and working to appropriately standardize
our policies, procedures and practices across all of our affiliated hospitals. We also believe that
our position as the sole acute care hospital in virtually all of our communities has allowed us,
and will continue to allow us, in many cases to negotiate preferred reimbursement rates with
commercial insurance payors.
Additional Growth
The acquisition of Rockdale is consistent with our stated goal of seeking to acquire one to
three complimentary hospitals a year. Our intention is to acquire well-positioned hospitals in
growing areas of the United States that we believe are fairly priced and that could benefit from
our management and strategic initiatives. We believe that this growth by strategic acquisition can
supplement the growth we believe we can generate organically in our existing markets.
Rockdales revenues for the period from February 1, 2009 to June 30, 2009 were $53.8 million.
We believe that, through group purchasing efforts and the implementation of other initiatives,
Rockdales operating performance will improve during the remainder of 2009 and subsequent years.
Revenue Sources
Our hospitals generate revenues by providing healthcare services to our patients. Depending
upon the patients medical insurance coverage, we are paid for these services by governmental
Medicare and Medicaid programs, commercial insurance, including managed care organizations, and
directly by the patient. The amounts we are paid for providing healthcare services to our patients
vary depending upon the payor. Governmental payors generally pay significantly less than the
hospitals customary charges for the services provided.
Revenues from governmental payors, such as Medicare and Medicaid, are controlled by complex
rules and regulations that stipulate the amount a hospital is paid for providing healthcare
services. Our compliance with these rules and regulations requires an extensive effort to ensure we
remain eligible to participate in these governmental programs. In addition, these rules and
regulations are subject to frequent changes as a result of legislative and administrative action on
both the federal and the state levels. For these reasons, revenues from governmental programs
change frequently and require us to monitor regularly the environment in which these governmental
programs operate.
Revenues from HMOs, PPOs and other private insurers are subject to contracts and other
arrangements that require us to discount the amounts we customarily charge for healthcare services.
These discounted arrangements often limit our ability to increase charges in response to increasing
costs. We actively negotiate with these payors in an effort to maintain or increase the pricing of
our healthcare services. Insured patients are generally not responsible for any difference between
customary hospital charges and the amounts received from commercial insurance payors. However,
insured patients are responsible for payments not covered by insurance, such as exclusions,
deductibles and co-payments.
Self-pay revenues are primarily generated through the treatment of uninsured patients. Our
hospitals have experienced an increase in self-pay revenues during recent years as a result of a combination of broad economic factors, including reductions in state Medicaid budgets, increasing numbers of individuals and employers who choose not to purchase insurance and an increased amount of copayments and deductibles to be made by
patients instead of insurers.
Other Events
On February 25, 2009, the Company entered into an Amended and Restated Rights Agreement by and
between us and American Stock Transfer & Trust Company, LLC as Rights Agent (the Amended Rights
Agreement). The Amended Rights Agreement extended the term of our Shareholder Rights Plan to
February 25, 2019, adjusted the exercise price of the preferred stock purchase rights associated
with our common stock (the Rights) and amended the definition of Beneficial Owner and
Beneficially Own to clarify that a person will be deemed to beneficially own any securities that
are the subject of specified derivative transactions.
26
Pursuant to the Amended Rights Agreement, each of the Rights, which were previously
distributed to our common stockholders, entitles the holder, if and when the Rights become
exercisable, to buy one one-thousandth of a share of our Series A Junior Participating Preferred
Stock for $125.00. Initially, the Rights will be represented by our Common Stock certificates and
will not be exercisable.
The Amended Rights Agreement is designed to deter coercive takeover tactics and to prevent an
acquiror from gaining control of the Company without offering a fair price to all of our
stockholders. The Rights will not prevent a takeover, but are designed to encourage anyone seeking
to acquire us to negotiate with our Board of Directors prior to attempting a takeover.
If any person or group becomes the beneficial owner of 15% or more of our common stock (which,
as provided in the Amended Rights Agreement, includes stock referenced in derivative transactions
and securities), then each Right not owned by such holder will entitle its holder to purchase, at
the Rights then-current exercise price, common shares having a market value of twice the Rights
then-current exercise price. In addition, if, after any person has become a 15% or more
stockholder, we are involved in a merger or other business combination transaction with another
person, each Right will entitle its holder (other than such 15% or more stockholder) to purchase,
at the Rights then-current exercise price, common shares of the acquiring company having a value
of twice the Rights then-current exercise price.
Results of Operations
The following definitions apply throughout the remaining portion of Managements Discussion
and Analysis of Financial Condition and Results of Operations:
Acquisition. Represents the results of Rockdale, which we acquired effective February 1, 2009.
Admissions. Represents the total number of patients admitted (in the facility for a period in
excess of 23 hours) to our hospitals and used by management and investors as a general measure of
inpatient volume.
bps. Basis point change.
Continuing operations. Continuing operations information includes the results of our Same-hospital
operations, our Acquisition and our corporate office and excludes the results of our hospitals that
are held for sale and disposed of.
ESOP. Employee stock ownership plan. The ESOP is a defined contribution retirement plan that
covers substantially all of our employees.
Effective tax rate. Provision for income taxes as a percentage of income from continuing operations
before income taxes less net income attributable to noncontrolling interests.
Emergency room visits. Represents the total number of hospital-based emergency room visits.
Equivalent admissions. Management and investors use equivalent admissions as a general measure of
combined inpatient and outpatient volume. We compute equivalent admissions by multiplying
admissions (inpatient volume) by the outpatient factor (the sum of gross inpatient revenue and
gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue). The
equivalent admissions computation equates outpatient revenue to the volume measure (admissions)
used to measure inpatient volume resulting in a general measure of combined inpatient and
outpatient volume.
Net revenue days outstanding. We compute net revenue days outstanding by dividing our accounts
receivable net of allowance for doubtful accounts, by our revenue per day. Our revenue per day is
calculated by dividing our quarterly revenues, including revenues for held for sale / disposed of
hospitals, by the number of calendar days in the quarter.
Medicare case mix index. Refers to the acuity or severity of illness of an average Medicare patient
at our hospitals.
N/A. Not applicable.
Outpatient surgeries. Outpatient surgeries are those surgeries that do not require admission to our
hospitals.
Same-hospital. Same-hospital information includes the results of the same 46 hospitals operated
during the three and six months ended June 30, 2009 and 2008, and excludes the results of our
Acquisition and our hospitals that are held for sale and disposed of.
27
Operating Results Summary
The following table presents summaries of results of operations for the three and six months
ended June 30, 2009 and 2008 (dollars in millions):
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2009 |
|
|
2008 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Revenues |
|
|
Amount |
|
|
Revenues |
|
|
Amount |
|
|
Revenues |
|
|
Amount |
|
|
Revenues |
|
Revenues |
|
$ |
735.3 |
|
|
|
100.0 |
% |
|
$ |
665.7 |
|
|
|
100.0 |
% |
|
$ |
1,470.8 |
|
|
|
100.0 |
% |
|
$ |
1,350.8 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
292.7 |
|
|
|
39.8 |
|
|
|
263.9 |
|
|
|
39.7 |
|
|
|
579.2 |
|
|
|
39.4 |
|
|
|
531.9 |
|
|
|
39.4 |
|
Supplies |
|
|
102.3 |
|
|
|
13.9 |
|
|
|
93.0 |
|
|
|
14.0 |
|
|
|
201.9 |
|
|
|
13.7 |
|
|
|
186.3 |
|
|
|
13.8 |
|
Other operating expenses |
|
|
138.6 |
|
|
|
18.9 |
|
|
|
122.9 |
|
|
|
18.3 |
|
|
|
271.3 |
|
|
|
18.4 |
|
|
|
243.9 |
|
|
|
18.1 |
|
Provision for doubtful
accounts |
|
|
92.2 |
|
|
|
12.5 |
|
|
|
74.9 |
|
|
|
11.3 |
|
|
|
182.4 |
|
|
|
12.4 |
|
|
|
155.8 |
|
|
|
11.5 |
|
Depreciation and amortization |
|
|
35.9 |
|
|
|
4.9 |
|
|
|
33.5 |
|
|
|
5.1 |
|
|
|
71.0 |
|
|
|
4.9 |
|
|
|
65.6 |
|
|
|
4.8 |
|
Interest expense, net |
|
|
25.9 |
|
|
|
3.5 |
|
|
|
26.8 |
|
|
|
4.0 |
|
|
|
51.7 |
|
|
|
3.5 |
|
|
|
53.7 |
|
|
|
4.0 |
|
Impairment loss |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687.6 |
|
|
|
93.5 |
|
|
|
615.3 |
|
|
|
92.4 |
|
|
|
1,357.5 |
|
|
|
92.3 |
|
|
|
1,237.5 |
|
|
|
91.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income
taxes |
|
|
47.7 |
|
|
|
6.5 |
|
|
|
50.4 |
|
|
|
7.6 |
|
|
|
113.3 |
|
|
|
7.7 |
|
|
|
113.3 |
|
|
|
8.4 |
|
Provision for income taxes |
|
|
18.2 |
|
|
|
2.5 |
|
|
|
20.3 |
|
|
|
3.1 |
|
|
|
43.7 |
|
|
|
3.0 |
|
|
|
44.5 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
29.5 |
|
|
|
4.0 |
|
|
|
30.1 |
|
|
|
4.5 |
|
|
|
69.6 |
|
|
|
4.7 |
|
|
|
68.8 |
|
|
|
5.1 |
|
Less: Net income
attributable to
noncontrolling
interests |
|
|
(0.5 |
) |
|
|
|
|
|
|
(0.6 |
) |
|
|
(0.1 |
) |
|
|
(1.1 |
) |
|
|
(0.1 |
) |
|
|
(1.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations attributable to
LifePoint Hospitals, Inc. |
|
$ |
29.0 |
|
|
|
4.0 |
% |
|
$ |
29.5 |
|
|
|
4.4 |
% |
|
$ |
68.5 |
|
|
|
4.6 |
% |
|
$ |
67.7 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
For the Three Months Ended June 30, 2009 and 2008
Revenues
The following table shows our revenues and the key drivers of our revenues for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
Increase |
|
% Increase |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
(Decrease) |
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (dollars in millions) |
|
$ |
735.3 |
|
|
$ |
665.7 |
|
|
$ |
69.6 |
|
|
|
10.4 |
% |
Admissions |
|
|
45,714 |
|
|
|
45,945 |
|
|
|
(231 |
) |
|
|
(0.5 |
) |
Equivalent admissions |
|
|
97,405 |
|
|
|
93,063 |
|
|
|
4,342 |
|
|
|
4.7 |
|
Revenues per equivalent admission |
|
$ |
7,549 |
|
|
$ |
7,154 |
|
|
$ |
395 |
|
|
|
5.5 |
|
Medicare case mix index |
|
|
1.27 |
|
|
|
1.27 |
|
|
|
|
|
|
|
|
|
Average length of stay (days) |
|
|
4.3 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
Inpatient surgeries |
|
|
13,391 |
|
|
|
13,559 |
|
|
|
(168 |
) |
|
|
(1.2 |
) |
Outpatient surgeries |
|
|
38,732 |
|
|
|
36,786 |
|
|
|
1,946 |
|
|
|
5.3 |
|
Emergency room visits |
|
|
233,556 |
|
|
|
215,791 |
|
|
|
17,765 |
|
|
|
8.2 |
|
Outpatient factor |
|
|
2.13 |
|
|
|
2.02 |
|
|
|
0.11 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (dollars in millions) |
|
$ |
702.6 |
|
|
$ |
665.7 |
|
|
$ |
36.9 |
|
|
|
5.5 |
% |
Admissions |
|
|
43,501 |
|
|
|
45,945 |
|
|
|
(2,444 |
) |
|
|
(5.3 |
) |
Equivalent admissions |
|
|
92,965 |
|
|
|
93,063 |
|
|
|
(98 |
) |
|
|
(0.1 |
) |
Revenues per equivalent admission |
|
$ |
7,557 |
|
|
$ |
7,154 |
|
|
$ |
403 |
|
|
|
5.6 |
|
Medicare case mix index |
|
|
1.30 |
|
|
|
1.27 |
|
|
|
0.03 |
|
|
|
2.4 |
|
Average length of stay (days) |
|
|
4.3 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
Inpatient surgeries |
|
|
12,723 |
|
|
|
13,559 |
|
|
|
(836 |
) |
|
|
(6.2 |
) |
Outpatient surgeries |
|
|
36,740 |
|
|
|
36,786 |
|
|
|
(46 |
) |
|
|
(0.1 |
) |
Emergency room visits |
|
|
222,816 |
|
|
|
215,791 |
|
|
|
7,025 |
|
|
|
3.3 |
|
Outpatient factor |
|
|
2.14 |
|
|
|
2.02 |
|
|
|
0.12 |
|
|
|
5.9 |
|
The following table shows the sources of our revenues by payor for the periods presented,
expressed as a percentage of total revenues, including adjustments to estimated reimbursement
amounts:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended |
|
|
June 30, |
|
|
2009 |
|
2008 |
Medicare |
|
|
29.7 |
% |
|
|
31.2 |
% |
Medicaid |
|
|
10.1 |
|
|
|
9.4 |
|
HMOs, PPOs and other private insurers |
|
|
44.4 |
|
|
|
44.6 |
|
Self-Pay |
|
|
13.2 |
|
|
|
12.0 |
|
Other |
|
|
2.6 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Revenues for the three months ended June 30, 2009 were $735.3 million, an increase of $69.6
million, or 10.4% over the same period last year. Of this increase, $32.7 million, or 47.0%, was
attributable to our Acquisition. Our revenues per equivalent admission on a same-hospital basis increased 5.6% to $7,557 during the
three months ended June 30, 2009, as compared to $7,154 for the same period last year. This
increase is largely a result of changes in the acuity of our patients; service mix changes related
to volume growth in higher reimbursement outpatient diagnostic services, including CTs, MRIs and
cardiac catheterization; the impact of favorable commercial pricing, inclusive of improvements in
third party payor contracting; and benefits associated with Medicares hospital market basket
updates. Additionally, during the three months ended June 30, 2009, we recognized approximately
$5.0 million in revenues related to the favorable settlement of a Kentucky Medicaid rate appeal
that covered the period July 1, 2004 through June 30, 2009. We recognized approximately $0.5 million in legal
fees associated with the Kentucky Medicaid rate appeal.
29
On a same-hospital basis, we continued to experience declines in our inpatient surgeries as
well as a shift from inpatient admissions to outpatient observations for a portion of our patient
population. Same-hospital equivalent admission declines were partially offset by an increased
outpatient factor of 2.14 compared to 2.02 in the same period last year.
Expenses
Salaries and Benefits
The following table summarizes our salaries and benefits, man-hours per equivalent admission
and salaries and benefits per equivalent admission for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2009 |
|
Revenues |
|
2008 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Salaries and benefits (dollars in millions) |
|
$ |
292.7 |
|
|
|
39.8 |
% |
|
$ |
263.9 |
|
|
|
39.7 |
% |
|
$ |
28.8 |
|
|
|
10.8 |
% |
Man-hours per equivalent admission |
|
|
93.1 |
|
|
|
N/A |
|
|
|
93.6 |
|
|
|
N/A |
|
|
|
(0.5 |
) |
|
|
(0.5 |
)% |
Salaries and benefits per equivalent admission |
|
$ |
3,019 |
|
|
|
N/A |
|
|
$ |
2,843 |
|
|
|
N/A |
|
|
$ |
176 |
|
|
|
6.2 |
% |
For the three months ended June 30, 2009, our salaries and benefits expense increased to
$292.7 million, or 10.8%, as compared to $263.9 million for the same period last year. Of this
increase, $14.3 million, or 49.9%, was attributable to our Acquisition. Additionally, our salaries
and benefits expense increased for the three months ended June 30, 2009 as compared to the same
period last year as a result of annual compensation increases for our employees, higher benefit
expenses plus the impact of an increasing number of employed physicians. Our benefit expenses have
increased as a result of higher employee medical benefit costs as well as an increase in our retirement
plan expenses. The increase in our retirement plan expenses were the result of an absence of available
ESOP share forfeitures, which served to reduce our cash contributions to our defined contribution retirement plan during the same period last year. Increases in our salaries and benefits
expense were partially offset by improvements in our contract labor expense, which is a component of
salaries and benefits. As we continue to employ an increasing number of medical professionals
including physicians, we anticipate that salaries and benefits as a percentage of revenues will
increase in future periods.
Supplies
The following table summarizes our supplies and supplies per equivalent admission for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2009 |
|
Revenues |
|
2008 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Supplies (dollars in millions) |
|
$ |
102.3 |
|
|
|
13.9 |
% |
|
$ |
93.0 |
|
|
|
14.0 |
% |
|
$ |
9.3 |
|
|
|
10.0 |
% |
Supplies per equivalent admission |
|
$ |
1,048 |
|
|
|
N/A |
|
|
$ |
997 |
|
|
|
N/A |
|
|
$ |
51 |
|
|
|
5.1 |
% |
For the three months ended June 30, 2009, our supplies expense increased to $102.3 million, or
10.0%, as compared to $93.0 million for the same period last year. Of this increase, $5.3 million,
or 57.5%, was attributable to our Acquisition. Additionally, our supplies per equivalent admission
increased 5.1% to $1,048 as compared to $997 for the same period last year. Supplies per equivalent
admission increased as a result of a higher utilization of more expensive supplies in areas such as
orthopedics, cardiac devices and spine and bone as well as an increase in our pharmacy supplies
expense. As a percentage of revenues, our supplies expense decreased slightly to 13.9% for the
three months ended June 30, 2009 as compared to 14.0% for the same period last year, as a result of
our continuing efforts to effectively manage our supply costs and increased synergies based on our
participation in a group purchasing organization.
30
Other Operating Expenses
The following table summarizes our other operating expenses for the periods presented (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2009 |
|
|
Revenues |
|
|
2008 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Professional fees |
|
$ |
18.6 |
|
|
|
2.5 |
% |
|
$ |
15.5 |
|
|
|
2.3 |
% |
|
$ |
3.1 |
|
|
|
20.3 |
% |
Utilities |
|
|
12.3 |
|
|
|
1.7 |
|
|
|
12.4 |
|
|
|
1.9 |
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
Repairs and maintenance |
|
|
16.9 |
|
|
|
2.3 |
|
|
|
13.8 |
|
|
|
2.1 |
|
|
|
3.1 |
|
|
|
21.5 |
|
Rents and leases |
|
|
6.9 |
|
|
|
1.0 |
|
|
|
6.6 |
|
|
|
1.0 |
|
|
|
0.3 |
|
|
|
5.1 |
|
Insurance |
|
|
13.3 |
|
|
|
1.8 |
|
|
|
11.4 |
|
|
|
1.7 |
|
|
|
1.9 |
|
|
|
16.2 |
|
Physician recruiting |
|
|
5.2 |
|
|
|
0.7 |
|
|
|
5.6 |
|
|
|
0.8 |
|
|
|
(0.4 |
) |
|
|
(6.9 |
) |
Contract services |
|
|
37.0 |
|
|
|
5.0 |
|
|
|
33.6 |
|
|
|
5.0 |
|
|
|
3.4 |
|
|
|
10.1 |
|
Non-income taxes |
|
|
10.1 |
|
|
|
1.4 |
|
|
|
8.8 |
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
14.9 |
|
Other |
|
|
18.3 |
|
|
|
2.5 |
|
|
|
15.2 |
|
|
|
2.2 |
|
|
|
3.1 |
|
|
|
20.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
138.6 |
|
|
|
18.9 |
% |
|
$ |
122.9 |
|
|
|
18.3 |
% |
|
$ |
15.7 |
|
|
|
12.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2009, our other operating expenses increased to $138.6
million, or 12.8%, as compared to $122.9 million for the same period last year. Of this increase,
$4.5 million, or 28.8%, was attributable to our Acquisition. Of the remaining $11.2 million
increase in other operating expenses, the majority was primarily the result of increases in
professional fees, repairs and maintenance, insurance, contract services and other expenses.
As a shortage of physicians continues to become more acute, we have experienced increasing
professional fees in areas such as radiology, anesthesiology, emergency room physician coverage and
hospitalists. We expect this trend to continue and that professional fees as a percentage of
revenues will increase in future periods.
Our repairs and maintenance expense increased primarily as a result of an increase in new
diagnostic equipment covered under maintenance contracts, the higher cost of maintaining equipment
as warranties expire and a number of repair projects at many of our hospitals.
The increase in our insurance expense during the three months ended June 30, 2009, as compared
to the same period last year, was the result of an increase in our reserves for professional and general liability
claims. Specifically, we have increased our estimated
exposure on certain potential and outstanding claims covered under our professional and general liability
insurance program as well as claims covered under our captive insurance company.
Our contract services expense increased primarily as a result of our Acquisition.
Additionally, other expenses increased as a result of an increase in our charitable program
expenses as well as an increase in legal fees. We recognized approximately $0.5 million in
legal fees associated with the previously discussed favorable settlement of a Kentucky Medicaid
rate appeal.
Provision for Doubtful Accounts
The following table summarizes our provision for doubtful accounts and related key indicators
for the periods presented (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2009 |
|
Revenues |
|
2008 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Provision for doubtful accounts |
|
$ |
92.2 |
|
|
|
12.5 |
% |
|
$ |
74.9 |
|
|
|
11.3 |
% |
|
$ |
17.3 |
|
|
|
22.9 |
% |
Related key indicators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charity care write-offs |
|
$ |
16.1 |
|
|
|
0.9 |
% |
|
$ |
13.1 |
|
|
|
0.8 |
% |
|
$ |
3.0 |
|
|
|
22.9 |
% |
Self-pay revenues, net of charity care
write-offs and uninsured discounts |
|
$ |
96.8 |
|
|
|
13.2 |
% |
|
$ |
79.7 |
|
|
|
12.0 |
% |
|
$ |
17.1 |
|
|
|
21.4 |
% |
Net revenue days outstanding (at end of period) |
|
|
41.8 |
|
|
|
N/A |
|
|
|
41.4 |
|
|
|
N/A |
|
|
|
0.4 |
|
|
|
1.0 |
% |
31
Our provision for doubtful accounts increased by $17.3 million, or 22.9%, to $92.2 million for
the three months ended June 30, 2009, as compared to the same period last year. This increase was
primarily the result of an increase in our self-pay revenues. This increase was partially offset by
an increase in both up-front cash collections and cash collections related to our insured
receivables for the three months ended June 30, 2009, as compared to the same period last year. The
provision for doubtful accounts relates principally to self-pay amounts due from patients. The
provision and allowance for doubtful accounts are critical accounting estimates and are further
discussed in Part II, Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Critical Accounting Estimates, in our 2008 Annual Report on Form 10-K.
Depreciation and Amortization
For the three months ended June 30, 2009, our depreciation and amortization expense increased
to $35.9 million, or 7.5%, as compared to $33.5 million for the same period last year. Of this
increase, $1.4 million, or 56.9%, was attributable to our Acquisition. Additionally, our
depreciation and amortization expense increased as a result of capital improvement projects
completed during 2008 and the first half of 2009, normal replacement costs of facilities and
equipment, and the amortization of separately identifiable intangible assets such as non-compete
agreements.
Interest Expense
Our interest expense decreased by $0.9 million, or 3.2%, to $25.9 million, for the three months ended June
30, 2009, as compared to $26.8 million for the same period
last year. The decrease in interest expense for the three months ended June 30, 2009, as compared
to the same period last year was largely attributable to declines in interest rates that favorably
impacted our interest expense on our Term B loans. Specifically, as the notional amount of our
interest rate swap declined to $600.0 million on November 28, 2008, a larger amount of our total
outstanding debt became subject to floating interest rates that were lower than in the same period
last year. As a result of a recently issued accounting pronouncement, FSP APB 14-1, we recognized
additional interest expense on our convertible debt instruments of approximately $5.2 million and
$4.8 million for the three months ended June 30, 2009 and 2008, respectively. For a further
discussion of the impact of our adoption of FSP APB 14-1, please refer to Note 2 to our
accompanying condensed consolidated financial statements included elsewhere in this report. For a
further discussion of our debt and corresponding interest rates, see Liquidity and Capital
Resources Debt.
Provision for Income Taxes
The provision for income taxes was $18.2 million, or 2.5% of revenues for the three months
ended June 30, 2009, as compared to $20.3 million, or 3.1% of revenues for the same period last
year. Our effective tax rate decreased to 38.5% for the three months ended June 30, 2009 compared
to 40.8% for the same period last year. The decrease in our effective tax rate to 38.5% for the
three months ended June 30, 2009 was largely due to the absence of a sizable non-deductible portion
of non-cash ESOP expense for 2009 as compared to 2008. Additionally, our effective tax rate decreased as a result of a lower
projected state tax provision and reduced projected deferred tax
valuation allowances.
32
For the Six Months Ended June 30, 2009 and 2008
Revenues
The following table shows our revenues and the key drivers of our revenues for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
Increase |
|
% Increase |
|
|
2009 |
|
2008 |
|
(Decrease) |
|
(Decrease) |
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (dollars in millions) |
|
$ |
1,470.8 |
|
|
$ |
1,350.8 |
|
|
$ |
120.0 |
|
|
|
8.9 |
% |
Admissions |
|
|
95,233 |
|
|
|
97,059 |
|
|
|
(1,826 |
) |
|
|
(1.9 |
) |
Equivalent admissions |
|
|
195,799 |
|
|
|
190,333 |
|
|
|
5,466 |
|
|
|
2.9 |
|
Revenues per equivalent admission |
|
$ |
7,512 |
|
|
$ |
7,097 |
|
|
$ |
415 |
|
|
|
5.8 |
|
Medicare case mix index |
|
|
1.28 |
|
|
|
1.27 |
|
|
|
0.01 |
|
|
|
0.8 |
|
Average length of stay (days) |
|
|
4.3 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
Inpatient surgeries |
|
|
27,209 |
|
|
|
27,466 |
|
|
|
(257 |
) |
|
|
(0.9 |
) |
Outpatient surgeries |
|
|
75,291 |
|
|
|
72,056 |
|
|
|
3,235 |
|
|
|
4.5 |
|
Emergency room visits |
|
|
460,244 |
|
|
|
443,851 |
|
|
|
16,393 |
|
|
|
3.7 |
|
Outpatient factor |
|
|
2.06 |
|
|
|
1.96 |
|
|
|
0.10 |
|
|
|
5.1 |
|
|
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (dollars in millions) |
|
$ |
1,417.0 |
|
|
$ |
1,350.8 |
|
|
$ |
66.2 |
|
|
|
4.9 |
% |
Admissions |
|
|
91,536 |
|
|
|
97,059 |
|
|
|
(5,523 |
) |
|
|
(5.7 |
) |
Equivalent admissions |
|
|
188,747 |
|
|
|
190,333 |
|
|
|
(1,586 |
) |
|
|
(0.8 |
) |
Revenues per equivalent admission |
|
$ |
7,507 |
|
|
$ |
7,097 |
|
|
$ |
410 |
|
|
|
5.8 |
|
Medicare case mix index |
|
|
1.29 |
|
|
|
1.27 |
|
|
|
0.02 |
|
|
|
1.6 |
|
Average length of stay (days) |
|
|
4.3 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
Inpatient surgeries |
|
|
26,082 |
|
|
|
27,466 |
|
|
|
(1,384 |
) |
|
|
(5.0 |
) |
Outpatient surgeries |
|
|
71,973 |
|
|
|
72,056 |
|
|
|
(83 |
) |
|
|
(0.1 |
) |
Emergency room visits |
|
|
442,872 |
|
|
|
443,851 |
|
|
|
(979 |
) |
|
|
(0.2 |
) |
Outpatient factor |
|
|
2.06 |
|
|
|
1.96 |
|
|
|
0.10 |
|
|
|
5.1 |
|
The following table shows the sources of our revenues by payor for the periods presented,
expressed as a percentage of total revenues, including adjustments to estimated reimbursement
amounts:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Ended |
|
|
June 30, |
|
|
2009 |
|
2008 |
Medicare |
|
|
30.3 |
% |
|
|
32.0 |
% |
Medicaid |
|
|
10.2 |
|
|
|
9.6 |
|
HMOs, PPOs and other private insurers |
|
|
44.1 |
|
|
|
43.9 |
|
Self-Pay |
|
|
12.9 |
|
|
|
11.6 |
|
Other |
|
|
2.5 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Revenues for the six months ended June 30, 2009 were $1,470.8 million, an increase of $120.0
million, or 8.9%, over the same period last year. Of this increase, $53.8 million, or 44.8%, was
attributable to our Acquisition. Our revenues per equivalent admission on a same-hospital basis increased 5.8% to $7,507 during the
six months ended June 30, 2009, as compared to $7,097 for the same period last year. This increase
is largely a result of changes in the acuity of our patients; service mix changes related to volume
growth in higher reimbursement outpatient diagnostic services, including CTs, MRIs and cardiac
catheterization; the impact of favorable commercial pricing, inclusive of improvements in third
party payor contracting; and benefits associated with Medicares hospital market basket updates.
Additionally, during the six months ended June 30, 2009, we
recognized approximately $5.0 million
in revenues related to the favorable settlement of a Kentucky Medicaid rate appeal that covered the
period July 1, 2004 through June 30, 2009. We recognized approximately $0.5 million in
legal fees associated with the Kentucky Medicaid rate appeal.
33
On
a same-hospital basis, we experienced declines in our inpatient surgeries and
emergency room visits as well as a shift from inpatient admissions to outpatient observations for a
portion of our patient population.
Expenses
Salaries and Benefits
The following table summarizes our salaries and benefits, man-hours per equivalent admission
and salaries and benefits per equivalent admission for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2009 |
|
Revenues |
|
2008 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Salaries and benefits (dollars in millions) |
|
$ |
579.2 |
|
|
|
39.4 |
% |
|
$ |
531.9 |
|
|
|
39.4 |
% |
|
$ |
47.3 |
|
|
|
8.8 |
% |
Man-hours per equivalent admission |
|
|
91.8 |
|
|
|
N/A |
|
|
|
91.9 |
|
|
|
N/A |
|
|
|
(0.1 |
) |
|
|
(0.1 |
)% |
Salaries and benefits per equivalent admission |
|
$ |
2,954 |
|
|
|
N/A |
|
|
$ |
2,788 |
|
|
|
N/A |
|
|
$ |
166 |
|
|
|
6.0 |
% |
For the six months ended June 30, 2009, our salaries and benefits expense increased to $579.2
million, or 8.8%, as compared to $531.9 million for the same period last year. Of this increase,
$23.4 million, or 49.8%, was attributable to our Acquisition. Additionally, our salaries and
benefits expense increased for the six months ended June 30, 2009 as compared to the same period
last year as a result of annual compensation increases for our employees, higher benefit expenses
plus the impact of an increasing number of employed physicians. Our benefit expenses have increased
as a result of higher employee medical benefit costs as well as an
increase in our retirement plan expenses. The increase in our
retirement plan expenses were the result of an
absence of available ESOP share forfeitures, which served to reduce our cash contributions to our defined contribution retirement plan during the same period last year. Increases in our salaries and benefits expense were
partially offset by improvements in our contract labor expense, which is a component of salaries and
benefits. As we continue to employ an increasing number of medical professionals including
physicians, we anticipate that salaries and benefits as a percentage of revenues will increase in
future periods.
Supplies
The following table summarizes our supplies and supplies per equivalent admission for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2009 |
|
Revenues |
|
2008 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Supplies (dollars in millions) |
|
$ |
201.9 |
|
|
|
13.7 |
% |
|
$ |
186.3 |
|
|
|
13.8 |
% |
|
$ |
15.6 |
|
|
|
8.4 |
% |
Supplies per equivalent admission |
|
$ |
1,028 |
|
|
|
N/A |
|
|
$ |
977 |
|
|
|
N/A |
|
|
$ |
51 |
|
|
|
5.2 |
% |
For the six months ended June 30, 2009, our supplies expense increased to $201.9 million, or
8.4%, as compared to $186.3 million for the same period last year. Of this increase, $8.7 million,
or 55.5%, was attributable to our Acquisition. Additionally, our supplies per equivalent admission
increased 5.2% to $1,028, as compared to $997 for the same period last year. Supplies per
equivalent admission increased as a result of a higher utilization of more expensive supplies in
areas such as orthopedics, cardiac devices and spine and bone. These increases were partially
offset by a period over period decline in our laboratory supply expenses. As a percentage of
revenues, our supplies expense decreased slightly to 13.7% for the six months ended June 30, 2009
as compared to 13.8% for the same period last year, as a result of our continuing efforts to
effectively manage our supply costs and increased synergies based on our participation in a group
purchasing organization.
34
Other Operating Expenses
The following table summarizes our other operating expenses for the periods presented (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2009 |
|
|
Revenues |
|
|
2008 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Professional fees |
|
$ |
35.2 |
|
|
|
2.4 |
% |
|
$ |
31.2 |
|
|
|
2.3 |
% |
|
$ |
4.0 |
|
|
|
12.9 |
% |
Utilities |
|
|
25.1 |
|
|
|
1.7 |
|
|
|
24.4 |
|
|
|
1.8 |
|
|
|
0.7 |
|
|
|
2.9 |
|
Repairs and maintenance |
|
|
32.5 |
|
|
|
2.2 |
|
|
|
27.5 |
|
|
|
2.0 |
|
|
|
5.0 |
|
|
|
17.9 |
|
Rents and leases |
|
|
14.2 |
|
|
|
1.0 |
|
|
|
12.8 |
|
|
|
0.9 |
|
|
|
1.4 |
|
|
|
11.3 |
|
Insurance |
|
|
25.4 |
|
|
|
1.7 |
|
|
|
21.2 |
|
|
|
1.6 |
|
|
|
4.2 |
|
|
|
19.8 |
|
Physician recruiting |
|
|
11.5 |
|
|
|
0.8 |
|
|
|
10.1 |
|
|
|
0.7 |
|
|
|
1.4 |
|
|
|
14.3 |
|
Contract services |
|
|
72.5 |
|
|
|
4.9 |
|
|
|
67.5 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
7.4 |
|
Non-income taxes |
|
|
20.5 |
|
|
|
1.4 |
|
|
|
18.7 |
|
|
|
1.4 |
|
|
|
1.8 |
|
|
|
9.5 |
|
Other |
|
|
34.4 |
|
|
|
2.3 |
|
|
|
30.5 |
|
|
|
2.4 |
|
|
|
3.9 |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
271.3 |
|
|
|
18.4 |
% |
|
$ |
243.9 |
|
|
|
18.1 |
% |
|
$ |
27.4 |
|
|
|
11.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2009, our other operating expenses increased to $271.3
million, or 11.3%, as compared to $243.9 million for the same period last year. Of this increase,
$7.6 million, or 27.7%, was attributable to our Acquisition. Of the remaining $19.8 million
increase in other operating expenses, the majority was primarily the result of increases in
professional fees, repairs and maintenance, insurance, contract services and other expenses.
As a shortage of physicians continues to become more acute, we have experienced increasing
professional fees in areas such as radiology, anesthesiology, emergency room physician coverage and
hospitalists. We expect this trend to continue and that professional fees as a percentage of
revenues will increase in future periods.
Our repairs and maintenance expense increased primarily as a result of an increase in new
diagnostic equipment covered under maintenance contracts, the higher cost of maintaining equipment
as warranties expire and a number of repair projects at many of our hospitals.
The increase in our insurance expense during the six months ended June 30, 2009, as compared
to the same period last year, was the result of an increase in our
reserves for professional and general liability
claims. Specifically, we have increased our estimated
exposure on certain potential and outstanding claims covered under our
professional and general liability insurance program as well as claims covered under our captive insurance company.
Our contract services expense increased primarily as a result of our Acquisition.
Additionally, other expenses increased as a result of an increase in our charitable program
expenses as well as an increase in legal fees. We recognized approximately $0.5 million in
legal fees associated with the previously discussed favorable settlement of a Kentucky Medicaid
rate appeal.
Provision for Doubtful Accounts
The following table summarizes our provision for doubtful accounts and related key indicators
for the periods presented (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
Increase |
|
% Increase |
|
|
2009 |
|
Revenues |
|
2008 |
|
Revenues |
|
(Decrease) |
|
(Decrease) |
Provision for doubtful accounts |
|
$ |
182.4 |
|
|
|
12.4 |
% |
|
$ |
155.8 |
|
|
|
11.5 |
% |
|
$ |
26.6 |
|
|
|
17.0 |
% |
Related key indicators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charity care write-offs |
|
$ |
28.5 |
|
|
|
0.8 |
% |
|
$ |
26.6 |
|
|
|
0.8 |
% |
|
$ |
1.9 |
|
|
|
7.3 |
% |
Self-pay revenues, net of charity care
write-offs and uninsured discounts |
|
$ |
189.1 |
|
|
|
12.9 |
% |
|
$ |
157.3 |
|
|
|
11.6 |
% |
|
$ |
31.8 |
|
|
|
20.2 |
% |
Net revenue days outstanding (at end of period) |
|
|
41.8 |
|
|
|
N/A |
|
|
|
41.4 |
|
|
|
N/A |
|
|
|
0.4 |
|
|
|
1.0 |
% |
35
Our provision for doubtful accounts increased by $26.6 million, or 17.0%, to $182.4 million
for the six months ended June 30, 2009, as compared to the same period last year. This increase was
primarily the result of an increase in our self-pay revenues. This increase was partially offset by
an increase in both up-front cash collections and cash collections related to our insured
receivables for the six months ended June 30, 2009, as compared to the same period last year. The
provision for doubtful accounts relates principally to self-pay amounts due from patients. The
provision and allowance for doubtful accounts are critical accounting estimates and are further
discussed in Part II, Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Critical Accounting Estimates, in our 2008 Annual Report on Form 10-K.
Depreciation and Amortization
For the six months ended June 30, 2009, our depreciation and amortization expense increased to
$71.0 million, or 8.5%, as compared to $65.6 million for the same period last year. Of this increase,
$2.3 million, or 41.3%, was attributable to our Acquisition. Additionally, our depreciation and
amortization expense increased as a result of capital improvement projects completed during 2008,
normal replacement costs of facilities and equipment and the amortization of separately
identifiable intangible assets such as non-compete agreements.
Interest Expense
Our interest expense decreased by $2.0 million, or 3.8%, to $51.7 million for the six months ended June 30,
2009 as compared to $53.7 million for the same period last
year. The decrease in interest expense for the six months ended June 30, 2009, as compared to the
same period last year was largely attributable to declines in interest rates that favorably
impacted our interest expense on our Term B loans. Specifically, as the notional amount of our
interest rate swap declined to $600.0 million on November 28, 2008, a larger amount of our total
outstanding debt became subject to floating interest rates that were lower than in the same period
last year. As a result of a recently issued accounting pronouncement, FSP APB 14-1, we recognized
additional interest expense on our convertible debt instruments of approximately $10.3 million and
$9.6 million for the six months ended June 30, 2009 and 2008, respectively. For a further
discussion of the impact of our adoption of FSP APB 14-1, please refer to Note 2 to our
accompanying condensed consolidated financial statements included elsewhere in this report. For a
further discussion of our debt and corresponding interest rates, see Liquidity and Capital
Resources Debt.
Provision for Income Taxes
The provision for income taxes was $43.7 million, or 3.0% of revenues for the six months ended
June 30, 2009, as compared to $44.5 million, or 3.3% of revenues for the same period last year.
Our effective tax rate decreased to 38.9% for the six months ended June 30, 2009 compared to 39.7%
for the same period last year. The decrease in our effective tax rate to 38.9% for the six months
ended June 30, 2009 was largely due to the absence of a sizable non-deductible portion of non-cash
ESOP expense for 2009 as compared to 2008. Additionally, our effective tax rate decreased as a result of a lower projected state tax
provision and reduced projected deferred tax valuation allowances.
36
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity are cash flows provided by our operations and our debt
borrowings. We believe that our internally generated cash flows and the amounts available under our
debt agreements will be adequate to service existing debt, finance internal growth, expend funds on
capital expenditures and fund certain small to mid-size hospital acquisitions.
The following table presents summarized cash flow information for the three and six months
ended June 30, 2009 and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Net cash flows provided by continuing operations |
|
$ |
67.1 |
|
|
$ |
73.5 |
|
|
$ |
159.0 |
|
|
$ |
178.2 |
|
Less: Purchase of property and equipment |
|
|
(42.0 |
) |
|
|
(41.1 |
) |
|
|
(85.1 |
) |
|
|
(74.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free operating cash flow |
|
|
25.1 |
|
|
|
32.4 |
|
|
|
73.9 |
|
|
|
104.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(1.5 |
) |
|
|
(9.3 |
) |
|
|
(79.7 |
) |
|
|
(9.3 |
) |
Proceeds from borrowings |
|
|
|
|
|
|
10.4 |
|
|
|
|
|
|
|
10.4 |
|
Payments on borrowings |
|
|
(13.5 |
) |
|
|
|
|
|
|
(13.5 |
) |
|
|
|
|
Proceeds from exercise of stock options |
|
|
7.9 |
|
|
|
0.1 |
|
|
|
9.6 |
|
|
|
0.1 |
|
Repurchases of common stock |
|
|
(1.0 |
) |
|
|
(30.5 |
) |
|
|
(2.6 |
) |
|
|
(118.1 |
) |
Other |
|
|
1.5 |
|
|
|
(5.5 |
) |
|
|
1.1 |
|
|
|
(5.7 |
) |
Cash flows from operations used in discontinued operations |
|
|
(1.4 |
) |
|
|
(1.4 |
) |
|
|
(2.9 |
) |
|
|
(5.1 |
) |
Cash flows from investing activities provided by (used
in) discontinued operations |
|
|
10.4 |
|
|
|
(4.5 |
) |
|
|
10.4 |
|
|
|
(5.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
27.5 |
|
|
$ |
(8.3 |
) |
|
$ |
(3.7 |
) |
|
$ |
(28.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The non-GAAP metric of free operating cash flow is an important liquidity measure for us. Our
computation of free operating cash flow consists of net cash flows provided by continuing
operations less cash flows used for the purchase of property and equipment. Our cash flows provided
by continuing operating activities during the three and six months
ended June 30, 2009,
were negatively impacted by the timing of the collection of certain receivables as well as an
increase in cash payments made for income taxes as compared to the
three and six months ended June 30,
2008. These differences were partially offset by a decrease in our
interest payments for the three and six months ended June 30,
2009, as compared to the same periods last
year.
We believe that free operating cash flow is useful to investors and management as a measure of
the ability of our business to generate cash and to repay and incur additional debt. Computations
of free operating cash flow may differ from company to company. Therefore, free operating cash flow
should be used as a complement to, and in conjunction with, our condensed consolidated statements
of cash flows presented in our condensed consolidated financial statements included elsewhere in
this report.
Capital Expenditures
We have also made significant, targeted investments at our hospitals to add new technologies,
modernize facilities and expand the services available. These investments should assist in our
efforts to attract and retain physicians, to offset outmigration of patients and to make our
hospitals more desirable to our employees and potential patients.
37
The following table reflects our capital expenditures for the three and six months ended June
30, 2009 and 2008 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Capital projects |
|
$ |
29.0 |
|
|
$ |
30.1 |
|
|
$ |
58.3 |
|
|
$ |
50.6 |
|
Routine |
|
|
9.5 |
|
|
|
10.1 |
|
|
|
21.0 |
|
|
|
22.2 |
|
Information systems |
|
|
3.5 |
|
|
|
0.9 |
|
|
|
5.8 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42.0 |
|
|
$ |
41.1 |
|
|
$ |
85.1 |
|
|
$ |
74.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
$ |
35.6 |
|
|
$ |
33.2 |
|
|
$ |
70.4 |
|
|
$ |
65.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of capital expenditures to depreciation expense |
|
|
118.0 |
% |
|
|
123.8 |
% |
|
|
120.9 |
% |
|
|
113.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
We have a formal and intensive review procedure for the authorization of capital expenditures.
The most important financial measure of acceptability for a discretionary capital project is
whether its projected discounted cash flow return on investment exceeds our projected cost of
capital for that project. We expect to continue to invest in information systems, modern
technologies, emergency room and operating room expansions, the construction of medical office
buildings for physician expansion and the reconfiguration of the flow of patient care.
Debt
An analysis and roll-forward of our long-term debt, including current portion, for the six
months ended June 30, 2009 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Payments of |
|
|
Convertible Debt |
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
Borrowings |
|
|
Discounts |
|
|
Other (a) |
|
|
2009 |
|
Senior Secured
Credit Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term B Loans |
|
$ |
706.4 |
|
|
$ |
(13.5 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
692.9 |
|
Revolving Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Province 71/2% Senior
Subordinated Notes |
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.1 |
|
31/4% Debentures |
|
|
225.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225.0 |
|
31/2% Notes |
|
|
575.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575.0 |
|
Unamortized
discounts on 31/4%
Debentures and 31/2%
Notes |
|
|
(123.5 |
) |
|
|
|
|
|
|
10.3 |
|
|
|
|
|
|
|
(113.2 |
) |
Capital leases |
|
|
4.2 |
|
|
|
(1.7 |
) |
|
|
|
|
|
|
1.3 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,393.2 |
|
|
$ |
(15.2 |
) |
|
$ |
10.3 |
|
|
$ |
1.3 |
|
|
$ |
1,389.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the assumption of capital lease obligations in connection with the Companys
acquisition of Rockdale effective February 1, 2009. |
38
We use leverage, or our total debt to total capitalization ratio, to make financing decisions.
The following table illustrates our financial statement leverage and the classification of our debt
at June 30, 2009 and December 31, 2008 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
Increase |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
Current portion of long-term debt |
|
$ |
1.1 |
|
|
$ |
1.1 |
|
|
$ |
|
|
Long-term debt |
|
|
1,388.5 |
|
|
|
1,392.1 |
|
|
|
(3.6 |
) |
Unamortized discounts of convertible debt instruments (a) |
|
|
113.2 |
|
|
|
123.5 |
|
|
|
(10.3 |
) |
|
|
|
|
|
|
|
|
|
|
Total debt, excluding unamortized discounts of
convertible debt instruments |
|
|
1,502.8 |
|
|
|
1,516.7 |
|
|
|
(13.9 |
) |
Total LifePoint Hospitals, Inc. stockholders equity (a) |
|
|
1,740.7 |
|
|
|
1,652.0 |
|
|
|
88.7 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
3,243.5 |
|
|
$ |
3,168.7 |
|
|
$ |
74.8 |
|
|
|
|
|
|
|
|
|
|
|
Total debt to total capitalization |
|
|
46.3 |
% |
|
|
47.9 |
% |
|
|
(1.6 |
)% |
|
|
|
|
|
|
|
|
|
|
Percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt, excluding unamortized discounts of
convertible debt instruments (a) |
|
|
53.9 |
% |
|
|
53.4 |
% |
|
|
|
|
Variable rate debt (b) |
|
|
46.1 |
|
|
|
46.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt |
|
|
46.4 |
% |
|
|
46.8 |
% |
|
|
|
|
Subordinated debt, excluding unamortized discounts of
convertible debt instruments (a) |
|
|
53.6 |
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Effective January 1, 2009, we adopted the provisions of FSP APB 14-1. The adoption of FSP APB
14-1 required us to retrospectively restate prior periods to separately reflect the liability
and equity components of our convertible debt instruments and to recognize interest expense
for the related debt at our market rate of borrowing for non-convertible debt instruments as
opposed to the explicit rate of our convertible debt instruments. Please refer to Note 2 to
our accompanying condensed consolidated financial statements included elsewhere in this report
for an additional discussion of the impact the adoption of FSP APB 14-1 had on our total debt
and stockholders equity. |
|
(b) |
|
The above calculation does not consider the effect of our interest rate swap. Our interest
rate swap mitigates a portion of our floating rate risk on our outstanding variable rate
borrowings which converts our variable rate debt to an annual fixed rate of 5.585%. Our
interest rate swap decreases our variable rate debt as a percentage of our outstanding debt
from 46.1% to 6.2% as of June 30, 2009 and from 46.6% to 7.0% as of December 31, 2008. Please
refer to Note 8 to our accompanying consolidated financial statements included elsewhere in
this report for a discussion of our interest rate swap agreement. |
Capital Resources
Senior Secured Credit Facilities
Terms
Our credit agreement with Citicorp North America, Inc. (CITI), as administrative agent, and
a syndicate of lenders (the Credit Agreement), as amended, provides for secured term A loans up
to $250.0 million (the Term A Loans), term B loans up to $1,450.0 million (the Term B Loans)
and revolving loans of up to $350.0 million (the Revolving Loans). In addition, the Credit
Agreement provides that we may request additional tranches of Term B Loans up to $400.0 million and
additional tranches of Revolving Loans up to $100.0 million, subject to Lender approval. The Term B
Loans mature on April 15, 2012 and are scheduled to be repaid beginning June 30, 2011 in four equal
installments totaling $692.9 million. The Term A Loans and Revolving Loans both mature on April 15,
2010. The Credit Agreement is guaranteed on a senior secured basis by our subsidiaries with certain
limited exceptions. The Term B Loans are subject to additional mandatory prepayments with a certain
percentage of excess cash flow as specifically defined in the Credit Agreement. Additionally, the
Credit Agreement provides for the issuance of letters of credit up to $75.0 million. Issued letters
of credit reduce the amounts available under our Revolving Loans.
39
Letters of Credit and Availability
As of June 30, 2009, we had $42.8 million in letters of credit outstanding that were related
to the self-insured retention level of our general and professional liability insurance and
workers compensation programs as security for payment of claims. Under the terms of the Credit
Agreement, Revolving Loans available for borrowing were $407.2 million as of June 30, 2009,
including the $100.0 million available under the additional tranche. Under the terms of the Credit
Agreement, the amount of Term A Loans and Term B Loans available for borrowing was $250.0 million
and $400.0 million, respectively, as of June 30, 2009, all of which is available under the
additional tranches.
Interest Rates
Interest on the outstanding balances of the Term B Loans is payable, at our option, at CITIs
base rate (the alternate base rate or ABR) plus a margin of 0.625% and/or at an adjusted London
Interbank Offered Rate (Adjusted LIBOR) plus a margin of 1.625%. Interest on the Revolving Loans
is payable at ABR plus a margin for ABR Revolving Loans or Adjusted LIBOR plus a margin for
eurodollar Revolving Loans. The margin on ABR Revolving Loans ranges from 0.25% to 1.25% based on
the total leverage ratio being less than 2.00:1.00 to greater than 4.50:1.00. The margin on the
eurodollar Revolving Loans ranges from 1.25% to 2.25% based on the total leverage ratio being less
than 2.00:1.00 to greater than 4.50:1.00.
As of June 30, 2009, the applicable annual interest rate under the Term B Loans was 2.30%,
which was based on the 90-day Adjusted LIBOR plus the applicable margin. The 90-day Adjusted LIBOR
was 0.67% at June 30, 2009. The weighted-average applicable annual interest rate for the three
months and six months ended June 30, 2009 under the Term B Loans was 2.70% and 3.11%, respectively.
Covenants
The Credit Agreement requires us to satisfy certain financial covenants, including a minimum
interest coverage ratio and a maximum total leverage ratio. The minimum interest coverage ratio can
be no less than 3.50:1.00 for all periods ending after December 31, 2005. These calculations are
based on the trailing four quarters. The maximum total leverage ratios cannot exceed 4.00:1.00 for
the periods ending on June 30, 2009 through December 31, 2009 and 3.75:1.00 for the periods ending
thereafter. In addition, on an annualized basis, we are limited with respect to amounts we may
spend on capital expenditures. Such amounts cannot exceed 10.0% of revenues for all years ending
after December 31, 2006.
The financial covenant requirements and ratios are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level at |
|
|
Requirement |
|
June 30, 2009 |
Minimum Interest Coverage Ratio |
|
|
³3.50:1.00 |
|
|
|
6.00 |
|
Maximum Total Leverage Ratio |
|
|
£4.00:1.00 |
|
|
|
3.13 |
|
In addition, the Credit Agreement contains customary affirmative and negative covenants, which
among other things, limit our ability to incur additional debt, create liens, pay dividends, effect
transactions with our affiliates, sell assets, pay subordinated debt, merge, consolidate, enter
into acquisitions and effect sale leaseback transactions.
Our Credit Agreement does not contain provisions that would accelerate the maturity date of
the loans under the Credit Agreement upon a downgrade in our credit rating. However, a downgrade in
the our credit rating could adversely affect our ability to obtain other capital sources in the
future and could increase our cost of borrowings.
40
31/2% Convertible Senior Subordinated Notes due May 15, 2014
Our 31/2% Notes bear interest at the rate of 31/2% per year, payable semi-annually on May 15 and
November 15. The 31/2% Notes are convertible prior to March 15, 2014 under the following
circumstances: (1) if the price of our common stock reaches a specified threshold during specified
periods; (2) if the trading price of the 31/2% Notes is below a specified threshold; or (3) upon the
occurrence of specified corporate transactions or other events. On or after March 15, 2014, holders
may convert their 31/2% Notes at any time prior to the close of business on the scheduled trading day
immediately preceding May 15, 2014, regardless of whether any of the foregoing circumstances has
occurred.
Subject to certain exceptions, we will deliver cash and shares of our common stock upon
conversion of each $1,000 principal amount of our 31/2% Notes as follows: (i) an amount in cash (the
principal return) equal to the sum of, for each of the 20 volume-weighted average price trading
days during the conversion period, the lesser of the daily conversion value for such
volume-weighted average price trading day and $50; and (ii) a number of shares in an amount equal
to the sum of, for each of the 20 volume-weighted average price trading days during the conversion
period, any excess of the daily conversion value above $50. Our ability to pay the principal return
in cash is subject to important limitations imposed by the Credit Agreement and other credit
facilities or indebtedness we may incur in the future. If we do not make any payments we are
obligated to make under the terms of the 31/2% Notes, holders may declare an event of default.
The initial conversion rate is 19.3095 shares of our common stock per $1,000 principal amount
of the 31/2% Notes (subject to certain events). This represents an initial conversion price of
approximately $51.79 per share of the Companys common stock. In addition, if certain corporate
transactions that constitute a change of control occur prior to maturity, we will increase the
conversion rate in certain circumstances.
Upon the occurrence of a fundamental change (as specified in the indenture), each holder of
the 31/2% Notes may require us to purchase some or all of the 31/2% Notes at a purchase price in cash
equal to 100% of the principal amount of the 31/2% Notes surrendered, plus any accrued and unpaid
interest.
The indenture for the 31/2% Notes does not contain any financial covenants or any restrictions
on the payment of dividends, the incurrence of senior or secured debt or other indebtedness, or the
issuance or repurchase of securities by us. The indenture contains no covenants or other provisions
to protect holders of the 31/2% Notes in the event of a highly leveraged transaction or other events
that do not constitute a fundamental change.
31/4% Convertible Senior Subordinated Debentures due August 15, 2025
Our 31/4% Debentures bear interest at the rate of 31/4% per year, payable semi-annually on
February 15 and August 15. The 31/4% Debentures are convertible (subject to certain limitations
imposed by the Credit Agreement) under the following circumstances: (1) if the price of the our
common stock reaches a specified threshold during the specified periods; (2) if the trading price
of the 31/4% Debentures is below a specified threshold; (3) if the 31/4% Debentures have been called
for redemption; or (4) if specified corporate transactions or other specified events occur. Subject
to certain exceptions, we will deliver cash and shares of our common stock, as follows: (i) an
amount in cash (the principal return) equal to the lesser of (a) the principal amount of the 31/4%
Debentures surrendered for conversion and (b) the product of the conversion rate and the average
price of our common stock, as set forth in the indenture governing the securities (the conversion
value); and (ii) if the conversion value is greater than the principal return, an amount in shares
of our common stock. Our ability to pay the principal return in cash is subject to important
limitations imposed by the Credit Agreement and other indebtedness we may incur in the future.
Based on the terms of the Credit Agreement, in certain circumstances, even if any of the foregoing
conditions to conversion have occurred, the 31/4% Debentures will not be convertible, and holders of
the 31/4% Debentures will not be able to declare an event of default under the 31/4% Debentures.
41
The initial conversion rate for the 31/4% Debentures is 16.3345 shares of our common stock per
$1,000 principal amount of 31/4% Debentures (subject to adjustment in certain events). This is
equivalent to a conversion price of $61.22 per share of common stock. In addition, if certain
corporate transactions that constitute a change of control occur on or prior to February 20, 2013,
we will increase the conversion rate in certain circumstances, unless such transaction constitutes
a public acquirer change of control and we elect to modify the conversion rate into public acquirer
common stock.
On or after February 20, 2013, we may redeem for cash some or all of the 31/4% Debentures at any
time at a price equal to 100% of the principal amount of the 31/4% Debentures to be purchased, plus
any accrued and unpaid interest. Holders may require us to purchase for cash some or all of the 31/4%
Debentures on February 15, 2013, February 15, 2015 and February 15, 2020 or upon the occurrence of
a fundamental change, at 100% of the principal amount of the 31/4% Debentures to be purchased, plus
any accrued and unpaid interest.
The indenture for the 31/4% Debentures does not contain any financial covenants or any
restrictions on the payment of dividends, the incurrence of senior or secured debt or other
indebtedness, or the issuance or repurchase of securities by us. The indenture contains no
covenants or other provisions to protect holders of the 31/4% Debentures in the event of a highly
leveraged transaction or fundamental change.
Interest Rate Swap
We have an interest rate swap agreement with Citibank as counterparty that requires us to make
quarterly fixed rate payments to Citibank calculated on a notional amount at an annual fixed rate
of 5.585% while Citibank is obligated to make quarterly floating payments to us based on the
three-month LIBOR on the same referenced notional amount. We have designated our interest rate swap
as a cash flow hedge instrument, which is recorded in our consolidated balance sheets at its fair
value in accordance with SFAS No. 157 based on the amount at which it could be settled, which is
referred to in SFAS No. 157 as the exit price. The exit price is based upon observable market
assumptions and appropriate valuation adjustments for credit risk. We have categorized our interest
rate swap as Level 2 in accordance with SFAS No. 157. Please refer to Note 8 to our accompanying
condensed consolidated financial statements included elsewhere in this report for a further
discussion of our interest rate swap agreement.
Liquidity and Capital Resources Outlook
We expect the level of capital expenditures in 2009 to be in a range of $160.0 million to
$180.0 million. We have large projects in process at a number of our facilities. We are
reconfiguring some of our hospitals to more effectively accommodate patient services and are
restructuring existing surgical capacity in some of our hospitals to permit additional patient
volume and a greater variety of services. At June 30, 2009, we had projects under construction with
an estimated additional cost to complete and equip of approximately $125.8 million. We anticipate
funding these expenditures through cash provided by operating activities, available cash and
borrowings available under our credit arrangements.
Our business strategy contemplates the selective acquisition of additional hospitals and other
healthcare service providers, and we regularly review potential acquisitions. These acquisitions
may, however, require additional financing. We regularly evaluate opportunities to sell additional
equity or debt securities, obtain credit facilities from lenders or restructure our long-term debt
or equity for strategic reasons or to further strengthen our financial position. The sale of
additional equity or convertible debt securities could result in additional dilution to our
stockholders.
In
August 2009, our Board of Directors authorized the repurchase
over the next 18 months of up to
$100.0 million of outstanding shares of our common stock either in the open market or
through privately negotiated transactions, subject to certain
limitation. We are not obligated to repurchase any specific number of shares under the
program.
42
We believe that cash generated from our operations and borrowings available under our credit
arrangements will be sufficient to meet our working capital needs, the purchase prices for any
potential facility acquisitions, planned capital expenditures and other expected operating needs
over the next twelve months and into the foreseeable future prior to the maturity dates of our
outstanding debt. We anticipate working on maturity date extensions for our Term A Loans and
Revolving Loans during 2009.
Contractual Obligations
We have various contractual obligations, which are recorded as liabilities in our condensed
consolidated financial statements. Other items, such as certain purchase commitments and other
executory contracts, are not recognized as liabilities in our condensed consolidated financial
statements but are required to be disclosed. For example, we are required to make certain minimum
lease payments for the use of property under certain of our operating lease agreements. During the
three months ended June 30, 2009, there were no material changes in our contractual obligations as
presented in our 2008 Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We had standby letters of credit outstanding of approximately $42.8 million as of June 30,
2009, all of which relate to the self-insured retention levels of our professional and general
liability insurance and workers compensation programs as security for the payment of claims.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates
and assumptions that affect reported amounts and related disclosures. We consider an accounting
estimate to be critical if:
|
|
|
it requires assumptions to be made that were uncertain at the time the estimate was
made; and |
|
|
|
|
changes in the estimate or different estimates that could have been made could have a
material impact on our consolidated results of operations or financial condition. |
Our critical accounting estimates are more fully described in our Annual Report on Form 10-K
for the year ended December 31, 2008 and continue to include the following areas:
|
|
|
Revenue recognition/Allowance for contractual discounts; |
|
|
|
|
Allowance for doubtful accounts and provision for doubtful accounts; |
|
|
|
|
Goodwill impairment analysis; |
|
|
|
|
Professional and general liability claims; |
|
|
|
|
Accounting for stock-based compensation; and |
|
|
|
|
Accounting for income taxes. |
Recently Issued Accounting Pronouncements
Please refer to Note 2 to our accompanying condensed consolidated financial statements
included elsewhere in this report for a discussion of the impact of recently issued accounting
pronouncements.
43
Contingencies
Please refer to Note 10 to our accompanying condensed consolidated financial statements
included elsewhere in this report for a discussion of our material financial contingencies,
including:
|
|
|
Legal proceedings and general liability claims; |
|
|
|
|
Physician commitments; |
|
|
|
|
Capital expenditure commitments; and |
|
|
|
|
Acquisitions. |
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk. |
Interest Rates
The following discussion relates to our exposure to market risk based on changes in interest
rates:
Outstanding Debt
We have an interest rate swap to manage our exposure to changes in interest rates. The
interest rate swap converts a portion of our indebtedness to a fixed rate with a notional amount of
$600.0 million at June 30, 2009 at an annual fixed rate of 5.585%. Accordingly, we are slightly
exposed to market risk related to fluctuations in interest rates. The notional amount of the swap
agreement represents a balance used to calculate the exchange of cash flows and is not an asset or
liability. Any market risk or opportunity associated with this swap agreement is offset by the
opposite market impact on the related debt. Our interest rate swap agreement exposes us to credit
risk in the event of non-performance by Citibank. However, we do not anticipate non-performance by
Citibank.
As of June 30, 2009, we had outstanding debt, excluding $113.2 million of unamortized
discounts on our convertible debt instruments, of $1,502.8 million, 46.1%, or $692.9 million, of
which was subject to variable rates of interest. However, our interest rate swap decreases our
variable rate debt as a percentage of our outstanding debt from 46.1% to 6.2% as of June 30, 2009.
Our Term B Loans, 31/2% Notes and 31/4% Debentures were the only long-term debt instruments where
the carrying amounts differed from their fair value as of December 31, 2008 and June 30, 2009. The
carrying amount and fair value of these instruments as of December 31, 2008 and June 30, 2009 were
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount |
|
Fair Value |
|
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Term B Loans |
|
$ |
692.9 |
|
|
$ |
706.4 |
|
|
$ |
654.8 |
|
|
$ |
586.3 |
|
31/2% Notes, excluding unamortized discount |
|
$ |
575.0 |
|
|
$ |
575.0 |
|
|
$ |
465.8 |
|
|
$ |
387.3 |
|
31/4% Debentures, excluding unamortized discount |
|
$ |
225.0 |
|
|
$ |
225.0 |
|
|
$ |
181.1 |
|
|
$ |
162.0 |
|
The fair values of our Term B Loans, 31/4% Debentures and 31/2% Notes were based on the quoted
prices at June 30, 2009 and December 31, 2008.
Cash Balances
Certain of our outstanding cash balances are invested overnight with high credit quality
financial institutions. We do not hold direct investments in auction rate securities,
collateralized debt obligations, structured investment vehicles or mortgage-backed securities. We
do not have significant exposure to changing interest rates on invested cash at June 30, 2009. As a
result, the interest rate market risk implicit in these investments at June 30, 2009, if any, is
low.
44
\
|
|
|
Item 4. |
|
Controls and Procedures. |
We carried out an evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of the period covered
by this report pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective in ensuring that information required to be disclosed by us (including our
consolidated subsidiaries) in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported on a timely basis.
There has been no change in our internal control over financial reporting during the three
months ended June 30, 2009 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
45
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings. |
We are, from time to time, subject to claims and suits arising in the ordinary course of
business, including claims for damages for personal injuries, medical malpractice, breach of
contracts, wrongful restriction of or interference with physicians staff privileges and employment
related claims. In certain of these actions, plaintiffs request payment for damages, including
punitive damages that may not be covered by insurance. We are currently not a party to any pending
or threatened proceeding, which, in managements opinion, would have a material adverse effect on
our business, financial condition or results of operations.
In May 2009, our hospital in Andalusia, Alabama (Andalusia Regional Hospital) produced
documents responsive to a request received from the U.S. Attorneys Office for the Western District
of New York regarding an investigation they are conducting with respect to the billing of
kyphoplasty procedures. Kyphoplasty is a surgical spine procedure that returns a compromised
vertebrae (either from trauma or osteoporotic disease process) to its previous height, reducing or
eliminating severe pain. It has been reported that hospitals in multiple states including
Indiana, Florida, Alabama, South Carolina, New York and Minnesota have received similar requests
for information. We believe that this investigation is related to the May 22, 2008 qui tam
settlement between the same U.S. Attorneys office and the manufacturer and distributor of the
product used in performing the kyphoplasty procedure. We are cooperating with the governments
investigation. In addition, we are reviewing whether our hospitals have engaged in inappropriate
billing for kyphoplasty procedures.
There have been no material changes in our risk factors from those disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2008.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table summarizes our share repurchase activity by month for the three months
ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
Approximate |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Dollar Value |
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
of Shares that |
|
|
|
|
|
|
Weighted |
|
Part of a |
|
May Yet be |
|
|
Total Number |
|
Average |
|
Publicly |
|
Purchased |
|
|
of Shares |
|
Price Paid |
|
Announced |
|
Under the |
Period |
|
Purchased |
|
per Share |
|
Program |
|
Program |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
April 1, 2009 to April 30, 2009(a) |
|
|
41,855 |
|
|
$ |
23.65 |
|
|
|
|
|
|
$ |
|
|
May 1, 2009 to May 31, 2009(a) |
|
|
1,192 |
|
|
$ |
27.27 |
|
|
|
|
|
|
$ |
|
|
June 1, 2009 to June 30, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
43,047 |
|
|
$ |
23.75 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
These relate to shares redeemed for tax withholding purposes upon vesting of certain
previously granted stock awards under the LTIP and MSPP plans. |
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders. |
We held our annual meeting of stockholders on May 12, 2009. At the annual meeting, the
following matters were submitted to a vote of the Companys stockholders:
Proposal 1 Election of Directors.
|
|
|
|
|
|
|
|
|
|
|
Votes |
|
Votes |
|
|
For |
|
Withheld |
|
|
|
Marguerite W. Kondracke |
|
|
20,657,107 |
|
|
|
27,640,697 |
|
John E. Maupin, Jr., D.D.S. |
|
|
21,157,205 |
|
|
|
27,140,599 |
|
Owen G. Shell, Jr. |
|
|
21,159,314 |
|
|
|
27,138,490 |
|
As indicated in the above table, Marguerite W. Kondracke, John E. Maupin Jr., D.D.S. and Owen
G. Shell, Jr. were elected as Class I directors. The term of the Class I directors will continue
until the annual meeting of the stockholders in 2012, or until their respective successors are
elected and qualified. The terms of the following Class II directors will continue until the annual
meeting of the stockholders in 2010, or until their respective successors are elected and
qualified: Gregory T. Bier and DeWitt Ezell, Jr. The term of the following Class III directors will
continue until the annual meeting in 2011, or until their respective successors are elected and
qualified: William F. Carpenter III, Richard H. Evans and Michael P. Haley.
46
Proposal 2 Ratification of the selection of Ernst & Young LLP as our independent
registered public accounting firm for the year ending December 31, 2009.
|
|
|
|
|
Votes |
|
Votes |
|
Votes |
For |
|
Against |
|
Abstain |
48,060,762
|
|
227,842
|
|
9,199 |
Proposal 3 Reapproval of the Issuance of Common Stock Under the Companys Management
Stock Purchase Plan.
|
|
|
|
|
Votes |
|
Votes |
|
Votes |
For |
|
Against |
|
Abstain |
35,024,012
|
|
10,825,451
|
|
12,466 |
The MSPP, as originally approved by our stockholders, had a ten year term which was set to
expire on May 11, 2009. The Board of Directors amended the MSPP on March 24, 2009 to continue its
term indefinitely and allow the Company to prospectively issue shares of common stock under the
MSPP subject to the approval of our stockholders. The effect of our stockholders approval of
Proposal 3 allows the Company to issue shares of common stock under the MSPP until such time as
stockholder approval is required by any law, regulation or stock exchange requirement. At such
time, the Company would cease the issuance of shares of common stock under the MSPP until our
stockholders reapprove the continued issuance of shares.
Proposal 4 Reapproval of the Issuance of Awards Under the Companys Outside Directors
Stock and Incentive Compensation Plan.
|
|
|
|
|
Votes |
|
Votes |
|
Votes |
For |
|
Against |
|
Abstain |
28,726,011
|
|
17,110,543
|
|
25,374 |
The ODSICP, as originally approved by our stockholders, had a ten year term which was set to
expire on May 11, 2009. The Board of Directors amended the ODSICP on March 24, 2009 to continue
its term indefinitely and allow the Company to prospectively grant awards under the Directors Plan
subject to the approval of our stockholders. The effect of our stockholders approval of Proposal
4 allows the Company to make awards under the ODSICP until such time as stockholder approval is
required by any law, regulation or stock exchange requirement. At such time, the Company would
cease the grant of awards under the ODSICP until our stockholders reapprove the continuance of
grants.
Proposal 5 Reapproval of the Companys Executive Performance Incentive Plan.
|
|
|
|
|
Votes |
|
Votes |
|
Votes |
For |
|
Against |
|
Abstain |
45,126,257
|
|
3,144,820
|
|
26,726 |
Section 162(m) of the Internal Revenue Code requires us to submit the EPIP to our stockholders
for consideration and approval once every five years. Prior to the 2009 annual meeting, the
Companys stockholders last approved the plan on June 15, 2004. The effect of our stockholders
approval of the EPIP allows the Compensation Committee to continue to make awards under the EPIP up
to the date of the Companys 2014 annual meeting.
47
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Amended and Restated Certificate of Incorporation (incorporated by
reference from exhibits to the Registration Statement on Form S-8 filed
on April 19, 2005, File No. 333-124093). |
|
|
|
3.2
|
|
Second Amended and Restated Bylaws (incorporated by reference from
exhibits to the LifePoint Hospitals, Inc. Current Report on Form 8-K
dated October 16, 2006, File No. 000-51251). |
|
|
|
3.3
|
|
Amendment No. 1 to the Second Amended and Restated Bylaws of LifePoint
Hospitals, Inc. (incorporated by reference from exhibits to the LifePoint
Hospitals, Inc. Current Report on Form 8-K dated May 20, 2008, File No.
000-51251). |
|
|
|
10.1
|
|
Amendment No. 3, dated March 24, 2009, to the LifePoint Hospitals, Inc.
Management Stock Purchase Plan. |
|
|
|
10.2
|
|
Amendment, dated March 24, 2009, to the Amended and Restated LifePoint
Hospitals, Inc. Outside Directors Stock and Incentive Compensation Plan. |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer of LifePoint Hospitals, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer of LifePoint Hospitals, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer of LifePoint Hospitals, Inc.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer of LifePoint Hospitals, Inc.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
LifePoint Hospitals, Inc.
|
|
|
By: |
/s/ Michael S. Coggin
|
|
|
|
Michael S. Coggin |
|
|
|
Chief Accounting Officer
(Principal Accounting Officer) |
|
|
Date: August 7, 2009
49
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Amended and Restated Certificate of Incorporation (incorporated by
reference from exhibits to the Registration Statement on Form S-8 filed
on April 19, 2005, File No. 333-124093). |
|
|
|
3.2
|
|
Second Amended and Restated Bylaws (incorporated by reference from
exhibits to the LifePoint Hospitals, Inc. Current Report on Form 8-K
dated October 16, 2006, File No. 000-51251). |
|
|
|
3.3
|
|
Amendment No. 1 to the Second Amended and Restated Bylaws of LifePoint
Hospitals, Inc. (incorporated by reference from exhibits to the LifePoint
Hospitals, Inc. Current Report on Form 8-K dated May 20, 2008, File No.
000-51251). |
|
|
|
10.1
|
|
Amendment No. 3, dated March 24, 2009, to the LifePoint Hospitals, Inc.
Management Stock Purchase Plan. |
|
|
|
10.2
|
|
Amendment, dated March 24, 2009, to the Amended and Restated LifePoint
Hospitals, Inc. Outside Directors Stock and Incentive Compensation Plan. |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer of LifePoint Hospitals, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer of LifePoint Hospitals, Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer of LifePoint Hospitals, Inc.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer of LifePoint Hospitals, Inc.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |