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(Mark One) | ||
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Exact Name of Registrant as Specified in its Charter)
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Delaware | 20-1538254 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
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103 Powell Court Brentwood, Tennessee |
37027 | |
(Address Of Principal Executive Offices) | (Zip Code) |
(Registrants Telephone Number, Including Area Code)
(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 x 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 x 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:
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Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 21, 2011, the number of outstanding shares of the registrants Common Stock was 48,154,516.
i
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues | $ | 877.2 | $ | 832.3 | $ | 2,643.4 | $ | 2,409.1 | ||||||||
Salaries and benefits | 337.8 | 324.8 | 1,011.2 | 935.1 | ||||||||||||
Supplies | 113.9 | 112.9 | 346.7 | 330.5 | ||||||||||||
Other operating expenses | 171.1 | 158.5 | 495.8 | 444.2 | ||||||||||||
Provision for doubtful accounts | 127.0 | 116.3 | 383.4 | 323.4 | ||||||||||||
Depreciation and amortization | 40.7 | 36.4 | 121.0 | 109.2 | ||||||||||||
Interest expense, net | 24.3 | 26.2 | 81.6 | 77.2 | ||||||||||||
Debt extinguishment costs | | 2.4 | | 2.4 | ||||||||||||
814.8 | 777.5 | 2,439.7 | 2,222.0 | |||||||||||||
Income from continuing operations before income taxes | 62.4 | 54.8 | 203.7 | 187.1 | ||||||||||||
Provision for income taxes | 22.8 | 15.6 | 76.5 | 65.5 | ||||||||||||
Income from continuing operations | 39.6 | 39.2 | 127.2 | 121.6 | ||||||||||||
(Loss) income from discontinued operations, net of income taxes | (0.1 | ) | 0.3 | 0.2 | | |||||||||||
Net income | 39.5 | 39.5 | 127.4 | 121.6 | ||||||||||||
Less: Net income attributable to noncontrolling interests | (0.7 | ) | (0.7 | ) | (2.2 | ) | (2.3 | ) | ||||||||
Net income attributable to LifePoint Hospitals, Inc. | $ | 38.8 | $ | 38.8 | $ | 125.2 | $ | 119.3 | ||||||||
Basic earnings per share attributable to LifePoint Hospitals, Inc. stockholders: |
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Continuing operations | $ | 0.79 | $ | 0.74 | $ | 2.49 | $ | 2.26 | ||||||||
Discontinued operations | | | 0.01 | | ||||||||||||
Net income | $ | 0.79 | $ | 0.74 | $ | 2.50 | $ | 2.26 | ||||||||
Diluted earnings per share attributable to LifePoint Hospitals, Inc. stockholders(a): |
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Continuing operations | $ | 0.77 | $ | 0.72 | $ | 2.43 | $ | 2.21 | ||||||||
Discontinued operations | | | 0.01 | | ||||||||||||
Net income | $ | 0.77 | $ | 0.73 | $ | 2.44 | $ | 2.21 | ||||||||
Weighted average shares and dilutive securities outstanding: |
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Basic | 49.3 | 52.0 | 50.2 | 52.8 | ||||||||||||
Diluted | 50.4 | 53.1 | 51.4 | 54.0 | ||||||||||||
Amounts attributable to LifePoint Hospitals, Inc. stockholders: |
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Income from continuing operations, net of income taxes | $ | 38.9 | $ | 38.5 | $ | 125.0 | $ | 119.3 | ||||||||
(Loss) income from discontinued operations, net of income taxes | (0.1 | ) | 0.3 | 0.2 | | |||||||||||
Net income | $ | 38.8 | $ | 38.8 | $ | 125.2 | $ | 119.3 |
(a) | Total per share amounts may not add due to rounding. |
1
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September 30, 2011 |
December 31, 2010(a) |
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(Unaudited) | ||||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | 199.4 | $ | 207.4 | ||||
Accounts receivable, less allowances for doubtful accounts of $534.2 and $459.8 at September 30, 2011 and December 31, 2010, respectively | 397.7 | 387.3 | ||||||
Inventories | 83.9 | 84.6 | ||||||
Prepaid expenses | 20.4 | 13.9 | ||||||
Income taxes receivable | | 5.5 | ||||||
Deferred tax assets | 138.3 | 99.7 | ||||||
Other current assets | 24.5 | 24.7 | ||||||
864.2 | 823.1 | |||||||
Property and equipment: |
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Land | 86.5 | 85.9 | ||||||
Buildings and improvements | 1,561.0 | 1,532.9 | ||||||
Equipment | 1,033.1 | 950.2 | ||||||
Construction in progress (estimated cost to complete and equip after September 30, 2011 is $102.6) | 68.9 | 39.4 | ||||||
2,749.5 | 2,608.4 | |||||||
Accumulated depreciation | (1,045.0 | ) | (939.8 | ) | ||||
1,704.5 | 1,668.6 | |||||||
Deferred loan costs, net | 23.2 | 27.2 | ||||||
Intangible assets, net | 88.2 | 73.1 | ||||||
Other | 43.7 | 20.2 | ||||||
Goodwill | 1,574.5 | 1,550.7 | ||||||
Total assets | $ | 4,298.3 | $ | 4,162.9 | ||||
LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable | $ | 82.8 | $ | 89.0 | ||||
Accrued salaries | 95.8 | 101.4 | ||||||
Accrued interest | 10.4 | 16.0 | ||||||
Income taxes payable | 58.1 | | ||||||
Other current liabilities | 124.7 | 116.5 | ||||||
Current maturities of long-term debt | 1.4 | 1.4 | ||||||
373.2 | 324.3 | |||||||
Long-term debt | 1,588.7 | 1,570.5 | ||||||
Deferred income tax liabilities | 217.0 | 211.2 | ||||||
Reserves for self-insurance claims and other liabilities | 142.1 | 131.8 | ||||||
Long-term income tax liability | 15.3 | 18.5 | ||||||
Total liabilities | 2,336.3 | 2,256.3 | ||||||
Redeemable noncontrolling interests | 15.3 | 15.3 | ||||||
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 | | | ||||||
Common stock, $0.01 par value; 90,000,000 shares authorized; 63,080,246 and 61,450,098 shares issued at September 30, 2011 and December 31, 2010, respectively | 0.6 | 0.6 | ||||||
Capital in excess of par value | 1,347.3 | 1,289.4 | ||||||
Accumulated other comprehensive loss | | (4.0 | ) | |||||
Retained earnings | 1,029.2 | 904.0 | ||||||
Common stock in treasury, at cost, 13,981,039 and 9,991,316 shares at September 30, 2011 and December 31, 2010, respectively | (443.7 | ) | (302.5 | ) | ||||
Total LifePoint Hospitals, Inc. stockholders equity | 1,933.4 | 1,887.5 | ||||||
Noncontrolling interests | 13.3 | 3.8 | ||||||
Total equity | 1,946.7 | 1,891.3 | ||||||
Total liabilities and equity | $ | 4,298.3 | $ | 4,162.9 |
(a) | Derived from audited consolidated financial statements. |
2
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Cash flows from operating activities: |
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Net income | $ | 39.5 | $ | 39.5 | $ | 127.4 | $ | 121.6 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Loss (income) from discontinued operations | 0.1 | (0.3 | ) | (0.2 | ) | | ||||||||||
Stock-based compensation | 6.4 | 5.7 | 17.7 | 16.8 | ||||||||||||
Depreciation and amortization | 40.7 | 36.4 | 121.0 | 109.2 | ||||||||||||
Amortization of physician minimum revenue guarantees | 5.0 | 4.4 | 14.3 | 12.4 | ||||||||||||
Amortization of convertible debt discounts | 6.1 | 5.7 | 18.0 | 16.7 | ||||||||||||
Amortization of deferred loan costs | 1.4 | 1.6 | 4.4 | 5.6 | ||||||||||||
Debt extinguishment costs | | 2.4 | | 2.4 | ||||||||||||
Deferred income tax benefit | (15.3 | ) | (17.9 | ) | (34.7 | ) | (34.6 | ) | ||||||||
Reserves for self-insurance claims, net of payments | 2.7 | 5.0 | 9.7 | 9.3 | ||||||||||||
Increase (decrease) in cash from operating assets and liabilities, net of effects from acquisitions and divestitures: |
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Accounts receivable | (17.5 | ) | (1.8 | ) | (12.4 | ) | (28.2 | ) | ||||||||
Inventories and other current assets | (1.7 | ) | 0.1 | (5.5 | ) | (2.4 | ) | |||||||||
Accounts payable and accrued expenses | 8.6 | 15.8 | (2.6 | ) | (3.9 | ) | ||||||||||
Income taxes payable/receivable | 37.0 | 17.6 | 63.6 | 57.3 | ||||||||||||
Other | (3.0 | ) | (0.6 | ) | (2.4 | ) | (0.5 | ) | ||||||||
Net cash provided by operating activities continuing operations | 110.0 | 113.6 | 318.3 | 281.7 | ||||||||||||
Net cash (used in) provided by operating activities discontinued operations | | (0.5 | ) | 0.2 | (1.2 | ) | ||||||||||
Net cash provided by operating activities | 110.0 | 113.1 | 318.5 | 280.5 | ||||||||||||
Cash flows from investing activities: |
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Purchases of property and equipment | (49.3 | ) | (48.4 | ) | (153.8 | ) | (122.0 | ) | ||||||||
Acquisitions, net of cash acquired | (36.6 | ) | (142.2 | ) | (63.1 | ) | (184.9 | ) | ||||||||
Other | (0.3 | ) | | (1.2 | ) | | ||||||||||
Net cash used in investing activities | (86.2 | ) | (190.6 | ) | (218.1 | ) | (306.9 | ) | ||||||||
Cash flows from financing activities: |
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Proceeds from borrowings | | 400.0 | | 400.0 | ||||||||||||
Payments on borrowings | (0.1 | ) | (255.2 | ) | (0.1 | ) | (255.2 | ) | ||||||||
Repurchases of common stock | (99.4 | ) | (46.9 | ) | (141.2 | ) | (97.4 | ) | ||||||||
Payment of debt financing costs | (0.3 | ) | (8.7 | ) | (0.4 | ) | (13.1 | ) | ||||||||
Proceeds from exercise of stock options | 0.1 | 1.2 | 34.6 | 14.7 | ||||||||||||
Proceeds from employee stock purchase plans | 0.6 | 0.4 | 1.2 | 1.0 | ||||||||||||
Distributions to noncontrolling interests | (0.8 | ) | (0.7 | ) | (1.4 | ) | (1.6 | ) | ||||||||
(Purchases of) proceeds from redeemable noncontrolling interests | | (0.8 | ) | | 3.1 | |||||||||||
Capital lease payments and other | (0.3 | ) | (0.2 | ) | (1.1 | ) | (1.0 | ) | ||||||||
Net cash (used in) provided by financing activities | (100.2 | ) | 89.1 | (108.4 | ) | 50.5 | ||||||||||
Change in cash and cash equivalents | (76.4 | ) | 11.6 | (8.0 | ) | 24.1 | ||||||||||
Cash and cash equivalents at beginning of period | 275.8 | 199.7 | 207.4 | 187.2 | ||||||||||||
Cash and cash equivalents at end of period | $ | 199.4 | $ | 211.3 | $ | 199.4 | $ | 211.3 | ||||||||
Supplemental disclosure of cash flow information: |
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Interest payments | $ | 21.0 | $ | 16.0 | $ | 65.0 | $ | 50.7 | ||||||||
Capitalized interest | $ | 0.5 | $ | 0.3 | $ | 1.3 | $ | 0.6 | ||||||||
Income taxes paid, net | $ | 1.2 | $ | 16.0 | $ | 47.8 | $ | 42.8 |
3
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LifePoint Hospitals, Inc. Stockholders | Noncontrolling Interests |
Total | ||||||||||||||||||||||||||||||
Common Stock | Capital in Excess of Par Value |
Accumulated Other Comprehensive Income (loss) |
Retained Earnings |
Treasury Stock |
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Shares | Amount | |||||||||||||||||||||||||||||||
Balance at December 31, 2010(a) | 51.5 | $ | 0.6 | $ | 1,289.4 | $ | (4.0 | ) | $ | 904.0 | $ | (302.5 | ) | $ | 3.8 | $ | 1,891.3 | |||||||||||||||
Comprehensive income: |
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Net income | | | | | 125.2 | | 2.2 | 127.4 | ||||||||||||||||||||||||
Net change in fair value of interest rate swap, net of tax provision of $2.8 | | | | 4.0 | | | | 4.0 | ||||||||||||||||||||||||
Total comprehensive income | 131.4 | |||||||||||||||||||||||||||||||
Exercise of stock options and tax effects of stock-based awards | 1.2 | | 38.8 | | | | | 38.8 | ||||||||||||||||||||||||
Stock activity in connection with employee stock purchase plan | | | 1.2 | | | | | 1.2 | ||||||||||||||||||||||||
Stock-based compensation | 0.4 | | 17.7 | | | | | 17.7 | ||||||||||||||||||||||||
Repurchases of common stock, at cost | (4.0 | ) | | | | | (141.2 | ) | | (141.2 | ) | |||||||||||||||||||||
Noncash change in noncontrolling interests as a result of acquisition | | | | | | | 8.9 | 8.9 | ||||||||||||||||||||||||
Cash proceeds from (cash distributions to) noncontrolling interests | | | 0.2 | | | | (1.6 | ) | (1.4 | ) | ||||||||||||||||||||||
Balance at September 30, 2011 | 49.1 | $ | 0.6 | $ | 1,347.3 | $ | | $ | 1,029.2 | $ | (443.7 | ) | $ | 13.3 | $ | 1,946.7 |
(a) | Derived from audited consolidated financial statements. |
4
LifePoint Hospitals, Inc., a Delaware corporation, acting through its subsidiaries, operates general acute care hospitals in non-urban communities in the United States (U.S.). Unless the context otherwise indicates, LifePoint Hospitals, Inc. and its subsidiaries are referred to herein as the Company. At September 30, 2011, on a consolidated basis, the Company operated 52 hospital campuses in 17 states. Unless noted otherwise, discussions in these notes pertain to the Companys continuing operations, which exclude the results of those facilities that have been previously disposed.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, and disclosures considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. 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, 2010.
Certain prior year amounts have been reclassified to conform to the current year presentation for the Companys January 1, 2011 adoption of Accounting Standards Update (ASU) 2010-24, Health Care Entities (Topic 954) Presentation of Insurance Claims and Related Insurance Recoveries (ASU 2010-24), as further discussed in Note 2.
Effective January 1, 2011 and retrospectively for all periods presented, the Company adopted the provisions of ASU 2010-24 which further clarifies that health care entities should not net insurance recoveries against the related claim liabilities. In connection with the Companys adoption of ASU 2010-24, the Company recorded an increase to its Other assets and Reserves for self-insurance claims and other liabilities in the accompanying condensed consolidated balance sheet by $10.5 million as of December 31, 2010. The $10.5 million increase to both Other assets and Reserves for self-insurance claims and other liabilities as of December 31, 2010 represents the Companys estimate of its recoveries for certain claims in excess of the Companys self-insured retention levels for workers compensation claims and professional and general liability claims. The adoption of ASU 2010-24 had no impact on the Companys results of operations or cash flows.
5
The following is a summary of the line items impacted by the adoption of ASU 2010-24 in the Companys December 31, 2010 accompanying condensed consolidated balance sheet (in millions):
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As Originally Reported |
Adjustments for the Adoption of ASU 2010-24 |
As Currently Reported |
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Other | $ | 9.7 | $ | 10.5 | $ | 20.2 | ||||||
Total assets | $ | 4,152.4 | $ | 10.5 | $ | 4,162.9 | ||||||
Reserves for self-insurance claims and other liabilities | $ | 121.3 | $ | 10.5 | $ | 131.8 | ||||||
Total liabilities | $ | 2,245.8 | $ | 10.5 | $ | 2,256.3 | ||||||
Total liabilities and equity | $ | 4,152.4 | $ | 10.5 | $ | 4,162.9 |
In June 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-5, Comprehensive Income (Topic 220) Presentation of Comprehensive Income (ASU 2011-5). ASU 2011-5 eliminates the Companys currently elected option to present components of other comprehensive income as part of the statement of changes in stockholders equity. Instead, ASU 2011-5 requires that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-5 is required to be applied retrospectively and is effective for public companies for fiscal years beginning after December 15, 2011 and interim periods within those fiscal years. Early adoption is permitted. The Company anticipates applying the provisions of ASU 2011-5 for its interim period ending March 31, 2012. Through May 30, 2011, the Companys only component of other comprehensive income related to its changes in the fair value of its interest rate swap derivative instrument. As further discussed in Note 6, effective May 30, 2011, the Companys interest rate swap agreement matured. Accordingly, the adoption of ASU 2011-5 is not expected to impact the Companys financial position, results of operations or cash flows prospectively, however, it will change the presentation of the Companys other comprehensive income for all periods prior to May 30, 2011, which was the maturity date of the Companys interest rate swap agreement.
In July 2011, the FASB issued ASU 2011-7, Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (ASU 2011-7). In accordance with ASU 2011-7, the Company will be required to present its provision for doubtful accounts related to patient service revenue as a deduction from revenue, similar to contractual discounts. Accordingly, the Companys revenues will be required to be reported net of both contractual discounts as well as its provision for doubtful accounts related to patient service revenues. Additionally, ASU 2011-7 will require the Company to make certain additional disclosures designed to help users understand how contractual discounts and bad debts affect recorded revenue in both interim and annual financial statements. ASU 2011-7 is required to be applied retrospectively and is effective for public companies for fiscal years beginning after December 15, 2011 and interim periods within those fiscal years. Early adoption is permitted. The Company is considering the early adoption of the provisions of ASU 2011-7. The adoption of ASU 2011-7 is not expected to impact the Companys financial position, results of operations or cash flows, however, it will change the presentation of the Companys revenues on its statements of operations as well as requiring additional disclosures.
6
In September 2011, the FASB issued ASU 2011-8, Intangibles Goodwill and Other (Topic 350) (ASU 2011-8). Previously, entities were required to test goodwill for impairment, on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the resulting fair value of a reporting unit was less than its carrying amount, then the second step of the test would be performed to measure the amount of the impairment loss, if any. ASU 2011-8 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step goodwill impairment test is unnecessary.
In accordance with ASU 2011-8, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. Additionally, ASU 2011-8 permits an entity to resume performing the qualitative assessment in any subsequent period. ASU 2011-8 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of ASU 2011-8 is not expected to impact the Companys financial position, results of operations or cash flows.
The majority of the Companys expenses are cost of revenue items. Costs that could be classified as general and administrative by the Company would include its corporate overhead costs, which were $35.4 million and $31.2 million for the three months ended September 30, 2011 and 2010, respectively, and $99.1 million and $85.7 million for the nine months ended September 30, 2011 and 2010, respectively.
In accordance with Accounting Standards Codification (ASC) 825-10, Financial Instruments, the fair value of the Companys financial instruments are further described as follows.
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.
7
The Companys term B loans (the Term B Loans) under its credit agreement, as amended, with Citicorp North America, Inc., as administrative agent, and a syndicate of lenders (the Credit Agreement), 6.625% unsecured senior notes due October 1, 2020 (the 6.625% Senior Notes), 3½% convertible senior subordinated notes due May 15, 2014 (the 3½% Notes) and 3¼% convertible senior subordinated debentures due August 15, 2025 (the 3¼% Debentures) are the Companys long-term debt instruments where the carrying amounts are different from their fair value. The carrying amount and fair value of these instruments as of September 30, 2011 and December 31, 2010 were as follows (in millions):
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Carrying Amount | Fair Value | |||||||||||||||
September 30, 2011 |
December 31, 2010 |
September 30, 2011 |
December 31, 2010 |
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Term B Loans | $ | 443.7 | $ | 443.7 | $ | 430.4 | $ | 445.4 | ||||||||
6.625% Senior Notes | $ | 400.0 | $ | 400.0 | $ | 396.0 | $ | 398.0 | ||||||||
3½% Notes, excluding unamortized discount | $ | 575.0 | $ | 575.0 | $ | 584.3 | $ | 579.3 | ||||||||
3¼% Debentures, excluding unamortized discount | $ | 225.0 | $ | 225.0 | $ | 227.8 | $ | 225.6 |
The fair values of the Companys Term B Loans and 6.625% Senior Notes were estimated based on the average bid and ask price as determined using published rates. The fair values of the Companys 3½% Notes and 3¼% Debentures were estimated based on the quoted market prices determined using the closing share price of the Companys common stock.
Through May 30, 2011, the Company had an interest rate swap in effect with Citibank, N.A. (Citibank) that was designated as a cash flow hedge instrument. Effective May 30, 2011, the Companys interest rate swap agreement matured. Through May 30, 2011, the fair value of the Companys interest rate swap agreement was determined in accordance with ASC 815-10, Derivatives and Hedging (ASC 815-10), based on the amount at which it could be settled, which is referred to in ASC 815-10 as the exit price. The exit price was based upon observable market assumptions and appropriate valuation adjustments for credit risk. The Company categorized its interest rate swap as Level 2 in the fair value hierarchy, which ASC 820-10 Fair Value Measurements and Disclosures (ASC 820-10), defines as observable market-based inputs or unobservable inputs that are corroborated by market data.
Because the Companys interest rate swap agreement matured on May 30, 2011, the fair value of the interest rate swap at September 30, 2011 was zero. The fair value of the Companys interest rate swap at December 31, 2010 reflected a liability of $7.9 million and is included as a current liability under the caption Other current liabilities in the accompanying condensed consolidated balance sheet. The Companys interest rate swap is further described in Note 6.
The Company accounts for its acquisitions in accordance with ASC 805-10, Business Combinations using the acquisition method of accounting. Goodwill represents the excess of the cost of an acquired entity over the net amounts assigned to assets acquired and liabilities assumed. In accordance with ASC 350-10, Intangibles Goodwill and Other goodwill and intangible assets with indefinite lives are reviewed by the Company at least annually for impairment. 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
8
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 annual impairment test as of October 1, 2010 and did not incur an impairment charge.
The following table provides information regarding the Companys intangible assets, which are included in the accompanying condensed consolidated balance sheets at September 30, 2011 and December 31, 2010 (in millions):
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September 30, 2011 |
December 31, 2010 |
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Amortized intangible assets: |
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Contract-based physician minimum revenue guarantees |
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Gross carrying amount | $ | 94.4 | $ | 87.2 | ||||
Accumulated amortization | (46.7 | ) | (37.9 | ) | ||||
Net total | 47.7 | 49.3 | ||||||
Non-competition agreements |
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Gross carrying amount | 31.2 | 29.3 | ||||||
Accumulated amortization | (14.0 | ) | (12.0 | ) | ||||
Net total | 17.2 | 17.3 | ||||||
Total amortized intangible assets |
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Gross carrying amount | 125.6 | 116.5 | ||||||
Accumulated amortization | (60.7 | ) | (49.9 | ) | ||||
Net total | 64.9 | 66.6 | ||||||
Indefinite-lived intangible assets: |
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Certificates of need and certificates of need exemptions | 23.3 | 6.5 | ||||||
Total intangible assets: |
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Gross carrying amount | 148.9 | 123.0 | ||||||
Accumulated amortization | (60.7 | ) | (49.9 | ) | ||||
Net total | $ | 88.2 | $ | 73.1 |
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 ASC 460-10, Guarantees (ASC 460-10). In accordance with ASC 460-10, 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 as a component of 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 September 30, 2011 and December 31, 2010, the Companys liability for contract-based physician minimum revenue guarantees was $17.4 million and
9
$18.0 million, respectively. These amounts are included under the caption Other current liabilities in the Companys accompanying condensed consolidated balance sheets.
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.
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.
During the nine months ended September 30, 2011, through the Companys joint venture arrangement with Duke University Health Systems (Duke), the Company completed an acquisition of cardiac catheterization laboratories located in North Carolina totaling $24.8 million. The Company has attributed $16.8 million of its total purchase price of this acquisition to certificates of need exemptions.
Through May 30, 2011, the Company had an interest rate swap agreement in effect with Citibank as counterparty. Effective May 30, 2011, the Companys interest rate swap agreement matured. Prior to its maturity, the interest rate swap agreement required 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 was obligated to make quarterly floating payments to the Company based on the three-month London Interbank Offer Rate (LIBOR) on the same referenced notional amount.
The following table provides information regarding the notional amounts in effect for the indicated date ranges for the Companys interest rate swap agreement:
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Date Range | Notional Amount (In millions) |
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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. Through May 30, 2011, in accordance with ASC 815-10, the Company was required to recognize all derivative instruments as either assets or liabilities at fair value in its accompanying condensed consolidated balance sheet. In accordance with ASC 815-10, the Company designated 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 affect 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. Through May 30, 2011, the Company assessed the effectiveness of its interest rate swap and determined the hedge to be effective. In connection with the Companys quarterly assessment for the three months ended September 30, 2010, the Company determined the hedge to be partially ineffective because the notional amount of the interest rate swap in effect during the three months ended September 30, 2010 exceeded the Companys outstanding variable rate borrowings under its Credit Agreement. The Company recognized an increase in interest expense of approximately $0.1 million related to the ineffective portion of
10
the Companys cash flow hedge during the three and nine months ended September 30, 2010. During the three and nine months ended September 30, 2011, the Company reclassed $1.1 million in previously recognized ineffective losses to OCI in connection with the maturity of the Companys interest rate swap agreement.
As of September 30, 2011 and December 31, 2010, the fair value and line item caption of the Companys interest rate swap derivative instrument were as follows (in millions):
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Balance Sheet Location | September 30, 2011 |
December 31, 2010 |
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Derivative designated as a hedging instrument under ASC 815-10: |
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Interest rate swap | Other current liabilities | $ | | $ | 7.9 |
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 nine months ended September 30, 2011 and 2010 (in millions):
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Amount of gain (loss) recognized in OCI on Derivative (Effective Portion) |
Location of gain (loss) recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Amount of gain (loss) recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
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For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
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2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||||
Derivative in ASC 815-10 cash flow hedging relationships: |
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Interest rate swap | $ | (1.1 | ) | $ | 4.8 | $ | 6.8 | $ | 14.6 | Interest expense, net | $ | 1.1 | $ | (0.1 | ) | $ | 1.1 | $ | (0.1 | ) |
Since the Companys interest rate swap was not traded on a market exchange, the fair value was determined using a valuation model that involved a discounted cash flow analysis on the expected cash flows. This cash flow analysis reflected the contractual terms of the interest rate swap agreement, including the period to maturity, and used observable market-based inputs, including the three-month LIBOR forward interest rate curve. The fair value of the Companys interest rate swap agreement was determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts were 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 incorporated 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 exposed the Company to credit risk in the event of 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, were observable inputs available to a market participant. As a result, the Company made the determination that the interest rate swap valuation was categorized as Level 2 in the fair value hierarchy, in accordance with ASC 820-10.
The Companys Board of Directors has authorized the repurchase 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 customary factors in accordance with repurchase plans adopted in 2009, 2010 and 2011. The 2009 plan provided for the repurchase of up to $100.0 million shares of common stock. The 2009 repurchase plan expired in February 2011. The 2010 plan provided for the repurchase of up to $150.0 million shares of common stock, and through September 30, 2011, the Company had repurchased
11
all shares authorized for repurchase under this plan. The 2011 plan provides for the repurchase of up to $250.0 million shares of common stock, and, in connection with this repurchase plan, the Company entered into a trading plan in accordance with the SEC Rule 10b5-1 (the 10b5-1 Trading Plan). The 10b5-1 Trading Plan became effective on September 16, 2011 and expires on November 2, 2011. The Company is not obligated to repurchase any specific number of shares under its repurchase plans. The Company has designated the shares repurchased in accordance with the repurchase plans as treasury stock.
The following tables summarize the Companys share repurchases in accordance with the 2009, 2010 and 2011 repurchase plans for the three and nine months ended September 30, 2011 and 2010:
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Three Months Ended September 30, 2011 | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Amount (In millions) |
Total Number of Shares Repurchased (In millions) | Weighted Average Price Paid per Share | Amount (In millions) |
Total Number of Shares Repurchased (In millions) | Weighted Average Price Paid per Share |
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2009 Repurchase Plan | $ | | | N/A | $ | 42.3 | 1.4 | $ | 31.91 | |||||||||||||||
2010 Repurchase Plan | 67.3 | 2.0 | $ | 33.46 | 4.3 | 0.1 | $ | 34.00 | ||||||||||||||||
2011 Repurchase Plan | 31.7 | 0.9 | $ | 35.39 | | | N/A | |||||||||||||||||
Total | $ | 99.0 | 2.9 | $ | 46.6 | 1.5 |
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Nine Months Ended September 30, 2011 | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Amount (In millions) |
Total Number of Shares Repurchased (In millions) |
Weighted Average Price Paid per Share |
Amount (In millions) |
Total Number of Shares Repurchased (In millions) |
Weighted Average Price Paid per Share |
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2009 Repurchase Plan | $ | | | N/A | $ | 87.6 | 2.7 | $ | 33.03 | |||||||||||||||
2010 Repurchase Plan | 103.6 | 3.0 | $ | 35.24 | 4.3 | 0.1 | $ | 34.00 | ||||||||||||||||
2011 Repurchase Plan | 31.7 | 0.9 | $ | 35.39 | | | N/A | |||||||||||||||||
Total | $ | 135.3 | 3.9 | $ | 91.9 | 2.8 |
The following table provides certain additional information about the repurchase plans:
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2011 Repurchase Plan | 2010 Repurchase Plan | 2009 Repurchase Plan | ||||||||||||||||||||||||||||||||||
Amount (In millions) |
Total Number of Shares Repurchased (In millions) | Weighted Average Price Paid per Share | Amount (In millions) |
Total Number of Shares Repurchased (In millions) | Weighted Average Price Paid per Share | Amount (In millions) |
Total Number of Shares Repurchased (In millions) | Weighted Average Price Paid per Share | ||||||||||||||||||||||||||||
Amount authorized to repurchase | $ | 250.0 | N/A | N/A | $ | 150.0 | N/A | N/A | $ | 100.0 | N/A | N/A | ||||||||||||||||||||||||
Less: Amount repurchased through September 30, 2011 | 31.7 | 0.9 | $ | 35.39 | 150.0 | 4.3 | $ | 35.14 | 100.0 | 3.0 | $ | 33.21 | ||||||||||||||||||||||||
Remaining amount authorized to repurchase as of September 30, 2011 | $ | 218.3 | N/A | N/A | $ | | N/A | N/A | $ | | N/A | N/A |
Additionally, the Company redeems shares from employees for minimum statutory tax withholding purposes upon vesting of certain stock awards granted pursuant to its Amended and Restated 1998 Long-Term Incentive Plan (LTIP) and Amended and Restated Management Stock Purchase Plan (MSPP). The Company redeemed approximately 0.1 million shares of certain vested LTIP and MSPP shares during each of the nine month periods ended September 30, 2011 and 2010 for an aggregate purchase price of approximately $5.9 million and $5.5 million, respectively. There were a nominal number of shares redeemed for minimum
12
statutory tax withholdings purposes during each of the three month periods ended September 30, 2011 and 2010. The Company has designated these shares as treasury stock.
The Company issues stock-based awards, including stock options and other stock-based awards (nonvested stock, restricted stock, restricted stock units, performance shares and deferred stock units) to certain officers, employees and non-employee directors in accordance with the Companys various stockholder-approved stock-based compensation plans. The Company accounts for its stock-based awards in accordance with the provisions of ASC 718-10, Compensation Stock Compensation, (ASC 718-10) and accordingly recognizes compensation expense over each of the stock-based awards requisite service period based on the estimated grant date fair value.
The Company granted stock options to purchase 724,190 and 1,272,938 shares of the Companys common stock to certain officers and employees in accordance with the LTIP during the nine months ended September 30, 2011 and 2010, respectively. Options to purchase shares granted to the Companys officers and employees in accordance with the LTIP were granted with an exercise price equal to the fair market value of the Companys common stock on the day prior to the grant date. The options granted during the nine months ended September 30, 2011 and 2010 become ratably exercisable beginning one year from the date of grant to three years after the date of grant and expire ten years from the date of grant.
The Company estimated the fair value of stock options granted using the Hull-White II (HW-II) lattice option valuation model and a single option award approach. The Company uses the HW-II because it considers characteristics of fair value option pricing, such as an options contractual term and the probability of exercise before the end of the contractual term. In addition, the complications surrounding the expected term of an option are material, as indicated in ASC 718-10. Given the Companys relatively large pool of unexercised options, the Company believes a lattice model that specifically addresses this fact and models a full term of exercises is the most appropriate and reliable means of valuing its stock options. 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 stock options 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 nine months ended September 30, 2011 and 2010:
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Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Expected volatility | 36.0 | % | 40.0 | % | ||||
Risk free interest rate (range) | 0.02% 3.58 | % | 0.06% 3.69 | % | ||||
Expected dividends | | | ||||||
Average expected term (years) | 5.3 | 5.4 | ||||||
Fair value per share of stock options granted | $ | 11.77 | $ | 10.95 |
The total intrinsic value of stock options exercised during the nine months ended September 30, 2011 and 2010 was $12.7 million and $4.4 million, respectively. The Company received $0.1 million and $1.2 million in cash from stock option exercises for the three months ended September 30, 2011 and 2010, respectively, and $34.6 million and $14.7 million during the nine months ended September 30, 2011 and 2010, respectively.
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The actual tax benefit realized for the tax deductions from stock option exercises totaled $1.6 million for the nine months ended September 30, 2011. There was a nominal amount of tax benefit realized for the tax deductions from stock options exercised during the three months ended September 30, 2011 and 2010 and the nine months ended September 30, 2010.
As of September 30, 2011, there was $12.8 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 1.3 years.
The Company granted 489,294 and 506,773 shares of nonvested stock awards to certain officers, employees, and non-employee directors in accordance with the LTIP, MSPP and Outside Directors Stock and Incentive Compensation Plan during the nine months ended September 30, 2011 and 2010, respectively. 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. The nonvested stock awards granted during the nine months ended September 30, 2011 and 2010 have either cliff-vesting periods from the grant date of three years, cliff-vesting periods from the grant date of six months and one day or ratable vesting periods beginning one year from the date of grant to three years after the date of grant.
Of the nonvested stock awards granted during the nine months ended September 30, 2011 and 2010, 297,000 and 317,000, respectively, were performance-based. In addition to requiring continuing service of an employee, the vesting of these nonvested stock awards is contingent upon the satisfaction of certain financial goals, specifically related to the achievement of targeted annual revenues and earnings goals within a three-year period. In accordance with the LTIP, if these goals are achieved, the nonvested stock awards will cliff-vest three years after the grant date. The performance criteria for performance-based nonvested stock awards granted during 2010 have been certified as met by the Compensation Committee of the Companys Board of Directors, however, these awards are still subject to continuing service requirements and the three year cliff-vesting provisions. For purposes of estimating compensation expense for the performance-based nonvested stock awards granted during 2011, the Company has assumed that the performance goals will be achieved. If the performance goals are not met for the performance-based awards granted during 2011, no compensation expense will be recognized, and any previously recognized compensation expense will be reversed.
Notwithstanding the specific grant vesting requirements, nonvested stock awards and performance-based awards granted under the LTIP become fully vested upon the death or disability of the participant. Additionally, in the event of termination without cause of a participant, the nonvested stock awards and performance-based awards otherwise subject to cliff-vesting become vested in a percentage equal to the number of full months of continuous employment following the date of grant through the date of termination divided by the total number of months in the vesting period, and in the case of performance-based awards, only in the event that the performance goals are attained.
The Company received $0.6 million and $0.4 million for the issuance of nonvested stock in accordance with the MSPP for the three months ended September 30, 2011 and 2010, respectively, and $1.2 million and $1.0 million during the nine months ended September 30, 2011 and 2010, respectively.
As of September 30, 2011, there was $18.9 million of total estimated unrecognized compensation cost related to other stock-based awards granted in accordance with the LTIP and MSPP. Total estimated unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted average period of 1.8 years.
14
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 nine months ended September 30, 2011 and 2010 (in millions):
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Other stock-based awards | $ | 4.1 | $ | 3.5 | $ | 10.8 | $ | 10.4 | ||||||||
Stock options | 2.3 | 2.2 | 6.9 | 6.4 | ||||||||||||
Total stock-based compensation expense | $ | 6.4 | $ | 5.7 | $ | 17.7 | $ | 16.8 | ||||||||
Tax benefit on stock-based compensation expense | $ | 2.4 | $ | 2.3 | $ | 7.1 | $ | 6.7 |
The Company did not capitalize any stock-based compensation cost during the three or nine months ended September 30, 2011 or 2010. As of September 30, 2011, there was $31.7 million of total estimated unrecognized compensation cost related to all of the Companys stock-based 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 1.6 years.
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 vertebra (either from trauma or osteoporotic disease process) to its previous height, reducing or eliminating severe pain. It has been reported that other unaffiliated hospitals and hospital operators in multiple states 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.
Based on a review of the number of the kyphoplasty procedures performed at all of the Companys other hospitals, as part of its effort to cooperate with the U.S. Attorneys Office, by letter dated January 20, 2010 the Companys management identified to the U.S. Attorneys Office four additional facilities at which the number of inpatient kyphoplasty procedures approximated those performed at Andalusia Regional Hospital. The Companys management has completed its review of the relevant medical records and is continuing to cooperate with the governments investigation.
15
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 $28.8 million at September 30, 2011. The actual amount of such commitments to be subsequently advanced to physicians is estimated at $17.4 million and often depends upon the financial results of a physicians private practice during the guarantee period. Generally, amounts advanced under the recruiting agreements may be forgiven pro rata over a period of 36 to 48 months contingent upon the physician continuing to practice in the respective community. Pursuant to the Companys standard physician recruiting agreement, any breach or non-fulfillment by a physician under the physician recruiting agreement gives the Company the right to recover any payments made to the physician under the agreement.
The Company is reconfiguring some of its facilities to accommodate patient services more effectively and to permit additional patient volume and a greater variety of services. The Company is also implementing various information system initiatives in its efforts to comply with the Health Information Technology for Economic and Clinical Health Act. The Company has incurred $68.9 million in uncompleted projects as of September 30, 2011, which is included as Construction in progress in the Companys accompanying condensed consolidated balance sheet. At September 30, 2011, the Company had uncompleted projects with an estimated cost to complete and equip of approximately $102.6 million. Additionally, the Company is subject to annual capital expenditure commitments in connection with several of its facilities.
16
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2011 and 2010 (dollars and shares in millions, except per share amounts):
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator for basic and diluted earnings per share attributable to LifePoint Hospitals, Inc.: |
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Income from continuing operations | $ | 39.6 | $ | 39.2 | $ | 127.2 | $ | 121.6 | ||||||||
Less: Net income attributable to noncontrolling interests | (0.7 | ) | (0.7 | ) | (2.2 | ) | (2.3 | ) | ||||||||
Income from continuing operations attributable to LifePoint Hospitals, Inc. stockholders | 38.9 | 38.5 | 125.0 | 119.3 | ||||||||||||
(Loss) income from discontinued operations, net of income taxes | (0.1 | ) | 0.3 | 0.2 | | |||||||||||
Net income attributable to LifePoint Hospitals, Inc. | $ | 38.8 | $ | 38.8 | $ | 125.2 | $ | 119.3 | ||||||||
Denominator: |
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Weighted average shares outstanding basic | 49.3 | 52.0 | 50.2 | 52.8 | ||||||||||||
Effect of dilutive securities: stock options and other stock-based awards | 1.1 | 1.1 | 1.2 | 1.2 | ||||||||||||
Weighted average shares outstanding diluted | 50.4 | 53.1 | 51.4 | 54.0 | ||||||||||||
Basic earnings per share attributable to LifePoint Hospitals, Inc. stockholders: |
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Continuing operations | $ | 0.79 | $ | 0.74 | $ | 2.49 | $ | 2.26 | ||||||||
Discontinued operations | | | 0.01 | | ||||||||||||
Net income | $ | 0.79 | $ | 0.74 | $ | 2.50 | $ | 2.26 | ||||||||
Diluted earnings per share attributable to LifePoint Hospitals, Inc. stockholders(a): |
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Continuing operations | $ | 0.77 | $ | 0.72 | $ | 2.43 | $ | 2.21 | ||||||||
Discontinued operations | | | 0.01 | | ||||||||||||
Net income | $ | 0.77 | $ | 0.73 | $ | 2.44 | $ | 2.21 |
(a) | Total per share amounts may not add due to rounding. |
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The Companys 3½% Notes and 3¼% Debentures are included in the calculation of diluted earnings per share whether or not the contingent requirements have been met for conversion 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 3½% Notes and 3¼% Debentures has been excluded because the effects would have been anti-dilutive for the three and nine months ended September 30, 2011 and 2010.
Effective October 1, 2011, the Company, through its joint venture with Duke, acquired Person Memorial Hospital (Person Memorial), located in Roxboro, North Carolina for $22.7 million. The purchase price of Person Memorial is reflected as a deposit and is included in Other assets in the accompanying condensed consolidated balance sheet at September 30, 2011.
Subsequent to September 30, 2011 and through October 28, 2011, the Company has repurchased an additional 0.9 million shares of the Companys common stock for an aggregate purchase price, including commissions, of approximately $33.5 million at an average purchase price of $35.43 per share in connection with the 2011 Repurchase Plan.
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The Companys 6.625% Senior Notes are jointly and severally guaranteed on an unsecured senior basis by substantially all of the Companys existing subsidiaries that guarantee the Companys Credit Agreement. The following presents the condensed consolidating financial information for the parent issuer, guarantor subsidiaries, non-guarantor subsidiaries, certain eliminations and the Company for the three and nine months ended September 30, 2011 and 2010 and as of September 30, 2011 and December 31, 2010:
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues | $ | | $ | 802.5 | $ | 74.7 | $ | | $ | 877.2 | ||||||||||
Salaries and benefits | 6.4 | 307.9 | 23.5 | | 337.8 | |||||||||||||||
Supplies | | 102.0 | 11.9 | | 113.9 | |||||||||||||||
Other operating expenses | | 159.7 | 11.4 | | 171.1 | |||||||||||||||
Provision for doubtful accounts | | 117.0 | 10.0 | | 127.0 | |||||||||||||||
Equity in earnings of affiliates | (50.4 | ) | | | 50.4 | | ||||||||||||||
Depreciation and amortization | | 36.8 | 3.9 | | 40.7 | |||||||||||||||
Interest expense, net | 5.8 | 17.9 | 0.6 | | 24.3 | |||||||||||||||
Management (income) fees | | (2.3 | ) | 2.3 | | | ||||||||||||||
(38.2 | ) | 739.0 | 63.6 | 50.4 | 814.8 | |||||||||||||||
Income from continuing operations before income taxes | 38.2 | 63.5 | 11.1 | (50.4 | ) | 62.4 | ||||||||||||||
Provision for income taxes | (0.6 | ) | 23.4 | | | 22.8 | ||||||||||||||
Income from continuing operations | 38.8 | 40.1 | 11.1 | (50.4 | ) | 39.6 | ||||||||||||||
Income from discontinued operations, net of taxes: | | (0.1 | ) | | | (0.1 | ) | |||||||||||||
Net income | 38.8 | 40.0 | 11.1 | (50.4 | ) | 39.5 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | | | (0.7 | ) | | (0.7 | ) | |||||||||||||
Net income attributable to LifePoint Hospitals, Inc. | $ | 38.8 | $ | 40.0 | $ | 10.4 | $ | (50.4 | ) | $ | 38.8 |
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues | $ | | $ | 755.1 | $ | 77.2 | $ | | $ | 832.3 | ||||||||||
Salaries and benefits | 5.7 | 295.4 | 23.7 | | 324.8 | |||||||||||||||
Supplies | | 100.9 | 12.0 | | 112.9 | |||||||||||||||
Other operating expenses | (0.2 | ) | 145.2 | 13.5 | | 158.5 | ||||||||||||||
Provision for doubtful accounts | | 105.3 | 11.0 | | 116.3 | |||||||||||||||
Equity in earnings of affiliates | (53.8 | ) | | | 53.8 | | ||||||||||||||
Depreciation and amortization | | 32.8 | 3.6 | | 36.4 | |||||||||||||||
Interest expense, net | 9.2 | 16.9 | 0.1 | | 26.2 | |||||||||||||||
Debt extinguishment costs | 2.4 | | | | 2.4 | |||||||||||||||
Management (income) fees | | (2.2 | ) | 2.2 | | | ||||||||||||||
(36.7 | ) | 694.3 | 66.1 | 53.8 | 777.5 | |||||||||||||||
Income from continuing operations before income taxes | 36.7 | 60.8 | 11.1 | (53.8 | ) | 54.8 | ||||||||||||||
Provision for income taxes | (2.1 | ) | 17.7 | | | 15.6 | ||||||||||||||
Income from continuing operations | 38.8 | 43.1 | 11.1 | (53.8 | ) | 39.2 | ||||||||||||||
Income from discontinued operations, net of income taxes | | 0.3 | | | 0.3 | |||||||||||||||
Net income | 38.8 | 43.4 | 11.1 | (53.8 | ) | 39.5 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | | (0.2 | ) | (0.5 | ) | | (0.7 | ) | ||||||||||||
Net income attributable to LifePoint Hospitals, Inc. | $ | 38.8 | $ | 43.2 | $ | 10.6 | $ | (53.8 | ) | $ | 38.8 |
20
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues | $ | | $ | 2,409.8 | $ | 233.6 | $ | | $ | 2,643.4 | ||||||||||
Salaries and benefits | 17.7 | 921.5 | 72.0 | | 1,011.2 | |||||||||||||||
Supplies | | 308.9 | 37.8 | | 346.7 | |||||||||||||||
Other operating expenses | | 460.7 | 35.1 | | 495.8 | |||||||||||||||
Provision for doubtful accounts | | 352.4 | 31.0 | | 383.4 | |||||||||||||||
Equity in earnings of affiliates | (167.1 | ) | | | 167.1 | | ||||||||||||||
Depreciation and amortization | | 109.9 | 11.1 | | 121.0 | |||||||||||||||
Interest expense, net | 27.6 | 52.6 | 1.4 | | 81.6 | |||||||||||||||
Management (income) fees | | (7.1 | ) | 7.1 | | | ||||||||||||||
(121.8 | ) | 2,198.9 | 195.5 | 167.1 | 2,439.7 | |||||||||||||||
Income from continuing operations before income taxes | 121.8 | 210.9 | 38.1 | (167.1 | ) | 203.7 | ||||||||||||||
Provision for income taxes | (3.4 | ) | 79.9 | | | 76.5 | ||||||||||||||
Income from continuing operations | 125.2 | 131.0 | 38.1 | (167.1 | ) | 127.2 | ||||||||||||||
Income from discontinued operations, net of income taxes | | 0.2 | | | 0.2 | |||||||||||||||
Net income | 125.2 | 131.2 | 38.1 | (167.1 | ) | 127.4 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | | (0.4 | ) | (1.8 | ) | | (2.2 | ) | ||||||||||||
Net income attributable to LifePoint Hospitals, Inc. | $ | 125.2 | $ | 130.8 | $ | 36.3 | $ | (167.1 | ) | $ | 125.2 |
21
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Revenues | $ | | $ | 2,181.6 | $ | 227.5 | $ | | $ | 2,409.1 | ||||||||||
Salaries and benefits | 16.8 | 847.6 | 70.7 | | 935.1 | |||||||||||||||
Supplies | | 292.1 | 38.4 | | 330.5 | |||||||||||||||
Other operating expenses | 0.2 | 407.8 | 36.2 | | 444.2 | |||||||||||||||
Provision for doubtful accounts | | 294.3 | 29.1 | | 323.4 | |||||||||||||||
Equity in earnings of affiliates | (161.9 | ) | | | 161.9 | | ||||||||||||||
Depreciation and amortization | | 98.3 | 10.9 | | 109.2 | |||||||||||||||
Interest expense, net | 27.9 | 49.1 | 0.2 | | 77.2 | |||||||||||||||
Debt extinguishment costs | 2.4 | | | | 2.4 | |||||||||||||||
Management (income) fees | | (6.5 | ) | 6.5 | | | ||||||||||||||
(114.6 | ) | 1,982.7 | 192.0 | 161.9 | 2,222.0 | |||||||||||||||
Income before income taxes | 114.6 | 198.9 | 35.5 | (161.9 | ) | 187.1 | ||||||||||||||
Provision for income taxes | (4.7 | ) | 70.2 | | | 65.5 | ||||||||||||||
Net income | 119.3 | 128.7 | 35.5 | (161.9 | ) | 121.6 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | | (0.6 | ) | (1.7 | ) | | (2.3 | ) | ||||||||||||
Net income attributable to LifePoint Hospitals, Inc. | $ | 119.3 | $ | 128.1 | $ | 33.8 | $ | (161.9 | ) | $ | 119.3 |
22
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | | $ | 187.4 | $ | 12.0 | $ | | $ | 199.4 | ||||||||||
Accounts receivable, net | | 362.6 | 35.1 | | 397.7 | |||||||||||||||
Inventories | | 75.2 | 8.7 | | 83.9 | |||||||||||||||
Prepaid expenses | 0.1 | 19.5 | 0.8 | | 20.4 | |||||||||||||||
Deferred tax assets | 138.3 | | | | 138.3 | |||||||||||||||
Other current assets | | 24.5 | | | 24.5 | |||||||||||||||
138.4 | 669.2 | 56.6 | | 864.2 | ||||||||||||||||
Property and equipment: |
||||||||||||||||||||
Land | | 74.0 | 12.5 | | 86.5 | |||||||||||||||
Buildings and improvements | | 1,423.0 | 138.0 | | 1,561.0 | |||||||||||||||
Equipment | | 958.8 | 74.3 | | 1,033.1 | |||||||||||||||
Construction in progress | | 64.3 | 4.6 | | 68.9 | |||||||||||||||
| 2,520.1 | 229.4 | | 2,749.5 | ||||||||||||||||
Accumulated depreciation | | (965.5 | ) | (79.5 | ) | | (1,045.0 | ) | ||||||||||||
| 1,554.6 | 149.9 | | 1,704.5 | ||||||||||||||||
Deferred loan costs, net | 23.2 | | | | 23.2 | |||||||||||||||
Intangible assets, net | | 50.0 | 38.2 | | 88.2 | |||||||||||||||
Investments in subsidiaries | 1,422.0 | | | (1,422.0 | ) | | ||||||||||||||
Other | 1.0 | 40.8 | 1.9 | | 43.7 | |||||||||||||||
Goodwill | | 1,413.1 | 161.4 | | 1,574.5 | |||||||||||||||
Total assets | $ | 1,584.6 | $ | 3,727.7 | $ | 408.0 | $ | (1,422.0 | ) | $ | 4,298.3 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable | $ | | $ | 76.0 | $ | 6.8 | $ | | $ | 82.8 | ||||||||||
Accrued salaries | | 89.3 | 6.5 | | 95.8 | |||||||||||||||
Accrued interest | 10.4 | | | | 10.4 | |||||||||||||||
Income taxes payable | 58.1 | | | | 58.1 | |||||||||||||||
Other current liabilities | | 113.6 | 11.1 | | 124.7 | |||||||||||||||
Current maturities of long-term debt | | 1.3 | 0.1 | | 1.4 | |||||||||||||||
68.5 | 280.2 | 24.5 | | 373.2 | ||||||||||||||||
Long-term debt | 1,581.9 | 6.4 | 0.4 | | 1,588.7 | |||||||||||||||
Intercompany | (2,231.5 | ) | 2,265.5 | (34.0 | ) | | | |||||||||||||
Deferred income tax liabilities | 217.0 | | | | 217.0 | |||||||||||||||
Reserves for self-insurance claims and other liabilities | | 118.9 | 23.2 | | 142.1 | |||||||||||||||
Long-term income tax liability | 15.3 | | | | 15.3 | |||||||||||||||
Total liabilities | (348.8 | ) | 2,671.0 | 14.1 | | 2,336.3 | ||||||||||||||
Redeemable noncontrolling interests | | | 15.3 | | 15.3 | |||||||||||||||
Total LifePoint Hospitals, Inc. stockholders equity | 1,933.4 | 1,055.1 | 366.9 | (1,422.0 | ) | 1,933.4 | ||||||||||||||
Noncontrolling interests | | 1.6 | 11.7 | | 13.3 | |||||||||||||||
Total equity | 1,933.4 | 1,056.7 | 378.6 | (1,422.0 | ) | 1,946.7 | ||||||||||||||
Total liabilities and equity | $ | 1,584.6 | $ | 3,727.7 | $ | 408.0 | $ | (1,422.0 | ) | $ | 4,298.3 |
23
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | | $ | 197.1 | $ | 10.3 | $ | | $ | 207.4 | ||||||||||
Accounts receivable, net | | 358.4 | 28.9 | | 387.3 | |||||||||||||||
Inventories | | 75.9 | 8.7 | | 84.6 | |||||||||||||||
Prepaid expenses | | 13.6 | 0.3 | | 13.9 | |||||||||||||||
Income taxes receivable | 5.5 | | | | 5.5 | |||||||||||||||
Deferred tax assets | 99.7 | | | | 99.7 | |||||||||||||||
Other current assets | | 24.5 | 0.2 | | 24.7 | |||||||||||||||
105.2 | 669.5 | 48.4 | | 823.1 | ||||||||||||||||
Property and equipment: |
||||||||||||||||||||
Land | | 73.5 | 12.4 | | 85.9 | |||||||||||||||
Buildings and improvements | | 1,399.8 | 133.1 | | 1,532.9 | |||||||||||||||
Equipment | | 883.7 | 66.5 | | 950.2 | |||||||||||||||
Construction in progress | | 36.6 | 2.8 | | 39.4 | |||||||||||||||
| 2,393.6 | 214.8 | | 2,608.4 | ||||||||||||||||
Accumulated depreciation | | (868.6 | ) | (71.2 | ) | | (939.8 | ) | ||||||||||||
| 1,525.0 | 143.6 | | 1,668.6 | ||||||||||||||||
Deferred loan costs, net | 27.2 | | | | 27.2 | |||||||||||||||
Intangible assets, net | | 50.5 | 22.6 | | 73.1 | |||||||||||||||
Investments in subsidiaries | 1,255.9 | | | (1,255.9 | ) | | ||||||||||||||
Other | | 18.2 | 2.0 | | 20.2 | |||||||||||||||
Goodwill | | 1,413.2 | 137.5 | | 1,550.7 | |||||||||||||||
Total assets | $ | 1,388.3 | $ | 3,676.4 | $ | 354.1 | $ | (1,255.9 | ) | $ | 4,162.9 | |||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable | $ | | $ | 83.0 | $ | 6.0 | $ | | $ | 89.0 | ||||||||||
Accrued salaries | | 96.0 | 5.4 | | 101.4 | |||||||||||||||
Accrued interest | 16.0 | | | | 16.0 | |||||||||||||||
Other current liabilities | 7.9 | 96.2 | 12.4 | | 116.5 | |||||||||||||||
Current maturities of long-term debt | | 1.4 | | | 1.4 | |||||||||||||||
23.9 | 276.6 | 23.8 | | 324.3 | ||||||||||||||||
Long-term debt | 1,563.9 | 6.6 | | | 1,570.5 | |||||||||||||||
Intercompany | (2,316.7 | ) | 2,361.2 | (44.5 | ) | | | |||||||||||||
Deferred income tax liabilities | 211.2 | | | | 211.2 | |||||||||||||||
Reserves for self-insurance claims and other liabilities | | 107.0 | 24.8 | | 131.8 | |||||||||||||||
Long-term income tax liability | 18.5 | | | | 18.5 | |||||||||||||||
Total liabilities | (499.2 | ) | 2,751.4 | 4.1 | | 2,256.3 | ||||||||||||||
Redeemable noncontrolling interests | | | 15.3 | | 15.3 | |||||||||||||||
Total LifePoint Hospitals, Inc. stockholders equity | 1,887.5 | 923.7 | 332.2 | (1,255.9 | ) | 1,887.5 | ||||||||||||||
Noncontrolling interests | | 1.3 | 2.5 | | 3.8 | |||||||||||||||
Total equity | 1,887.5 | 925.0 | 334.7 | (1,255.9 | ) | 1,891.3 | ||||||||||||||
Total liabilities and equity | $ | 1,388.3 | $ | 3,676.4 | $ | 354.1 | $ | (1,255.9 | ) | $ | 4,162.9 |
24
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income | $ | 38.8 | $ | 40.0 | $ | 11.1 | $ | (50.4 | ) | $ | 39.5 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||||||||
Loss from discontinued operations | | 0.1 | | | 0.1 | |||||||||||||||
Equity in earnings of affiliates | (50.4 | ) | | | 50.4 | | ||||||||||||||
Stock-based compensation | 6.4 | | | | 6.4 | |||||||||||||||
Depreciation and amortization | | 36.8 | 3.9 | | 40.7 | |||||||||||||||
Amortization of physician minimum revenue guarantees | | 4.5 | 0.5 | | 5.0 | |||||||||||||||
Amortization of convertible debt discounts | 6.1 | | | | 6.1 | |||||||||||||||
Amortization of deferred loan costs | 1.4 | | | | 1.4 | |||||||||||||||
Deferred income tax benefit | (15.3 | ) | | | | (15.3 | ) | |||||||||||||
Reserves for self-insurance claims, net of payments | | 2.7 | | | 2.7 | |||||||||||||||
Increase (decrease) in cash from operating assets and liabilities, net of effects from acquisitions and divestitures: |
||||||||||||||||||||
Accounts receivable | | (18.1 | ) | 0.6 | | (17.5 | ) | |||||||||||||
Inventories and other current assets | | (1.5 | ) | (0.2 | ) | | (1.7 | ) | ||||||||||||
Accounts payable and accrued expenses | (3.4 | ) | 11.9 | 0.1 | | 8.6 | ||||||||||||||
Income taxes payable/receivable | 37.0 | | | | 37.0 | |||||||||||||||
Other | 0.1 | (3.3 | ) | 0.2 | | (3.0 | ) | |||||||||||||
Net cash provided by operating activities | 20.7 | 73.1 | 16.2 | | 110.0 | |||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Purchase of property and equipment | | (44.3 | ) | (5.0 | ) | | (49.3 | ) | ||||||||||||
Acquisitions, net of cash acquired | | (23.3 | ) | (13.3 | ) | | (36.6 | ) | ||||||||||||
Other | | (0.3 | ) | | | (0.3 | ) | |||||||||||||
Net cash used in investing activities | | (67.9 | ) | (18.3 | ) | | (86.2 | ) | ||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Payments on borrowings | | (0.1 | ) | | | (0.1 | ) | |||||||||||||
Repurchases of common stock | (99.4 | ) | | | | (99.4 | ) | |||||||||||||
Payment of debt financing costs | (0.3 | ) | | | | (0.3 | ) | |||||||||||||
Proceeds from exercise of stock options | 0.1 | | | | 0.1 | |||||||||||||||
Proceeds from employee stock purchase plans | 0.6 | | | | 0.6 | |||||||||||||||
Sales of (distributions to) noncontrolling interests | | 0.8 | (1.6 | ) | | (0.8 | ) | |||||||||||||
Change in intercompany balances with affiliates, net | 78.3 | (82.8 | ) | 4.5 | | | ||||||||||||||
Capital lease payments and other | | (0.3 | ) | | | (0.3 | ) | |||||||||||||
Net cash (used in) provided by financing activities | (20.7 | ) | (82.4 | ) | 2.9 | | (100.2 | ) | ||||||||||||
Change in cash and cash equivalents | | (77.2 | ) | 0.8 | | (76.4 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | | 264.6 | 11.2 | | 275.8 | |||||||||||||||
Cash and cash equivalents at end of period | $ | | $ | 187.4 | $ | 12.0 | $ | | $ | 199.4 |
25
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income | $ | 38.8 | $ | 43.4 | $ | 11.1 | $ | (53.8 | ) | $ | 39.5 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||||||||
Income from discontinued operations | | (0.3 | ) | | | (0.3 | ) | |||||||||||||
Equity in earnings of affiliates | (53.8 | ) | | | 53.8 | | ||||||||||||||
Stock-based compensation | 5.7 | | | | 5.7 | |||||||||||||||
Depreciation and amortization | | 32.8 | 3.6 | | 36.4 | |||||||||||||||
Amortization of physician minimum revenue guarantees | | 3.9 | 0.5 | | 4.4 | |||||||||||||||
Amortization of convertible debt discounts | 5.7 | | | | 5.7 | |||||||||||||||
Amortization of deferred loan costs | 1.6 | | | | 1.6 | |||||||||||||||
Debt extinguishment costs | 2.4 | | | | 2.4 | |||||||||||||||
Deferred income tax benefit | (17.9 | ) | | | | (17.9 | ) | |||||||||||||
Reserves for self-insurance claims, net of payments | | 5.4 | (0.4 | ) | | 5.0 | ||||||||||||||
Increase (decrease) in cash from operating assets and liabilities, net of effects from acquisitions and divestitures: |
||||||||||||||||||||
Accounts receivable | | (2.4 | ) | 0.6 | | (1.8 | ) | |||||||||||||
Inventories and other current assets | | | 0.1 | | 0.1 | |||||||||||||||
Accounts payable and accrued expenses | 2.9 | 13.0 | (0.1 | ) | | 15.8 | ||||||||||||||
Income taxes payable/receivable | 17.6 | | | | 17.6 | |||||||||||||||
Other | (0.2 | ) | (0.4 | ) | | | (0.6 | ) | ||||||||||||
Net cash provided by operating activities continuing operations | 2.8 | 95.4 | 15.4 | | 113.6 | |||||||||||||||
Net cash used in operating activities discontinued operations | | (0.5 | ) | | | (0.5 | ) | |||||||||||||
Net cash provided by operating activities | 2.8 | 94.9 | 15.4 | | 113.1 | |||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Purchase of property and equipment | | (47.6 | ) | (0.8 | ) | | (48.4 | ) | ||||||||||||
Acquisitions, net of cash acquired | | (142.1 | ) | (0.1 | ) | | (142.2 | ) | ||||||||||||
Net cash used in investing activities | | (189.7 | ) | (0.9 | ) | | (190.6 | ) | ||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Proceeds from borrowings | 400.0 | | | | 400.0 | |||||||||||||||
Payments on borrowings | (249.2 | ) | (6.0 | ) | | | (255.2 | ) | ||||||||||||
Repurchases of common stock | (46.9 | ) | | | | (46.9 | ) | |||||||||||||
Payment of debt financing costs | (8.7 | ) | | | | (8.7 | ) | |||||||||||||
Proceeds from exercise of stock options | 1.2 | | | | 1.2 | |||||||||||||||
Proceeds from employee stock purchase plans | 0.4 | | | | 0.4 | |||||||||||||||
Sales of (distributions to) noncontrolling interests | | 0.4 | (1.1 | ) | | (0.7 | ) | |||||||||||||
Purchase of redeemable noncontrolling interests | | | (0.8 | ) | | (0.8 | ) | |||||||||||||
Change in intercompany balances with affiliates, net | (99.6 | ) | 109.4 | (9.8 | ) | | | |||||||||||||
Capital lease payments and other | | (0.4 | ) | 0.2 | | (0.2 | ) | |||||||||||||
Net cash (used in) provided by financing activities | (2.8 | ) | 103.4 | (11.5 | ) | | 89.1 | |||||||||||||
Change in cash and cash equivalents | | 8.6 | 3.0 | | 11.6 | |||||||||||||||
Cash and cash equivalents at beginning of period | | 193.1 | 6.6 | | 199.7 | |||||||||||||||
Cash and cash equivalents at end of period | $ | | $ | 201.7 | $ | 9.6 | $ | | $ | 211.3 |
26
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income | $ | 125.2 | $ | 131.2 | $ | 38.1 | $ | (167.1 | ) | $ | 127.4 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||||||||||
Income from discontinued operations | | (0.2 | ) | | | (0.2 | ) | |||||||||||||
Equity in earnings of affiliates | (167.1 | ) | | | 167.1 | | ||||||||||||||
Stock-based compensation | 17.7 | | | | 17.7 | |||||||||||||||
Depreciation and amortization | | 109.9 | 11.1 | | 121.0 | |||||||||||||||
Amortization of physician minimum revenue guarantees | | 12.9 | 1.4 | | 14.3 | |||||||||||||||
Amortization of convertible debt discounts | 18.0 | | | | 18.0 | |||||||||||||||
Amortization of deferred loan costs | 4.4 | | | | 4.4 | |||||||||||||||
Deferred income tax benefit | (34.7 | ) | | | | (34.7 | ) | |||||||||||||
Reserves for self-insurance claims, net of payments | | 11.3 | (1.6 | ) | | 9.7 | ||||||||||||||
Increase (decrease) in cash from operating assets and liabilities, net of effects from acquisitions and divestitures: |
||||||||||||||||||||
Accounts receivable | | (6.2 | ) | (6.2 | ) | | (12.4 | ) | ||||||||||||
Inventories and other current assets | (0.1 | ) | (5.1 | ) | (0.3 | ) | | (5.5 | ) | |||||||||||
Accounts payable and accrued expenses | (5.6 | ) | 2.6 | 0.4 | | (2.6 | ) | |||||||||||||
Income taxes payable/receivable | 63.6 | | | | 63.6 | |||||||||||||||
Other | 0.2 | (3.0 | ) | 0.4 | | (2.4 | ) | |||||||||||||
Net cash provided by operating activities continuing operations | 21.6 | 253.4 | 43.3 | | 318.3 | |||||||||||||||
Net cash provided by operating activities discontinued operations | | 0.2 | | | 0.2 | |||||||||||||||
Net cash provided by operating activities | 21.6 | 253.6 | 43.3 | | 318.5 | |||||||||||||||
Cash flows from investing activities: |
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Purchase of property and equipment | | (142.9 | ) | (10.9 | ) | | (153.8 | ) | ||||||||||||
Acquisitions, net of cash acquired | | (25.0 | ) | (38.1 | ) | | (63.1 | ) | ||||||||||||
Other | (1.0 | ) | (0.2 | ) | | | (1.2 | ) | ||||||||||||
Net cash used in investing activities | (1.0 | ) | (168.1 | ) | (49.0 | ) | | (218.1 | ) | |||||||||||
Cash flows from financing activities: |
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Payments on borrowings | | (0.1 | ) | | | (0.1 | ) | |||||||||||||
Repurchases of common stock | (141.2 | ) | | | | (141.2 | ) | |||||||||||||
Payment of debt financing costs | (0.4 | ) | | | | (0.4 | ) | |||||||||||||
Proceeds from exercise of stock options | 34.6 | | | | 34.6 | |||||||||||||||
Proceeds from employee stock purchase plans | 1.2 | | | | 1.2 | |||||||||||||||
Sales of (distributions to) noncontrolling interests | | 1.7 | (3.1 | ) | | (1.4 | ) | |||||||||||||
Change in intercompany balances with affiliates, net | 85.2 | (95.7 | ) | 10.5 | | | ||||||||||||||
Capital lease payments and other | | (1.1 | ) | | | (1.1 | ) | |||||||||||||
Net cash (used in) provided by financing activities | (20.6 | ) | (95.2 | ) | 7.4 | | (108.4 | ) | ||||||||||||
Change in cash and cash equivalents | | (9.7 | ) | 1.7 | | (8.0 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | | 197.1 | 10.3 | | 207.4 | |||||||||||||||
Cash and cash equivalents at end of period | $ | | $ | 187.4 | $ | 12.0 | $ | | $ | 199.4 |
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Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
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Net income | $ | 119.3 | $ | 128.7 | $ | 35.5 | $ | (161.9 | ) | $ | 121.6 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Equity in earnings of affiliates | (161.9 | ) | | | 161.9 | | ||||||||||||||
Stock-based compensation | 16.8 | | | | 16.8 | |||||||||||||||
Depreciation and amortization | | 98.3 | 10.9 | | 109.2 | |||||||||||||||
Amortization of physician minimum revenue guarantees | | 11.3 | 1.1 | | 12.4 | |||||||||||||||
Amortization of convertible debt discounts | 16.7 | | | | 16.7 | |||||||||||||||
Amortization of deferred loan costs | 5.6 | | | | 5.6 | |||||||||||||||
Debt extinguishment costs | 2.4 | | | | 2.4 | |||||||||||||||
Deferred income tax benefit | (34.6 | ) | | | | (34.6 | ) | |||||||||||||
Reserves for self-insurance claims, net of payments | | 10.7 | (1.4 | ) | | 9.3 | ||||||||||||||
Increase (decrease) in cash from operating assets and liabilities, net of effects from acquisitions and divestitures: |
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Accounts receivable | | (25.9 | ) | (2.3 | ) | | (28.2 | ) | ||||||||||||
Inventories and other current assets | 1.3 | (3.4 | ) | (0.3 | ) | | (2.4 | ) | ||||||||||||
Accounts payable and accrued expenses | 3.9 | (8.8 | ) | 1.0 | | (3.9 | ) | |||||||||||||
Income taxes payable/receivable | 57.3 | | | | 57.3 | |||||||||||||||
Other | 0.1 | (0.6 | ) | | | (0.5 | ) | |||||||||||||
Net cash provided by operating activities continuing operations | 26.9 | 210.3 | 44.5 | | 281.7 | |||||||||||||||
Net cash used in operating activities discontinued operations | | (1.2 | ) | | | (1.2 | ) | |||||||||||||
Net cash provided by operating activities | 26.9 | 209.1 | 44.5 | | 280.5 | |||||||||||||||
Cash flows from investing activities: |
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Purchase of property and equipment | | (116.5 | ) | (5.5 | ) | | (122.0 | ) | ||||||||||||
Acquisitions, net of cash acquired | | (172.1 | ) | (12.8 | ) | | (184.9 | ) | ||||||||||||
Net cash used in investing activities | | (288.6 | ) | (18.3 | ) | | (306.9 | ) | ||||||||||||
Cash flows from financing activities: |
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Proceeds from borrowings | 400.0 | | | | 400.0 | |||||||||||||||
Payments on borrowings | (249.2 | ) | (6.0 | ) | | | (255.2 | ) | ||||||||||||
Repurchases of common stock | (97.4 | ) | | | | (97.4 | ) | |||||||||||||
Payment of debt financing costs | (13.1 | ) | | | | (13.1 | ) | |||||||||||||
Proceeds from exercise of stock options | 14.7 | | | | 14.7 | |||||||||||||||
Proceeds from employee stock purchase plans | 1.0 | | | | 1.0 | |||||||||||||||
Sales of (distributions to) noncontrolling interests | | 1.0 | (2.6 | ) | | (1.6 | ) | |||||||||||||
Proceeds from redeemable noncontrolling interests | | | 3.1 | | 3.1 | |||||||||||||||
Change in intercompany balances with affiliates, net | (82.9 | ) | 108.8 | (25.9 | ) | | | |||||||||||||
Capital lease payments and other | | (1.0 | ) | | | (1.0 | ) | |||||||||||||
Net cash used in (provided by) financing activities | (26.9 | ) | 102.8 | (25.4 | ) | | 50.5 | |||||||||||||
Change in cash and cash equivalents | | 23.3 | 0.8 | | 24.1 | |||||||||||||||
Cash and cash equivalents at beginning of period | | 178.4 | 8.8 | | 187.2 | |||||||||||||||
Cash and cash equivalents at end of period | $ | | $ | 201.7 | $ | 9.6 | $ | | $ | 211.3 |
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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 Annual Report on Form 10-K for the year ended December 31, 2010 (the 2010 Annual Report on Form 10-K). Unless otherwise indicated, all relevant financial and statistical information included herein relates to our continuing operations. Additionally, unless the context indicates otherwise, LifePoint Hospitals, Inc. and its subsidiaries are referred to in this section as we, our, or us.
We make forward-looking statements in this report, other reports and in statements we file with the United States (U.S.) Securities and Exchange Commission (the SEC) 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; our strategic goals; future acquisitions; our business strategy and operating philosophy, including an evaluation of growth strategies for existing markets and for potential acquisitions; effects of competition in a hospitals market; costs of providing care to our patients; changes in interest rates; our compliance with new and existing laws and regulations as well as costs and benefits associated with compliance; the impact of national health care reform; the performance of counterparties to our agreements; effect of credit ratings; professional fees; industry and general economic trends; reimbursement changes; patient volumes and related revenues; anticipated revenue from Medicaid electronic health records (EHR) incentive payments; claims and legal actions relating to professional liabilities, governmental investigations and other matters; anticipated capital expenditures; impact of accounting methodologies; 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, intend, target, continue or similar expressions. You should 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 operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statement. 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 as well as other factors such as market, operational, liquidity, interest rate and other risks are described in Part I, Item 1A. Risk Factors and Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk of our 2010 Annual Report on Form 10-K. Any factor described in our 2010 Annual Report on Form 10-K and in this report 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 2010 Annual Report on Form 10-K or in this report that could also cause results to differ from our expectations.
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We operate general acute care hospitals in non-urban communities in the United States. At September 30, 2011, on a consolidated basis, we operated 52 hospital campuses in 17 states, having a total of 5,836 licensed beds. We generate revenues primarily through hospital services offered at our facilities. We generated $877.2 million and $832.3 million during the three months ended September, 30 2011 and 2010, respectively, and $2,643.4 million and $2,409.1 million during the nine months ended September 30, 2011 and 2010, respectively, in revenues from continuing operations. For the three months ended September 30, 2011 and 2010, we derived 41.1% and 43.4%, respectively, and 42.1% and 43.2% for the nine months ended September 30, 2011 and 2010, respectively, of our revenues from continuing operations from the Medicare and Medicaid programs, collectively. Payments made to our hospitals pursuant to the Medicare and Medicaid programs for services rendered rarely exceed our costs for such services. The hospital industry continues to endure a period where the costs of providing care are rising faster than reimbursement rates. 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. 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.
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 restrictions that might exist.
The environment in which our hospitals operate is extremely competitive. Many of our communities are experiencing slow growth, and in some cases, population losses. The economies of our communities are also more sensitive to economic downturns in the manufacturing sector than the United States generally.
Our hospitals 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 the shift of increasingly complex procedures from the inpatient to the outpatient setting and have also seen growth in the general shift of lower acuity procedures to physician offices and other non-hospital outpatient settings. These trends have, 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, oncologists, urologists and orthopedists, in various areas of the country. This fact, and our ability to overcome these shortages, is directly relevant to our growth strategies because cardiologists, oncologists, urologists and orthopedists are often the physicians in highest demand in communities where our hospitals are located. Larger tertiary medical centers are acquiring physician practices and employing physicians in some of our communities. While physicians in these practices may continue to be members of the medical staffs of our hospitals, they may be less likely to refer patients to our hospitals over time.
We believe other key factors in our competition for patients is the quality of our patient care and the perception of that quality in the communities where our hospitals are located, which may be influenced by, among other things, the technology, service lines and capital improvements made at our facilities and the historical perception of the care provided at any particular facility. The quality of care, and our communities perception of that quality, may also be influenced by the skills and experience of our non-physician employees involved in patient care.
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In order to achieve growth in patient volumes, revenues and profitability given the competitive and structural environment, we continue to focus our business strategy on the following:
| Targeted recruiting of primary care physicians and physicians in key specialties; |
| Retention of physicians and efforts to improve physician engagement; |
| Retention and, where needed, recruitment of non-physician employees involved in patient care and efforts to improve employee satisfaction; |
| Measurement and improvement of quality of patient care and perceptions of such quality in communities where our hospitals are located; |
| Targeted investments in new technologies, new service lines and capital improvements at our facilities; |
| Improvements in management of expenses and revenue cycle; |
| Negotiation of improved reimbursement rates with non-governmental payors; and |
| Strategic growth through acquisition and integration of hospitals and other health care facilities where valuations are attractive and we can identify opportunities for improved financial performance through our management or ownership. |
Our business and our hospitals are 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 laws and regulations govern 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, and 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, civil sanctions, and the loss of our ability to receive reimbursements through the Medicare and Medicaid programs.
Not only are our hospitals heavily regulated, but 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 and regulations is a significant component of our overall expenses. Further, this expense has grown in recent periods because of new regulatory requirements and the severity of the penalties associated with non-compliance. Management believes compliance expenses will continue to grow in the foreseeable future.
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the Affordable Care Act) were signed into law on March 23, 2010 and March 30, 2010, respectively. The Affordable Care Act dramatically alters the U.S. health care system and is intended to decrease the number of uninsured Americans and reduce the overall cost of health care. The Affordable Care Act attempts to achieve these goals by, among other things, requiring most Americans to obtain health insurance, expanding Medicare and Medicaid eligibility, reducing Medicare and Medicaid payments, including disproportionate share hospital (DSH) payments, expanding the Medicare programs use of value-based purchasing programs, tying hospital payments to the satisfaction of certain quality criteria, bundling payments to hospitals and other providers, and instituting certain private health insurance reforms. Although a majority of the measures contained in the Affordable Care Act do not take effect until 2013, certain of the reductions in Medicare spending, such as negative adjustments to the Medicare hospital inpatient and outpatient prospective payment system market basket updates and the incorporation of productivity adjustments to the Medicare programs annual inflation updates, became effective in 2010 or will be implemented in 2011 and 2012. In
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addition, there have been a number of legal challenges to the Affordable Care Act, and some courts have ruled that the requirement for individuals to carry health insurance or the Affordable Care Act in its entirety is unconstitutional. Several bills have been and will likely continue to be introduced in Congress to deny funding for, repeal or amend all or significant provisions of the Affordable Care Act. It is difficult to predict the full impact of the Affordable Care Act on our revenue and results of operating because of its complexity, lack of implementing regulations and interpretive guidance, gradual and potentially delayed implementation, pending court challenges, and possible repeal and/or amendment, as well as our inability to foresee how individuals and businesses will respond to the choices afforded them by the Affordable Care Act.
On October 20, 2011, the Centers for Medicare and Medicaid Services (CMS) issued final regulations under the Affordable Care Act that are intended to allow physicians, hospitals and other health care providers to coordinate care for Medicare beneficiaries through Accountable Care Organizations (ACOs). We are continuing to evaluate the impact of the ACO regulations, whether we will undertake to form ACOs and the potential effect of ACOs in our markets.
Medicare payment methodologies have been, and can be expected to continue to be, revised significantly based on cost containment and policy considerations. The CMS has already begun to implement some of the Medicare reimbursement reductions required by the Affordable Care Act. These revisions will likely be more frequent and significant as more of the Affordable Care Acts changes and cost-saving measures become effective.
On August 18, 2011, CMS published its hospital inpatient prospective payment system (IPPS) final rule for federal fiscal year (FFY) 2012, which began on October 1, 2011. Among other things, the final rule provides for a 1.0% increase in payment rates for hospitals that successfully report the quality measures for the Hospital Inpatient Quality Reporting (IQR) Program (formerly the Reporting Hospital Quality Data for Annual Payment Update Program) in FFY 2012 and 1.0% decrease for those that do not. The update is based on an inflation (market basket) increase of 3.0%, which was reduced by a multi-factor productivity adjustment of 1.0% and an additional 0.1% as required by the Affordable Care Act. Under the final rule, Medicare payments were also increased by 1.1% in response to the outcome of litigation regarding the Medicare programs rural floor budget neutrality adjustments for FFYs 2007 and 2008 and reduced by 2.0%, as required by Transitional Medical Assistance, Abstinence Education, and Qualifying Individuals Programs Extension Act of 2007 (the TMA Act), to counteract the increased aggregate inpatient hospital payments in FFY 2012 and future years due to changes in hospital coding practices that occurred in connection with the implementation of the new Medicare Severity-Diagnosis Related Groups (MS-DRGs) and that do not reflect actual increases in patients severity of illness. CMS has indicated that an additional prospective decrease of 1.9% will be required in the future to recover the remaining amounts that are required to be recouped under the TMA Act. In addition, the final rule also completes the recoupment of the excess Medicare inpatient hospital payments that occurred in FFYs 2008 and 2009 due to the implementation of the MS-DRG system and expands the quality measures that hospitals must report in FFYs 2014 and 2015 to avoid a 2.0% payment reduction under the IQR Program. CMS projects that, under the final rule, Medicare reimbursement for hospital inpatient services will increase by 1.1% in FFY 2012 compared with FFY 2011.
In addition, many of the states in which we operate are facing budgetary challenges and have adopted, or may be considering, legislation that is intended to control or reduce Medicaid expenditures, enroll Medicaid recipients in managed care programs, and/or impose additional taxes on hospitals to help finance or expand their Medicaid programs. Congress has made an effort to address the financial challenges Medicaid is facing by recently increasing the amount of Medicaid funding available to states through the American Recovery and Reinvestment Act of 2009 (ARRA) and the Education, Jobs, and Medicaid Assistance Act, which increased Federal Medical Assistance Percentage (FMAP) payments through June 30, 2011. Such budget cuts, federal or state legislation, or other changes in the administration or interpretation of government health programs by government agencies or contracted managed care organizations could have a material adverse effect on our financial position and results of operations.
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Medicare and Medicaid spending continues to be a key issue in the ongoing Congressional budget debates. Both the President and Congress have proposed revisions to the Medicare and Medicaid programs that could have a substantial impact on the reimbursement that is paid to providers. In addition, the recently enacted Budget Control Act of 2011 (the BCA) requires the creation of a bi-partisan congressional committee that has a goal of identifying at least $1.5 trillion in additional deficit reductions over the next ten years, and the committee is expected to consider entitlement program reforms, including reforms to the Medicare program. If Congress does not enact additional deficit reductions greater than $1.2 trillion by January 15, 2012, the BCA requires automatic spending reductions of $1.2 trillion for FFYs 2013 through 2021, minus any deficit reduction enacted by Congress and debt service costs. However, the percentage reduction for Medicare may not be more than 2% for any FFY. Any reductions in Medicare spending made under the BCA would be in addition to those already required by the Affordable Care Act. We cannot predict how these spending reductions will be structured, whether Congress will make substantial changes to the Medicare and/or Medicaid programs, or, if any reductions or changes are implemented, how any such reductions or changes would impact our revenue and results of operations.
The Health Information Technology for Economic and Clinical Health Act (HITECH Act) was enacted into law on February 17, 2009 as part of ARRA. The HITECH Act includes provisions designed to increase the use of EHR by both physicians and hospitals. We intend to comply with the EHR meaningful use requirements of the HITECH Act in time to qualify for the maximum available Medicare and Medicaid incentive payments. Our compliance will result in significant costs including professional services focused on successfully designing and implementing our EHR solutions along with costs associated with the hardware and software components of the project. During the three and nine months ended September 30, 2011, we recognized $11.0 million and $15.2 million, respectively, in other revenues related to estimated Medicaid EHR incentive payments. We continue to refine our budgeted costs and the expected reimbursement improvements associated with our EHR initiatives and have the potential to recognize additional other revenues from EHR incentive payments in the remainder of 2011. We have incurred and will continue to incur both capital expenditures and operating expenses in connection with the implementation of our EHR initiatives. The timing of these expenditures does not correlate with the timing of our receipt of the incentive payments and the recognition of revenues. For the three and nine months ended September 30, 2011, we estimate that we incurred approximately $3.6 million and $7.9 million, respectively, of additional operating expenses related to our implementation of our EHR initiatives. We currently estimate that at a minimum total costs incurred to comply will be recovered through improved reimbursement amounts over the projected lifecycle of this initiative.
The HITECH Act also contains a number of provisions that significantly expand the reach of the Health Insurance Portability and Accountability Act (HIPAA). For example, the HITECH Act imposes varying civil monetary penalties and creates a private cause of action for state attorneys general for certain HIPAA violations, extends HIPAAs security provisions to business associates, and creates new security breach notification requirements.
These changes will require substantial operational changes for HIPAA covered entities and their business associates. Among other things, the proposed regulations that would implement the requirements of the HITECH Act would provide for new requirements for business associate agreements and a transition period for compliance, set new limits on the use and disclosure of health information for marketing and fundraising, prohibit the sale of patient health information without patient authorization, enhance individuals rights to obtain electronic copies of their medical records and restrict the disclosure of certain information, add new requirements for notices of privacy practices, modify restrictions on authorizations for the use of health information for research, and implement new changes to the HIPAA enforcement regulations.
Compliance with these new and proposed standards and the overlapping state laws regarding the protection of personal information requires significant commitment and action by our facilities, and we may incur significant costs in implementing the policies and systems required to comply.
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Our hospitals generate revenues by providing health care 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 health care services to our patients vary depending upon the payor. Governmental payors generally pay significantly less than the hospitals customary charges for the services provided. 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.
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 health care services. We must comply with these rules and regulations to continue to be eligible to participate in the Medicare and Medicaid programs. These rules and regulations are subject to frequent changes as a result of legislative and administrative action and annual payment adjustments on both the federal and the state levels. These changes will likely become more frequent and significant as the health care reform provisions of the Affordable Care Act are implemented.
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 health care 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 health care services.
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, including during the nine months ended September 30, 2011 as a result of a combination of broad economic factors, including high levels of unemployment in many of our markets, reductions in state Medicaid budgets and increasing numbers of individuals and employers who choose not to purchase insurance. Increasing self-pay revenue further results in increases to our provision for doubtful accounts.
The following definitions apply throughout the remaining portion of Managements Discussion and Analysis of Financial Condition and Results of Operations:
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 but excludes the results of our hospitals that have previously been disposed.
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.
Medicare case mix index. Refers to the acuity or severity of illness of an average Medicare patient at our hospitals.
N/A. Not applicable.
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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.
Outpatient surgeries. Outpatient surgeries are those surgeries that do not require admission to our hospitals.
Same-hospital. Same-hospital information includes the results of our corporate office and the same 47 hospitals operated during the three and nine months ended September 30, 2011 and 2010. Same-hospital information excludes the results of HighPoint Health System (HighPoint) which we acquired effective September 1, 2010, Clark Regional Medical Center (Clark), which we acquired effective May 1, 2010, and our hospitals that have previously been disposed.
The following table presents summaries of results of operations for the three and nine months ended September 30, 2011 and 2010 (dollars in millions):
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
Amount | % of Revenues |
Amount | % of Revenues |
Amount | % of Revenues |
Amount | % of Revenues |
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Revenues | $ | 877.2 | 100.0 | % | $ | 832.3 | 100.0 | % | $ | 2,643.4 | 100.0 | % | $ | 2,409.1 | 100.0 | % | ||||||||||||||||
Salaries and benefits | 337.8 | 38.5 | 324.8 | 39.0 | 1,011.2 | 38.3 | 935.1 | 38.8 | ||||||||||||||||||||||||
Supplies | 113.9 | 13.0 | 112.9 | 13.6 | 346.7 | 13.1 | 330.5 | 13.7 | ||||||||||||||||||||||||
Other operating expenses | 171.1 | 19.5 | 158.5 | 19.0 | 495.8 | 18.7 | 444.2 | 18.5 | ||||||||||||||||||||||||
Provision for doubtful accounts | 127.0 | 14.5 | 116.3 | 14.0 | 383.4 | 14.5 | 323.4 | 13.4 | ||||||||||||||||||||||||
Depreciation and amortization | 40.7 | 4.6 | 36.4 | 4.4 | 121.0 | 4.6 | 109.2 | 4.5 | ||||||||||||||||||||||||
Interest expense, net | 24.3 | 2.8 | 26.2 | 3.1 | 81.6 | 3.1 | 77.2 | 3.2 | ||||||||||||||||||||||||
Debt extinguishment costs | | | 2.4 | 0.3 | | | 2.4 | 0.1 | ||||||||||||||||||||||||
814.8 | 92.9 | 777.5 | 93.4 | 2,439.7 | 92.3 | 2,222.0 | 92.2 | |||||||||||||||||||||||||
Income from continuing operations before income taxes | 62.4 | 7.1 | 54.8 | 6.6 | 203.7 | 7.7 | 187.1 | 7.8 | ||||||||||||||||||||||||
Provision for income taxes | 22.8 | 2.6 | 15.6 | 1.9 | 76.5 | 2.9 | 65.5 | 2.8 | ||||||||||||||||||||||||
Income from continuing operations | 39.6 | 4.5 | 39.2 | 4.7 | 127.2 | 4.8 | 121.6 | 5.0 | ||||||||||||||||||||||||
Less: Net income attributable to noncontrolling interests | (0.7 | ) | (0.1 | ) | (0.7 | ) | (0.1 | ) | (2.2 | ) | (0.1 | ) | (2.3 | ) | | |||||||||||||||||
Income from continuing operations attributable to LifePoint Hospitals, Inc. | $ | 38.9 | 4.4 | % | $ | 38.5 | 4.6 | % | $ | 125.0 | 4.7 | % | $ | 119.3 | 5.0 | % |
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The following table shows our revenues and the key drivers of our revenues for the three months ended September 30, 2011 and 2010:
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Three Months Ended September 30, |
Increase (Decrease) |
% Increase (Decrease) |
||||||||||||||
2011 | 2010 | |||||||||||||||
Continuing operations: |
||||||||||||||||
Revenues (dollars in millions) | $ | 877.2 | $ | 832.3 | $ | 44.9 | 5.4 | % | ||||||||
Admissions | 47,378 | 46,159 | 1,219 | 2.6 | ||||||||||||
Equivalent admissions | 104,912 | 102,613 | 2,299 | 2.2 | ||||||||||||
Revenues per equivalent admission(a)(b) | $ | 8,256 | $ | 8,111 | $ | 145 | 1.8 | |||||||||
Medicare case mix index | 1.28 | 1.29 | (0.01 | ) | (0.8 | ) | ||||||||||
Average length of stay (days) | 4.2 | 4.3 | (0.1 | ) | (2.3 | ) | ||||||||||
Inpatient surgeries | 13,255 | 13,733 | (478 | ) | (3.5 | ) | ||||||||||
Outpatient surgeries | 38,456 | 39,506 | (1,050 | ) | (2.7 | ) | ||||||||||
Emergency room visits | 258,888 | 248,957 | 9,931 | 4.0 | ||||||||||||
Outpatient factor | 2.22 | 2.22 | | | ||||||||||||
Same-hospital: |
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Revenues (dollars in millions) | $ | 825.2 | $ | 803.2 | $ | 22.0 | 2.8 | % | ||||||||
Admissions | 44,535 | 44,645 | (110 | ) | (0.2 | ) | ||||||||||
Equivalent admissions | 97,636 | 98,562 | (926 | ) | (0.9 | ) | ||||||||||
Revenues per equivalent admission(a)(b) | $ | 8,346 | $ | 8,148 | $ | 198 | 2.4 | |||||||||
Medicare case mix index | 1.29 | 1.30 | (0.01 | ) | (0.8 | ) | ||||||||||
Average length of stay (days) | 4.2 | 4.3 | (0.1 | ) | (2.3 | ) | ||||||||||
Inpatient surgeries | 12,465 | 13,355 | (890 | ) | (6.7 | ) | ||||||||||
Outpatient surgeries | 36,275 | 38,123 | (1,848 | ) | (4.8 | ) | ||||||||||
Emergency room visits | 239,902 | 238,430 | 1,472 | 0.6 | ||||||||||||
Outpatient factor | 2.20 | 2.21 | (0.01 | ) | (0.5 | ) |
(a) | Our revenues per equivalent admission calculation excludes revenues recognized in connection with our estimated Medicaid EHR incentive payments. |
(b) | Our revenues per equivalent admission calculation for the three months ended September 30, 2010 includes approximately $12.4 million in additional amounts we received from the state of Alabama in connection with settlements for disproportionate share payments and access payments over the same period of the current year. |
The following table shows the sources of our revenues by payor for the three months ended September 30, 2011 and 2010, expressed as a percentage of total revenues, including adjustments to estimated reimbursement amounts:
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Continuing Operations | Same-Hospital | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Medicare | 28.7 | % | 29.3 | % | 28.7 | % | 29.5 | % | ||||||||
Medicaid | 12.4 | 14.1 | 12.3 | 14.0 | ||||||||||||
HMOs, PPOs and other private insurers | 40.6 | 40.6 | 40.7 | 40.4 | ||||||||||||
Self-Pay | 15.8 | 15.0 | 15.8 | 15.1 | ||||||||||||
Other | 2.5 | 1.0 | 2.5 | 1.0 | ||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
36
For the three months ended September 30, 2011, our same-hospital revenues increased by $22.0 million, or 2.8%, to $825.2 million as compared to $803.2 million for the same period last year. This increase in our same-hospital revenues is based on the following:
| increases in our insured patient revenue of approximately $11.4 million; |
| increases in our self-pay patient revenue of approximately $9.4 million; |
| increases in our other revenue related to the recognition of $11.0 million of Medicaid EHR incentive payments; and |
| decreases in Medicaid revenue due to the absence of approximately $12.4 million of Alabama provider tax revenue that was recognized in the same period last year. |
During the three months ended September 30, 2011, our same-hospital self-pay revenues increased by $9.4 million compared to the same period last year. This increase is less than increases experienced in recent quarters and continues to result from higher emergency room visits from our self-pay population, overall high levels of unemployment in the majority of our communities and pricing increases. Increases in our self-pay revenues attributed to an increase in our provision for doubtful accounts, as further discussed in our analysis of our provision for doubtful accounts.
Each of the items discussed in the preceding paragraphs including the exclusion of Medicaid EHR incentive payments from the calculation, the prior period Alabama provider tax revenue, lower increases in self-pay revenues and declining surgery volumes resulted in a lower growth rate for our revenues per equivalent admissions. As noted previously, same-hospital revenues per equivalent admission increased to $8,346 or 2.4% compared to the same period last year.
As previously noted, on a same-hospital basis, for the three months ended September 30, 2011 includes $11.0 million of revenue related to estimated Medicaid EHR incentive payments that we expect to receive later this year from certain states in which we operate, which was not available in the same period of the prior year. We continue to refine our budgeted costs and the expected reimbursement improvements associated with our EHR initiatives and have the potential to recognize additional revenues from EHR incentive payments in the remainder of 2011. We have incurred and will continue to incur both capital expenditures and operating expenses in connection with our implementation of our EHR initiatives. The timing of these expenditures does not correlate with the timing of our receipt of the incentive payments and the recognition of revenues. For the three months ended September 30, 2011, we estimate that we incurred approximately $3.6 million of additional operating expenses related to our implementation of our EHR initiatives.
Certain changes have been made to our historical sources of revenues table above. Specifically, we previously classified our revenues related to our owned physician practices as other revenue. In 2010 and for all previously reported periods, we changed the classification of our revenues for our owned physician practices from other to the respective payor classifications, as appropriate. These reclassifications reduced other revenue as a percentage of total revenues and increased Medicare, Medicaid, HMOs, PPOs and other private insurers and self-pay as a percentage of total revenues. We have determined that it is more appropriate to classify our owned physician practices revenue by their respective payor classification. Additionally, we previously classified revenues recognized in connection with our estimated Medicaid EHR incentive payments as Medicaid revenue. During the third quarter of 2011 and for the previously reported second quarter, we changed the classification of these funds to other revenue. We have determined that it is more appropriate to classify our participation in this program separately from our routine Medicaid revenues.
37
The following table summarizes our salaries and benefits, man-hours per equivalent admission and salaries and benefits per equivalent admission for the three months ended September 30, 2011 and 2010:
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Three Months Ended September 30, | Increase | % Increase | ||||||||||||||||||||||
2011 | % of Revenues |
2010 | % of Revenues |
|||||||||||||||||||||
Continuing operations: |
||||||||||||||||||||||||
Salaries and benefits (dollars in millions) | $ | 337.8 | 38.5 | % | $ | 324.8 | 39.0 | % | $ | 13.0 | 4.0 | % | ||||||||||||
Man-hours per equivalent admission | 98.6 | N/A | 97.4 | N/A | 1.2 | 1.2 | % | |||||||||||||||||
Salaries and benefits per equivalent admission | $ | 3,206 | N/A | $ | 3,140 | N/A | $ | 66 | 2.1 | % | ||||||||||||||
Same-hospital: |
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Salaries and benefits (dollars in millions) | $ | 315.5 | 38.2 | % | $ | 312.1 | 38.9 | % | $ | 3.4 | 1.1 | % | ||||||||||||
Man-hours per equivalent admission | 98.4 | N/A | 96.3 | N/A | 2.1 | 2.2 | % | |||||||||||||||||
Salaries and benefits per equivalent admission | $ | 3,217 | N/A | $ | 3,141 | N/A | $ | 76 | 2.4 | % |
For the three months ended September 30, 2011, our salaries and benefits expense increased to $315.5 million, or 1.1%, on a same-hospital basis as compared to $312.1 million for the same period last year. This increase in our same-hospital salaries and benefits expense is primarily a result of the impact of compensation increases for our employees and an increase in man-hours per equivalent admission to 98.4, or 2.2% on a same-hospital basis as compared to 96.3 for the same period last year. These increases were partially offset by lower employee benefits cost, primarily medical benefits expense.
The following table summarizes our supplies and supplies per equivalent admission for the three months ended September 30, 2011 and 2010:
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Three Months Ended September 30, | Increase (Decrease) |
% Increase (Decrease) |
||||||||||||||||||||||
2011 | % of Revenues |
2010 | % of Revenues |
|||||||||||||||||||||
Continuing operations: |
||||||||||||||||||||||||
Supplies (dollars in millions) | $ | 113.9 | 13.0 | % | $ | 112.9 | 13.6 | % | $ | 1.0 | 1.0 | % | ||||||||||||
Supplies per equivalent admission | $ | 1,085 | N/A | $ | 1,100 | N/A | $ | (15 | ) | (1.3 | )% | |||||||||||||
Same-hospital: |
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Supplies (dollars in millions) | $ | 107.6 | 13.0 | % | $ | 109.1 | 13.6 | % | $ | (1.5 | ) | (1.3 | )% | |||||||||||
Supplies per equivalent admission | $ | 1,101 | N/A | $ | 1,107 | N/A | $ | (6 | ) | (0.5 | )% |
For the three months ended September 30, 2011, our supplies expense decreased to $107.6 million, or 1.3% on a same-hospital basis, as compared to $109.1 million for the same period last year. This decrease in our same-hospital supplies expense for the three months ended September 30, 2011 was primarily a result of a 6.7% and 4.8% decline in our inpatient and outpatient surgical volumes, respectively.
38
The following table summarizes our other operating expenses for the three months ended September 30, 2011 and 2010 (dollars in millions):
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Three Months Ended September 30, | Increase (Decrease) |
% Increase (Decrease) |
||||||||||||||||||||||
2011 | % of Revenues |
2010 | % of Revenues |
|||||||||||||||||||||
Continuing operations: |
||||||||||||||||||||||||
Professional fees | $ | 23.7 | 2.7 | % | $ | 20.9 | 2.5 | % | $ | 2.8 | 13.8 | % | ||||||||||||
Utilities | 15.9 | 1.8 | 14.9 | 1.8 | 1.0 | 6.1 | ||||||||||||||||||
Repairs and maintenance | 20.4 | 2.3 | 18.1 | 2.2 | 2.3 | 13.0 | ||||||||||||||||||
Rents and leases | 7.7 | 0.9 | 7.2 | 0.9 | 0.5 | 6.6 | ||||||||||||||||||
Insurance | 7.5 | 0.9 | 9.7 | 1.2 | (2.2 | ) | (22.0 | ) | ||||||||||||||||
Physician recruiting | 7.5 | 0.9 | 5.4 | 0.6 | 2.1 | 39.2 | ||||||||||||||||||
Contract services | 44.4 | 5.1 | 39.7 | 4.8 | 4.7 | 11.6 | ||||||||||||||||||
Non-income taxes | 19.0 | 2.2 | 23.4 | 2.8 | (4.4 | ) | (18.9 | ) | ||||||||||||||||
Other | 25.0 | 2.7 | 19.2 | 2.2 | 5.8 | 29.7 | ||||||||||||||||||
$ | 171.1 | 19.5 | % | $ | 158.5 | 19.0 | % | $ | 12.6 | 7.9 | % | |||||||||||||
Same-hospital: |
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Professional fees | $ | 22.1 | 2.6 | % | $ | 19.6 | 2.4 | % | $ | 2.5 | 12.9 | % | ||||||||||||
Utilities | 14.6 | 1.8 | 14.4 | 1.8 | 0.2 | 1.3 | ||||||||||||||||||
Repairs and maintenance | 18.9 | 2.3 | 17.5 | 2.2 | 1.4 | 8.7 | ||||||||||||||||||
Rents and leases | 7.1 | 0.9 | 6.4 | 0.8 | 0.7 | 10.5 | ||||||||||||||||||
Insurance | 7.2 | 0.9 | 9.5 | 1.2 | (2.3 | ) | (24.1 | ) | ||||||||||||||||
Physician recruiting | 7.3 | 0.9 | 5.3 | 0.7 | 2.0 | 35.5 | ||||||||||||||||||
Contract services | 41.9 | 5.1 | 38.7 | 4.8 | 3.2 | 8.4 | ||||||||||||||||||
Non-income taxes | 17.0 | 2.1 | 21.8 | 2.7 | (4.8 | ) | (22.2 | ) | ||||||||||||||||
Other | 24.1 | 2.9 | 19.0 | 2.3 | 5.1 | 26.6 | ||||||||||||||||||
$ | 160.2 | 19.5 | % | $ | 152.2 | 18.9 | % | $ | 8.0 | 5.3 | % |
For the three months ended September 30, 2011, our other operating expenses increased to $160.2 million, or 5.3% on a same-hospital basis as compared to $152.2 million for the same period last year. This increase for the three months ended September 30, 2011 was primarily a result of increases in professional fees, physician recruiting, contract services and other, partially offset by decreases in insurance expense and non-income taxes.
As a shortage of physicians continues to become more acute, we have experienced increasing professional fees in areas such as 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.
Physician recruiting expense increased primarily as a result of an increase in amortization expense associated with our physician minimum revenue guarantees. To attract and retain qualified physicians, hospitals in small communities are often required to guarantee that these physicians will meet or exceed negotiated minimum income levels.
On a same-hospital basis, our contract services expense increased primarily as a result of increased fees and expenses related to our conversion of the clinical and patient accounting information system applications at several of our hospitals. For the three months ended September 30, 2011, we estimate that we incurred approximately $3.6 million of additional operating expenses related to our implementation of our EHR initiatives. Finally, our other expenses increased primarily as a result of increases in our charitable program expenses and legal fees.
These increases were partially offset by a decrease in our insurance expense and non-income taxes. Our insurance expense decreased compared to the same period last year primarily because of favorable claim development for our professional and general liability claims experienced during the current period as compared to the same period of the prior year. Our non-income taxes decreased primarily as a result of the previously discussed Alabama state provider tax assessments incurred in the same period of the prior year related to the Alabama state plan amendment.
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The following table summarizes our provision for doubtful accounts and related key indicators for the three months ended September 30, 2011 and 2010 (dollars in millions):
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Three Months Ended September 30, | Increase |
% Increase |
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2011 | % of Revenues |
2010 | % of Revenues |
|||||||||||||||||||||
Continuing operations: |
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Provision for doubtful accounts | $ | 127.0 | 14.5 | % | $ | 116.3 | 14.0 | % | $ | 10.7 | 9.2 | % | ||||||||||||
Related key indicators: |
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Charity care write-offs | $ | 25.6 | 2.9 | % | $ | 17.3 | 2.1 | % | $ | 8.3 | 47.3 | % | ||||||||||||
Self-pay revenues, net of charity care write-offs and uninsured discounts | $ | 138.6 | 15.8 | % | $ | 125.2 | 15.0 | % | $ | 13.4 | 10.6 | % | ||||||||||||
Net revenue days outstanding (at end of period) | 41.7 | N/A | 40.3 | N/A | 1.4 | 3.5 | % | |||||||||||||||||
Same-hospital: |
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Provision for doubtful accounts | $ | 119.1 | 14.4 | % | $ | 111.4 | 13.9 | % | $ | 7.7 | 7.0 | % | ||||||||||||
Related key indicators: |
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Charity care write-offs | $ | 23.0 | 2.8 | % | $ | 17.1 | 2.1 | % | $ | 5.9 | 34.6 | % | ||||||||||||
Self-pay revenues, net of charity care write-offs and uninsured discounts | $ | 130.7 | 15.8 | % | $ | 121.3 | 15.1 | % | $ | 9.4 | 7.8 | % | ||||||||||||
Net revenue days outstanding (at end of period) | 42.3 | N/A | 39.7 | N/A | 2.6 | 6.5 | % |
For the three months ended September 30, 2011, our provision for doubtful accounts increased by $10.7 million, or 9.2%, to $127.0 million on a continuing operations basis and by $7.7 million, or 7.0%, to $119.1 million on a same-hospital basis as compared to the same period last year. This increase was primarily the result of increases in self-pay revenues during the three months ended September 30, 2011 as compared to the same period last year. Same-hospital self-pay revenues increased by $9.4 million over the same period last year and represented 15.8% of revenues, as compared to 15.1% of revenues in the same period last year. Additionally, for the three months ended September 30, 2011, charity care write-offs increased by $5.9 million to $23.0 million on a same-hospital basis. Self-pay revenues and charity care write-offs continued to increase for both our inpatient and outpatient services including outpatient emergency room visits, which were primarily driven by high levels of unemployment in the majority of our communities and pricing increases. These increases were partially offset by an increase in up-front cash collections for the three months ended September 30, 2011, as compared to the same period last year. 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 2010 Annual Report on Form 10-K.
Additionally, our net revenue days outstanding, on a continuing operations basis as of September 30, 2011 increased by 3.5% to 41.7 days as compared to 40.3 days primarily as a result of our recognition $11.0 million of revenue related to estimated Medicaid EHR incentive payments that we expect to receive later this year.
For the three months ended September 30, 2011, our depreciation and amortization expense increased to $40.7 million, or 11.6%, on a continuing operations basis as compared to $36.4 million for the same period last year. Our depreciation and amortization expense increased as a result of our 2010 acquisition of HighPoint and capital improvement projects completed during 2010 and 2011. During the nine months ended September 30, 2011, we have experienced a significant increase in our spending related to information systems as the result of various initiatives and requirements, including compliance with the HITECH Act. We
40
anticipate increasing our spending related to information systems throughout the remainder of 2011. As a result, we anticipate that our depreciation and amortization expense as a percentage of revenues will increase in future periods.
Our interest expense decreased by $1.9 million, or 7.2%, to $24.3 million, for the three months ended September 30, 2011, as compared to $26.2 million for the same period last year as a result of several factors. Effective September 23, 2010, we issued $400.0 million of 6.625% unsecured senior notes due October 1, 2020 (the 6.625% Senior Notes). The net proceeds from this issuance were used to repay $249.2 million of our outstanding borrowings under the term B loans (the Term B Loans) provided pursuant to our credit agreement with Citicorp North America, Inc. as administrative agent, and a syndicate of lenders (the Credit Agreement) and $6.0 million of our outstanding borrowings under our Province 7½% senior subordinated notes due 2013 (the Province 7½% Notes). Interest on the 6.625% Senior Notes is payable at an annual fixed rate of 6.625% as compared to a variable rate under our Term B Loans, which for the three months ended September 30, 2011, on a weighted average basis, was 3.05%. On November 30, 2010, the notional amount of our interest rate swap decreased from $450.0 million to $300.0 million and effective May 30, 2011 our interest rate swap agreement matured. As the notional amount of our interest rate swap declined and then matured, a larger portion of our total outstanding debt has become subject to floating interest rates that are lower than the previously fixed rate under the agreement of 5.585% for the three months ended September 30, 2011 as compared to the same period last year. For a further discussion of our debt and corresponding interest rates, see Liquidity and Capital Resources Debt.
Our provision for income taxes was $22.8 million, or 2.6% of revenues, for the three months ended September 30, 2011, as compared to $15.6 million, or 1.9% of revenues, for the same period last year. The effective tax rate increased to 37.0% for the three months ended September 30, 2011, as compared to 28.8% for the same period last year. During the same period of the prior year, our effective tax rate was lower as we filed applications with the Internal Revenue Service (the IRS) that automatically allowed us to change our tax accounting method related to worthless accounts receivable. As a result of this tax accounting method change, we reduced our long-term income tax liability for unrecognized tax benefits and reversed the related and previously accrued interest expense.
41
The following table shows our revenues and the key drivers of our revenues for the nine months ended September 30, 2011 and 2010:
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Nine Months Ended September 30, |
Increase (Decrease) |
% Increase (Decrease) |
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2011 | 2010 | |||||||||||||||
Continuing operations: |
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Revenues (dollars in millions) | $ | 2,643.4 | $ | 2,409.1 | $ | 234.3 | 9.7 | % | ||||||||
Admissions | 147,620 | 141,174 | 6,446 | 4.6 | ||||||||||||
Equivalent admissions | 317,826 | 303,665 | 14,161 | 4.7 | ||||||||||||
Revenues per equivalent admission(a) | $ | 8,270 | $ | 7,933 | $ | 337 | 4.2 | |||||||||
Medicare case mix index | 1.29 | 1.30 | (0.01 | ) | (0.8 | ) | ||||||||||
Average length of stay (days) | 4.3 | 4.4 | (0.1 | ) | (2.3 | ) | ||||||||||
Inpatient surgeries | 39,962 | 40,539 | (577 | ) | (1.4 | ) | ||||||||||
Outpatient surgeries | 116,310 | 115,798 | 512 | 0.4 | ||||||||||||
Emergency room visits | 767,227 | 708,435 | 58,792 | 8.3 | ||||||||||||
Outpatient factor | 2.15 | 2.15 | | | ||||||||||||
Same-hospital: |
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Revenues (dollars in millions) | $ | 2,478.6 | $ | 2,370.9 | $ | 107.7 | 4.5 | % | ||||||||
Admissions | 138,915 | 139,224 | (309 | ) | (0.2 | ) | ||||||||||
Equivalent admissions | 296,306 | 298,218 | (1,912 | ) | (0.6 | ) | ||||||||||
Revenues per equivalent admission(a) | $ | 8,317 | $ | 7,950 | $ | 367 | 4.6 | |||||||||
Medicare case mix index | 1.29 | 1.30 | (0.01 | ) | (0.8 | ) | ||||||||||
Average length of stay (days) | 4.3 | 4.4 | (0.1 | ) | (2.3 | ) | ||||||||||
Inpatient surgeries | 37,739 | 40,047 | (2,308 | ) | (5.8 | ) | ||||||||||
Outpatient surgeries | 110,185 | 113,662 | (3,477 | ) | (3.1 | ) | ||||||||||
Emergency room visits | 712,548 | 693,657 | 18,891 | 2.7 | ||||||||||||
Outpatient factor | 2.13 | 2.14 | (0.01 | ) | (0.5 | ) |
(a) | Our revenues per equivalent admission calculation excludes revenues recognized in connection with our estimated Medicaid EHR incentive payments. |
The following table shows the sources of our revenues by payor for the nine months ended September 30, 2011 and 2010, expressed as a percentage of total revenues, including adjustments to estimated reimbursement amounts:
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Continuing Operations | Same-Hospital | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Medicare | 29.8 | % | 30.3 | % | 29.9 | % | 30.4 | % | ||||||||
Medicaid | 12.3 | 12.9 | 12.2 | 12.8 | ||||||||||||
HMOs, PPOs and other private insurers | 40.3 | 41.4 | 40.4 | 41.3 | ||||||||||||
Self-Pay | 15.9 | 14.4 | 15.9 | 14.4 | ||||||||||||
Other | 1.7 | 1.0 | 1.6 | 1.1 | ||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
42
For the nine months ended September 30, 2011, our revenues increased by $107.7 million, or 4.5%, to $2,478.6 million on a same-hospital basis as compared to $2,370.9 million for the same period last year. This primarily resulted from increases from each payor source, excluding Medicaid. Other revenues for the three months ended September 30, 2011 includes $15.2 million of Medicaid EHR incentive payments. Same-hospital self-pay revenues, inclusive of both inpatient and outpatient services, increased by $51.2 million as compared to the same period last year. These increases were largely driven by higher emergency room visits from our self-pay population, the favorable implementation of various emergency room initiatives to more accurately capture charges, overall high levels of unemployment in the majority of our communities and pricing increases. The increase in our self-pay revenues resulted in an increase in our provision for doubtful accounts, as further discussed in our analysis of our provision for doubtful accounts.
Other revenues, on a same-hospital basis, increased for the nine months ended September 30, 2011 primarily as a result of the recognition of $15.2 million of revenue related to estimated Medicaid EHR incentive payments that we expect to receive later this year from certain states in which we operate. We continue to refine our budgeted costs and the expected reimbursement improvements associated with our EHR initiatives and have the potential to recognize additional revenues from EHR incentive payments in the remainder of 2011. We have incurred and will continue to incur both capital expenditures and operating expenses in connection with our implementation of our EHR initiatives. The timing of these expenditures does not correlate with the timing of our receipt of the incentive payments and the recognition of revenues. For the nine months ended September 30, 2011, we estimate that we incurred approximately $7.9 million of additional operating expenses related to our implementation of our EHR initiatives.
Certain changes have been made to our historical sources of revenues table above. Specifically, we previously classified our revenues related to our owned physician practices as other revenue. In 2010 and for all previously reported periods, we changed the classification of our revenues for our owned physician practices from other to the respective payor classifications, as appropriate. These reclassifications reduced other revenue as a percentage of total revenues and increased Medicare, Medicaid, HMOs, PPOs and other private insurers and self-pay as a percentage of total revenues. We have determined that it is more appropriate to classify our owned physician practices revenue by their respective payor classification. Additionally, we previously classified revenues recognized in connection with our estimated Medicaid EHR incentive payments as Medicaid revenue. During the third quarter of 2011 and for the previously reported second quarter, we changed the classification of these funds to other revenue. We have determined that it is more appropriate to classify our participation in this program separately from our routine Medicaid revenues.
The following table summarizes our salaries and benefits, man-hours per equivalent admission and salaries and benefits per equivalent admission for the nine months ended September 30, 2011 and 2010:
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Nine Months Ended September 30, | Increase | % Increase | ||||||||||||||||||||||
2011 | % of Revenues |
2010 | % of Revenues |
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Continuing operations: |
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Salaries and benefits (dollars in millions) | $ | 1,011.2 | 38.3 | % | $ | 935.1 | 38.8 | % | $ | 76.1 | 8.1 | % | ||||||||||||
Man-hours per equivalent admission | 97.7 | N/A | 95.2 | N/A | 2.5 | 2.6 | % | |||||||||||||||||
Salaries and benefits per equivalent admission | $ | 3,174 | N/A | $ | 3,070 | N/A | $ | 104 | 3.4 | % | ||||||||||||||
Same-hospital: |
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Salaries and benefits (dollars in millions) | $ | 941.9 | 38.0 | % | $ | 917.7 | 38.7 | % | $ | 24.2 | 2.6 | % | ||||||||||||
Man-hours per equivalent admission | 97.0 | N/A | 94.8 | N/A | 2.2 | 2.3 | % | |||||||||||||||||
Salaries and benefits per equivalent admission | $ | 3,170 | N/A | $ | 3,068 | N/A | $ | 102 | 3.3 | % |
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For the nine months ended September 30, 2011, our salaries and benefits expense increased to $941.9 million, or 2.6%, on a same-hospital basis as compared to $917.7 million for the same period last year. This increase in our same-hospital salaries and benefits expense is primarily a result of the impact of compensation increases for our employees and an increase in man-hours per equivalent admission to 97.0, or 2.3% as compared to 94.8 for the same period last year.
The following table summarizes our supplies and supplies per equivalent admission for the nine months ended September 30, 2011 and 2010:
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Nine Months Ended September 30, | Increase | % Increase | ||||||||||||||||||||||
2011 | % of Revenues |
2010 | % of Revenues |
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Continuing operations: |
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Supplies (dollars in millions) | $ | 346.7 | 13.1 | % | $ | 330.5 | 13.7 | % | $ | 16.2 | 4.9 | % | ||||||||||||
Supplies per equivalent admission | $ | 1,091 | N/A | $ | 1,088 | N/A | $ | 3 | 0.2 | % | ||||||||||||||
Same-hospital: |
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Supplies (dollars in millions) | $ | 327.2 | 13.2 | % | $ | 325.6 | 13.7 | % | $ | 1.6 | 0.5 | % | ||||||||||||
Supplies per equivalent admission | $ | 1,104 | N/A | $ | 1,092 | N/A | $ | 12 | 1.1 | % |
For the nine months ended September 30, 2011, our supplies expense increased to $327.2 million, or 0.5% on a same-hospital basis as compared to $325.6 million for the same period last year. This increase in our same-hospital supplies expense for the nine months ended September 30, 2011 was primarily a result of an increase in our supplies expense per equivalent admission to $1,104, or 1.1%, as compared to $1,092 for the same period last year. Supplies per equivalent admission increased as a result of a higher utilization of more expensive supplies, predominantly cancer related supplies, as well as an increase in our pharmacy supplies expense.
The following table summarizes our other operating expenses for the nine months ended September 30, 2011 and 2010 (dollars in millions):
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Nine Months Ended September 30, | Increase (Decrease) |
% Increase (Decrease) |
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2011 | % of Revenues |
2010 | % of Revenues |
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Continuing operations: |
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Professional fees | $ | 71.0 | 2.7 | % | $ | 59.9 | 2.5 | % | $ | 11.1 | 18.6 | % | ||||||||||||
Utilities | 43.7 | 1.7 | 40.1 | 1.7 | 3.6 | 8.8 | ||||||||||||||||||
Repairs and maintenance | 58.7 | 2.2 | 52.3 | 2.2 | 6.4 | 12.3 | ||||||||||||||||||
Rents and leases | 22.2 | 0.8 | 20.0 | 0.8 | 2.2 | 11.0 | ||||||||||||||||||
Insurance | 25.4 | 1.0 | 33.3 | 1.4 | (7.9 | ) | (23.7 | ) | ||||||||||||||||
Physician recruiting | 20.6 | 0.8 | 17.6 | 0.7 | 3.0 | 17.2 | ||||||||||||||||||
Contract services | 131.5 | 5.0 | 115.1 | 4.8 | 16.4 | 14.2 | ||||||||||||||||||
Non-income taxes | 55.4 | 2.1 | 48.2 | 2.0 | 7.2 | 15.0 | ||||||||||||||||||
Other | 67.3 | 2.4 | 57.7 | 2.4 | 9.6 | 16.4 | ||||||||||||||||||
$ | 495.8 | 18.7 | % | $ | 444.2 | 18.5 | % | $ | 51.6 | 11.6 | % | |||||||||||||
Same-hospital: |
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Professional fees | $ | 65.6 | 2.6 | % | $ | 58.0 | 2.4 | % | $ | 7.6 | 13.2 | % | ||||||||||||
Utilities | 40.3 | 1.6 | 39.5 | 1.7 | 0.8 | 1.9 | ||||||||||||||||||
Repairs and maintenance | 54.3 | 2.2 | 51.4 | 2.2 | 2.9 | 5.8 | ||||||||||||||||||
Rents and leases | 20.0 | 0.8 | 18.8 | 0.8 | 1.2 | 6.1 | ||||||||||||||||||
Insurance | 24.3 | 1.0 | 33.0 | 1.4 | (8.7 | ) | (26.3 | ) | ||||||||||||||||
Physician recruiting | 20.0 | 0.8 | 17.5 | 0.7 | 2.5 | 13.9 | ||||||||||||||||||
Contract services | 123.8 | 5.0 | 113.8 | 4.8 | 10.0 | 8.8 | ||||||||||||||||||
Non-income taxes | 50.1 | 2.0 | 46.4 | 2.0 | 3.7 | 8.0 | ||||||||||||||||||
Other | 64.7 | 2.7 | 57.5 | 2.4 | 7.2 | 12.5 | ||||||||||||||||||
$ | 463.1 | 18.7 | % | $ | 435.9 | 18.4 | % | $ | 27.2 | 6.2 | % |
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For the nine months ended September 30, 2011, our other operating expenses increased to $463.1 million, or 6.2% on a same-hospital basis as compared to $435.9 million for the same period last year. This increase for the nine months ended September 30, 2011 was primarily a result of increases in professional fees, contract services and other expenses, partially offset by a decrease in insurance expense.
As a shortage of physicians continues to become more acute, we have experienced increasing professional fees in areas such as 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.
On a same-hospital basis, our contract services expense increased primarily as a result of increased fees and expenses related to our conversion of the clinical and patient accounting information system applications at several of our hospitals. For the nine months ended September 30, 2011, we estimate that we incurred approximately $7.9 million of additional operating expenses related to our implementation of our EHR initiatives. Finally, our other expenses increased primarily as a result of increases in our charitable program expenses and legal fees.
These increases were partially offset by a decrease in our insurance expense. Our insurance expense decreased compared to the same period last year primarily because of favorable claim development for our professional and general liability claims experienced during the current period as compared to the same period of the prior year.
The following table summarizes our provision for doubtful accounts and related key indicators for the nine months ended September 30, 2011 and 2010 (dollars in millions):
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Nine Months Ended September 30, | Increase |
% Increase |
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2011 | % of Revenues |
2010 | % of Revenues |
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Continuing operations: |
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Provision for doubtful accounts | $ | 383.4 | 14.5 | % | $ | 323.4 | 13.4 | % | $ | 60.0 | 18.5 | % | ||||||||||||
Related key indicators: |
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Charity care write-offs | $ | 67.7 | 2.6 | % | $ | 44.3 | 1.8 | % | $ | 23.4 | 52.6 | % | ||||||||||||
Self-pay revenues, net of charity care write-offs and uninsured discounts | $ | 419.4 | 15.9 | % | $ | 346.9 | 14.4 | % | $ | 72.5 | 20.9 | % | ||||||||||||
Net revenue days outstanding (at end of period) | 41.7 | N/A | 40.3 | N/A | 1.4 | 3.5 | % | |||||||||||||||||
Same-hospital: |
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Provision for doubtful accounts | $ | 358.0 | 14.4 | % | $ | 318.0 | 13.4 | % | $ | 40.0 | 12.6 | % | ||||||||||||
Related key indicators: |
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Charity care write-offs | $ | 59.8 | 2.4 | % | $ | 44.1 | 1.9 | % | $ | 15.7 | 35.7 | % | ||||||||||||
Self-pay revenues, net of charity care write-offs and uninsured discounts | $ | 392.9 | 15.9 | % | $ | 341.7 | 14.4 | % | $ | 51.2 | 15.0 | % | ||||||||||||
Net revenue days outstanding (at end of period) | 42.3 | N/A | 39.7 | N/A | 2.6 | 6.5 | % |
For the nine months ended September 30, 2011, our provision for doubtful accounts increased by $60.0 million, or 18.5%, to $383.4 million on a continuing operations basis and by $40.0 million, or 12.6%, to $358.0 million on a same-hospital basis as compared to the same period last year. This increase was primarily the result of increases in self-pay revenues during the nine months ended September 30, 2011 as compared to the same period last year. Same-hospital self-pay revenues increased by $51.2 million over the same period last year and represented 15.9% of revenues, as compared to 14.4% of revenues in the same period last year. Additionally, for the nine months ended September 30, 2011, charity care write-offs increased by $15.7 million to $59.8 million on a same-hospital basis. Self-pay revenues and charity care write-offs continued to increase for both our inpatient and outpatient services including outpatient emergency room
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visits, which were primarily driven by high levels of unemployment in the majority of our communities and pricing increases. These increases were partially offset by an increase in up-front cash collections for the nine months ended September 30, 2011, as compared to the same period last year. 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 2010 Annual Report on Form 10-K.
Additionally, our net revenue days outstanding, on a continuing operations basis as of September 30, 2011 increased by 3.5% to 41.7 days as compared to 40.3 days primarily as a result of our recognition $11.0 million of revenue related to estimated Medicaid EHR incentive payments that we expect to receive later this year.
For the nine months ended September 30, 2011, our depreciation and amortization expense increased to $121.0 million, or 10.8%, on a continuing operations basis as compared to $109.2 million for the same period last year. Our depreciation and amortization expense increased as a result of our 2010 acquisitions of HighPoint and Clark and capital improvement projects completed during 2010 and 2011. During the nine months ended September 30, 2011, we have experienced a significant increase in our spending related to information systems as the result of various initiatives and requirements, including compliance with the HITECH Act. We anticipate increasing our spending related to information systems throughout the remainder of 2011. As a result, we anticipate that our depreciation and amortization expense as a percentage of revenues will increase in future periods.
Our interest expense increased by $4.4 million, or 5.7%, to $81.6 million, for the nine months ended September 30, 2011, as compared to $77.2 million for the same period last year. This increase was largely attributable to an increase in our applicable annual interest rates. Effective September 23, 2010, we issued $400.0 million of our 6.625% Senior Notes. The net proceeds from this issuance were used to repay $249.2 million of our outstanding borrowings under our Term B Loans and $6.0 million of our outstanding borrowings under our Province 7½% Notes. Interest on the 6.625% Senior Notes is payable at an annual fixed rate of 6.625% as compared to a variable rate under our Term B Loans, which for the nine months ended September 30, 2011, on a weighted average basis, was 3.08%. These increases were partially offset by declines in interest expense attributable to our interest rate swap agreement. On November 30, 2010, the notional amount of our interest rate swap decreased from $450.0 million to $300.0 million and effective May 30, 2011 our interest rate swap agreement matured. As the notional amount of our interest rate swap declined and then matured, a larger portion of our total outstanding debt has become subject to floating interest rates that are lower than the previously fixed rate under the agreement of 5.585% for the nine months ended September 30, 2011 as compared to the same period last year. For a further discussion of our debt and corresponding interest rates, see Liquidity and Capital Resources Debt.
Our provision for income taxes was $76.5 million, or 2.9% of revenues, for the nine months ended September 30, 2011, as compared to $65.5 million, or 2.8% of revenues, for the same period last year. The effective tax rate increased to 38.0% for the nine months ended September 30, 2011, as compared to 35.4% for the same period last year. During the three months ended September 30, 2010, our effective tax rate was lower as we filed applications with the IRS that automatically allowed us to change our tax accounting method related to worthless accounts receivable. As a result of this tax accounting method change, we reduced our long-term income tax liability for unrecognized tax benefits and reversed the related and previously accrued interest expense.
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 and fund capital expenditures and certain small to mid-size hospital acquisitions.
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The following table presents summarized cash flow information for the three and nine months ended September 30, 2011 and 2010 (in millions):
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Net cash flows provided by continuing operations | $ | 110.0 | $ | 113.6 | $ | 318.3 | $ | 281.7 | ||||||||
Less: Purchase of property and equipment | (49.3 | ) | (48.4 | ) | (153.8 | ) | (122.0 | ) | ||||||||
Free operating cash flow | 60.7 | 65.2 | 164.5 | 159.7 | ||||||||||||
Acquisitions, net of cash acquired | (36.6 | ) | (142.2 | ) | (63.1 | ) | (184.9 | ) | ||||||||
Proceeds from borrowings | | 400.0 | | 400.0 | ||||||||||||
Payments on borrowings | (0.1 | ) | (255.2 | ) | (0.1 | ) | (255.2 | ) | ||||||||
Payment of debt financing costs | (0.3 | ) | (8.7 | ) | (0.4 | ) | (13.1 | ) | ||||||||
Repurchases of common stock | (99.4 | ) | (46.9 | ) | (141.2 | ) | (97.4 | ) | ||||||||
Proceeds from exercise of stock options | 0.1 | 1.2 | 34.6 | 14.7 | ||||||||||||
Other | (0.8 | ) | (1.3 | ) | (2.5 | ) | 1.5 | |||||||||
Cash flows from operations used in discontinued operations | | (0.5 | ) | 0.2 | (1.2 | ) | ||||||||||
Increase (decrease) in cash and cash equivalents | $ | (76.4 | ) | $ | 11.6 | $ | (8.0 | ) | $ | 24.1 |
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 operations for the nine months ended September 30, 2011 were positively impacted by an increase in net income, the collection of government based accounts receivable balances that had previously built up due to provider number matters at our HighPoint and Clark hospitals that were acquired in 2010 and an increase in up-front collections.
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.
We have 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 out migration of patients and to make our hospitals more desirable to our employees and potential patients.
The following table reflects our capital expenditures for the three and nine months ended September 30, 2011 and 2010 (dollars in millions):
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Capital projects | $ | 17.9 | $ | 22.5 | $ | 54.4 | $ | 56.2 | ||||||||
Routine | 11.0 | 12.1 | 41.2 | 31.9 | ||||||||||||
Information systems | 20.4 | 13.8 | 58.2 | 33.9 | ||||||||||||
$ | 49.3 | $ | 48.4 | $ | 153.8 | $ | 122.0 | |||||||||
Depreciation expense | $ | 40.0 | $ | 35.7 | $ | 118.9 | $ | 107.3 | ||||||||
Ratio of capital expenditures to depreciation expense | 123.3 | % | 135.6 | % | 129.4 | % | 113.7 | % |
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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. During the nine months ended September 30, 2011, we have experienced a significant increase in our spending related to information systems as the result of various initiatives and requirements, including compliance with the HITECH Act. We anticipate that we will continue to spend more on information systems during the fourth quarter of 2011.
An analysis and roll-forward of our long-term debt during the first nine months of 2011 is as follows (in millions):
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December 31, 2010 |
Payments of Borrowings |
Other(a) | Amortization of Convertible Debt Discounts |
September 30, 2011 |
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Senior Secured Credit Agreement: |
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Term B Loans | $ | 443.7 | $ | | $ | | $ | | $ | 443.7 | ||||||||||
Revolving Loans | | | | | | |||||||||||||||
Province 7½% Senior Subordinated Notes | 0.1 | (0.1 | ) | | | | ||||||||||||||
6.625% Senior Notes | 400.0 | | | | 400.0 | |||||||||||||||
3½% Notes | 575.0 | | | | 575.0 | |||||||||||||||
3¼% Debentures | 225.0 | | | | 225.0 | |||||||||||||||
Unamortized discounts on 3¼% Debentures and 3½% Notes | (79.8 | ) | | | 18.0 | (61.8 | ) | |||||||||||||
Capital leases | 7.9 | (1.1 | ) | 1.4 | | 8.2 | ||||||||||||||
$ | 1,571.9 | $ | (1.2 | ) | $ | 1.4 | $ | 18.0 | $ | 1,590.1 |
(a) | Represents the assumption of capital lease obligations in connection with certain acquisitions completed during the nine months ended September 30, 2011. |
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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 September 30, 2011 and December 31, 2010 (dollars in millions):
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September 30, 2011 |
December 31, 2010 |
Increase (Decrease) |
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Current portion of long-term debt | $ | 1.4 | $ | 1.4 | $ | | ||||||
Long-term debt | 1,588.7 | 1,570.5 | 18.2 | |||||||||
Unamortized discounts of convertible debt instruments | 61.8 | 79.8 | (18.0 | ) | ||||||||
Total debt, excluding unamortized discounts of convertible debt instruments | 1,651.9 | 1,651.7 | 0.2 | |||||||||
Total LifePoint Hospitals, Inc. stockholders equity | 1,933.4 | 1,887.5 | 45.9 | |||||||||
Total capitalization | $ | 3,585.3 | $ | 3,539.2 | $ | 46.1 | ||||||
Total debt to total capitalization | 46.1 | % | 46.7 | % | (60)bps | |||||||
Percentage of: |
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Fixed rate debt, excluding unamortized discounts of convertible debt instruments | 73.1 | % | 73.1 | % | ||||||||
Variable rate debt(a) | 26.9 | 26.9 | ||||||||||
100.0 | % | 100.0 | % | |||||||||
Percentage of: |
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Senior debt | 51.6 | % | 51.6 | % | ||||||||
Subordinated debt, excluding unamortized discounts of convertible debt instruments | 48.4 | 48.4 | ||||||||||
100.0 | % | 100.0 | % |
(a) | The above calculations do not consider the effect of our interest rate swap. Through May 30, 2011, we had an interest rate swap in effect which mitigated a portion of our floating rate risk on our outstanding variable rate borrowings under our Credit Agreement, by converting our variable rate debt to an annual fixed rate of 5.585%. Effective May 30, 2011, our interest rate swap agreement matured. As of December 31, 2010, our interest rate swap decreased our variable rate debt as a percentage of our outstanding debt from 26.9% to 8.7%. Please refer to Note 6 to our accompanying condensed consolidated financial statements included elsewhere in this report for a discussion of our interest rate swap agreement. |
Our Credit Agreement provides for Term B Loans, term A loans (the Term A Loans) and revolving loans (the Revolving Loans). The maturity date of our Term B Loans is contingent upon the refinancing of our outstanding 3½% convertible senior subordinated notes due May 15, 2014 (the 3½% Notes) beyond their current maturity date of May 15, 2014. Assuming that we refinance our outstanding 3½% Notes beyond their current maturity date, our Term B Loans will mature on April 15, 2015. If we do not refinance our outstanding 3½% Notes at least 91 days prior to their current maturity date, our Term B Loans will mature on February 13, 2014. Additionally, our Term B Loans are subject to mandatory prepayments based on excess cash flow, as well as upon the occurrence of certain other events, as specifically described in our Credit Agreement. Our Term A Loans and our Revolving Loans components mature on December 15, 2012. Our Credit Agreement is guaranteed on a senior secured basis by our subsidiaries with certain limited exceptions.
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Our Credit Agreement provides for the issuance of letters of credit up to $75.0 million. As of September 30, 2011, we had $29.8 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. Issued letters of credit reduce the amounts available under our Revolving Loans. In accordance with the terms of our Credit Agreement, Revolving Loans available for borrowing were $320.2 million as of September 30, 2011.
Our Credit Agreement contains uncommitted accordion features that permit us to borrow at a later date additional aggregate principal amounts of up to $400.0 million of Term B Loans, $250.0 million of Term A Loans and $300.0 million of Revolving Loans, subject to obtaining additional lender commitments and the satisfaction of other conditions.
Interest on the outstanding balance of the Term B Loans is payable at an adjusted London Interbank Offer Rate (LIBOR) plus a margin of 2.750%. Interest on the Revolving Loans is payable at our option at either an adjusted base rate or an adjusted LIBOR plus a margin. The margin on Revolving Loans subject to an adjusted base rate ranges from 1.00% to 1.75%, based on our total leverage ratio. The margin on the Revolving Loans subject to an adjusted LIBOR ranges from 2.00% to 2.75% based on our total leverage ratio.
As of September 30, 2011, the applicable annual interest rate under the Term B Loans was 3.08%, which was based on the 90-day adjusted LIBOR plus the applicable margin. The 90-day adjusted LIBOR was 0.33% at September 30, 2011. The weighted-average applicable annual interest rate for the three and nine months ended September 30, 2011 under the Term B Loans was 3.05% and 3.08%, respectively.
Our Credit Agreement requires us to satisfy certain financial covenants, including a minimum interest coverage ratio and a maximum total leverage ratio. The interest coverage ratio can be no less than 3.50:1.00 and the total leverage ratio cannot exceed 3.75:1.00, both determined on a trailing four quarter basis. In addition, the Credit Agreement generally limits the amount we can spend on capital expenditures to no more than 10.0% of annual revenues. We were in compliance with these covenants as of September 30, 2011.
In addition, our 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. It does not contain provisions that would accelerate the maturity dates upon a downgrade in our credit rating. However, a downgrade in our credit rating could adversely affect our ability to obtain other capital sources in the future and could increase our cost of borrowings.
Our 6.625% unsecured senior notes with The Bank of New York Mellon Trust Company, N.A., as trustee, (the 6.625% Senior Notes) are due October 1, 2020 and bear interest at the rate of 6.625% per year, payable semi-annually on April 1 and October 1. The 6.625% Senior Notes are jointly and severally guaranteed on an unsecured senior basis by substantially all of our existing and future subsidiaries that guarantee our Credit Agreement.
We may redeem up to 35% of the aggregate principal amount of our 6.625% Senior Notes, at any time before October 1, 2013, with the net cash proceeds of one or more qualified equity offerings at a redemption price equal to 106.625% of the principal amount to be redeemed, plus accrued and unpaid interest, provided that at least 65% of the aggregate principal amount of its 6.625% Senior Notes remain outstanding immediately after the occurrence of such redemption and such redemption occurs within 180 days of the date of the closing of any such qualified equity offering.
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We may redeem our 6.625% Senior Notes, in whole or in part, at any time prior to October 1, 2015 at a price equal to 100% of the principal amount of the notes redeemed plus an applicable make-whole premium, plus accrued and unpaid interest, if any, to the date of redemption. We may redeem our 6.625% Senior Notes, in whole or in part, at any time on or after October 1, 2015, plus accrued and unpaid interest, if any, to the date of redemption plus a redemption price equal to a percentage of the principal amount of the notes redeemed based on the following redemption schedule:
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October 1, 2015 to December 31, 2016 | 103.313 | % | ||
October 1, 2016 to December 31, 2017 | 102.208 | % | ||
October 1, 2017 to December 31, 2018 | 101.104 | % | ||
October 1, 2018 and thereafter | 100.000 | % |
If we experience a change of control under certain circumstances, we must offer to repurchase all of the notes at a price equal to 101.000% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
The 6.625% Senior Notes contain 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 3½% Notes bear interest at the rate of 3½% per year, payable semi-annually on May 15 and November 15. The 3½% Notes are convertible into common stock of the Company 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 3½% 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 3½% 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 3½% Notes as follows: (i) an amount in cash, which we refer to as 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 the agreements or indentures governing any additional indebtedness that we incur in the future. If we do not make any payments we are obligated to make under the terms of the 3½% 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 3½% Notes (subject to certain events). This represents an initial conversion price of $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 3½% Notes may require us to purchase some or all of the 3½% Notes at a purchase price in cash equal to 100% of the principal amount of the 3½% Notes surrendered, plus any accrued and unpaid interest.
The indenture for the 3½% 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 3½% Notes in the event of a highly leveraged transaction or other events that do not constitute a fundamental change.
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Our 3¼% Debentures bear interest at the rate of 3¼% per year, payable semi-annually on February 15 and August 15. The 3¼% Debentures are convertible (subject to certain limitations imposed by the Credit Agreement) into common stock of the Company under the following circumstances: (1) if the price of our common stock reaches a specified threshold during the specified periods; (2) if the trading price of the 3¼% Debentures is below a specified threshold; (3) if the 3¼% 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, which we refer to as the principal return, equal to the lesser of (a) the principal amount of the 3¼% 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, which we refer to as 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 the agreements or indentures governing any additional indebtedness that we 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 3¼% Debentures will not be convertible, and holders of the 3¼% Debentures will not be able to declare an event of default under the 3¼% Debentures.
The initial conversion rate for the 3¼% Debentures is 16.3345 shares of our common stock per $1,000 principal amount of 3¼% 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 3¼% Debentures at any time at a price equal to 100% of the principal amount of the 3¼% Debentures to be purchased, plus any accrued and unpaid interest. Holders may require us to purchase for cash some or all of the 3¼% 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 3¼% Debentures to be purchased, plus any accrued and unpaid interest.
The indenture for the 3¼% 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 3¼% Debentures in the event of a highly leveraged transaction or fundamental change.
Through May 30, 2011, we had an interest rate swap agreement in effect with Citibank, N.A. (Citibank) as counterparty that required us to make quarterly fixed rate payments to Citibank calculated on a notional amount of $300.0 million, at maturity, at an annual fixed rate of 5.585% while Citibank was obligated to make quarterly floating payments to us based on the three-month LIBOR on the same referenced notional amount. Prior to its maturity, we designated our interest rate swap as a cash flow hedge instrument, which was recorded in our accompanying condensed consolidated balance sheet as of December 31, 2010 at its fair value in accordance with ASC 815-10, Derivatives and Hedging (ASC 815-10), based on the amount at which it could be settled, which is referred to in ASC 815-10 as the exit price. The exit price is based upon observable market assumptions and appropriate valuation adjustments for credit risk. We categorized our interest rate swap as Level 2 in the fair value hierarchy, which ASC 820-10, Fair Value Measurement and Disclosures defines as observable market-based inputs or unobservable inputs that are corroborated by market data. Please refer to Note 6 to our accompanying condensed consolidated financial statements included elsewhere in this report for a further discussion of our interest rate swap agreement.
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We have increased our level of spending for capital expenditures during the nine months ended September 30, 2011 as compared to the same period in 2010. 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, permit additional patient volume and a greater variety of services, and implementing various information system initiatives in our efforts to comply with the HITECH Act. For the three and nine months ended September 30, 2011, we spent $20.4 million and $58.2 million, respectively, on information systems. We anticipate spending in excess of $75.0 million on information systems in 2011. At September 30, 2011, we had uncompleted projects with an estimated additional cost to complete and equip of approximately $102.6 million. We anticipate funding these expenditures through cash provided by operating activities, available cash and borrowings available under our Credit Agreement.
Our business strategy contemplates the selective acquisition of additional hospitals and other health care 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 agreements from lenders or restructure our long-term debt or equity for strategic reasons or to further strengthen our financial position. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders.
We believe that cash generated from our operations and borrowings available under our Credit Agreement 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 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 September 30, 2011, there were no material changes in our contractual obligations as presented in our 2010 Annual Report on Form 10-K.
We had standby letters of credit outstanding of $29.8 million as of September 30, 2011, all of which relates to the self-insured retention levels of our professional and general liability insurance and workers compensation programs as security for the payment of claims.
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:
| it requires assumptions to be made that were uncertain at the time the estimate was made; and |
| changes in the estimate or different estimates that could have been made could have a material impact on our consolidated results of operations or financial condition. |
Our critical accounting estimates include the following areas:
| Revenue recognition/Allowance for contractual discounts; |
| Allowance for doubtful accounts and provision for doubtful accounts; |
| Goodwill impairment analysis; |
| Reserves for self-insurance claims; |
| Accounting for stock-based compensation; and |
| Accounting for income taxes. |
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Please refer to Note 9 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; and |
| Capital expenditure commitments. |
The following discussion relates to our exposure to market risk based on changes in interest rates:
As of September 30, 2011, we had outstanding debt, excluding $61.8 million of unamortized discounts on our convertible debt instruments, of $1,651.9 million, 26.9%, or $443.7 million, of which was subject to variable rates of interest.
Our Term B Loans, 6.625% Senior Notes, 3½% Notes and 3¼% Debentures are our long-term debt instruments with carrying amounts different from their fair value as of September 30, 2011 and December 31, 2010. The carrying amount and fair value of these instruments as of September 30, 2011 and December 31, 2010 were as follows (in millions):
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Carrying Amount | Fair Value | |||||||||||||||
September 30, 2011 |
December 31, 2010 |
September 30, 2011 |
December 31, 2010 |
|||||||||||||
Term B Loans | $ | 443.7 | $ | 443.7 | $ | 430.4 | $ | 445.4 | ||||||||
6.625% Senior Notes | $ | 400.0 | $ | 400.0 | $ | 396.0 | $ | 398.0 | ||||||||
3½% Notes, excluding unamortized discount | $ | 575.0 | $ | 575.0 | $ | 584.3 | $ | 579.3 | ||||||||
3¼% Debentures, excluding unamortized discount | $ | 225.0 | $ | 225.0 | $ | 227.8 | $ | 225.6 |
The fair values of our Term B Loans and 6.625% Senior Notes were estimated based on the average bid and ask price as determined using published rates. The fair values of our 3½% Notes and 3¼% Debentures were estimated based on the quoted market prices determined using the closing share price of our common stock.
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 September 30, 2011. As a result, the interest rate market risk implicit in these investments at September 30, 2011, if any, is low.
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 Securities Exchange Act of 1934 (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 September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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 vertebra (either from trauma or osteoporotic disease process) to its previous height, reducing or eliminating severe pain. It has been reported that other unaffiliated hospitals and hospital operators in multiple states 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.
Based on a review of the number of the kyphoplasty procedures performed at all of our other hospitals, as part of our effort to cooperate with the U.S. Attorneys Office, by letter dated January 20, 2010 we identified to the U.S. Attorneys Office four additional facilities at which the number of inpatient kyphoplasty procedures approximated those performed at Andalusia Regional Hospital. We have completed our review of the relevant medical records and we are continuing to cooperate with the governments investigation.
Except as set forth below, there have been no material changes in our risk factors from those disclosed in our 2010 Annual Report on Form 10-K or our quarterly report on Form 10-Q for the three and six months ended June 30, 2011:
Spending cuts resulting from the Budget Control Act of 2011 may have a material adverse effect on our financial position, results of operation or cash flow.
On August 2, 2011, the Budget Control Act of 2011 (the BCA) was enacted. The BCA increased the nations debt ceiling while taking steps to reduce the federal deficit. The deficit reduction component is being implemented in two phases. In the first phase, the BCA imposes caps that reduce discretionary (non-entitlement) spending by more than $900 billion over 10 years, beginning in federal fiscal year 2012. Second, a bipartisan Congressional Joint Select Committee on Deficit Reduction (the Committee) is charged with identifying at least $1.5 trillion in deficit reduction, which could include entitlement provisions like Medicare reimbursement to providers. The BCA requires the Committee to issue its legislative proposals by November 23, 2011, and Congress must vote on the proposals by December 23, 2011. If legislation is not adopted to achieve deficit reduction targets, an enforcement mechanism would trigger a total of $1.2 trillion in automatic, across-the-board spending reductions in January 2013, split evenly between domestic and defense spending. Certain programs (including the Medicaid program) are protected from these automatic spending reductions. While provider payments under the Medicare program would be subject to reduction under this enforcement mechanism, those reductions would be capped at 2%. The automatic spending cuts or Congressional action on other spending cuts proposed by the Committee may reduce the revenues we receive from governmental payment programs or impose additional restrictions on those programs intended to decrease the long-term cost of such programs may have a material adverse effect on our financial position, results of operation or cash flow.
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Our Board of Directors has authorized the repurchase of outstanding shares of our common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints and other customary factors in accordance with repurchase plans adopted in 2009, 2010 and 2011. The 2009 plan provided for the repurchase of up to $100.0 million shares of common stock. The 2009 repurchase plan expired in February 2011. The 2010 plan provided for the repurchase of up to $150.0 million shares of common stock, and through September 30, 2011, we had repurchased all shares authorized for repurchase under this plan. The 2011 plan provides for the repurchase of up to $250.0 million shares of common stock, and, in connection with this repurchase plan, we entered into a trading plan in accordance with the SEC Rule 10b5-1 (the 10b5-1 Trading Plan). The 10b5-1 Trading Plan became effective on September 16, 2011 and expires on November 2, 2011. We are not obligated to repurchase any specific number of shares under its repurchase plans. We have designated the shares repurchased in accordance with the repurchase plans as treasury stock.
The following tables summarize our share repurchases in accordance with the repurchase plans for the three and nine months ended September 30, 2011 and 2010:
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Three Months Ended September 30, 2011 | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Amount (In millions) |
Total Number of Shares Repurchased (In millions) |
Weighted Average Price Paid per Share |
Amount (In millions) |
Total Number of Shares Repurchased (In millions) |
Weighted Average Price Paid per Share |
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2009 Repurchase Plan | $ | | | N/A | $ | 42.3 | 1.4 | $ | 31.91 | |||||||||||||||
2010 Repurchase Plan | 67.3 | 2.0 | $ | 33.46 | 4.3 | 0.1 | $ | 34.00 | ||||||||||||||||
2011 Repurchase Plan | 31.7 | 0.9 | $ | 35.39 | | | N/A | |||||||||||||||||
Total | $ | 99.0 | 2.9 | $ | 46.6 | 1.5 |
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Nine Months Ended September 30, 2011 | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Amount (In millions) |
Total Number of Shares Repurchased (In millions) |
Weighted Average Price Paid per Share |
Amount (In millions) |
Total Number of Shares Repurchased (In millions) |
Weighted Average Price Paid per Share | |||||||||||||||||||
2009 Repurchase Plan | $ | | | N/A | $ | 87.6 | 2.7 | $ | 33.03 | |||||||||||||||
2010 Repurchase Plan | 103.6 | 3.0 | $ | 35.24 | 4.3 | 0.1 | $ | 34.00 | ||||||||||||||||
2011 Repurchase Plan | 31.7 | 0.9 | $ | 35.39 | | | N/A | |||||||||||||||||
Total | $ | 135.3 | 3.9 | $ | 91.9 | 2.8 |
Additionally, we redeem shares from employees for minimum statutory tax withholding purposes upon vesting of certain stock awards granted pursuant to our Amended and Restated 1998 Long-Term Incentive Plan (LTIP) and Amended and Restated Management Stock Purchase Plan (MSPP). We redeemed approximately 0.1 million shares of certain vested LTIP and MSPP shares during each of the nine month periods ended September 30, 2011 and 2010 for an aggregate price of $5.9 million and $5.5 million, respectively. There were a nominal number of shares redeemed for minimum statutory tax withholdings purposes during each of the three month periods ended September 30, 2011 and 2010. We have designated these shares as treasury stock.
56
The following table summarizes our share repurchase activity by month for the three months ended September 30, 2011:
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Period | Total Number of Shares Purchased |
Weighted Average Price Paid per Share |
Total Number of Shares Purchased as Part of a Publicly Announced Program |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (In millions) |
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July 1, 2011 to July 31, 2011 | 176,345 | (a) | $ | 37.79 | 170,195 | $ | 60.9 | |||||||||
August 1, 2011 to August 31, 2011 | 1,841,323 | $ | 33.07 | 1,841,323 | $ | | ||||||||||
September 1, 2011 to September 30, 2011 | 899,123 | (a) | $ | 35.39 | 896,183 | $ | 218.3 | |||||||||
Total | 2,916,791 | (a) | $ | 34.07 | 2,907,701 | $ | 218.3 |
(a) | Includes shares redeemed for tax withholding purposes upon vesting of certain previously granted stock awards under our various stockholder-approved stock-based compensation plans. |
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Exhibit Number |
Description of Exhibits | |||
3.1 | | Amended and Restated Certificate of Incorporation (incorporated by reference from exhibits to the Registration Statement on Form S-8 filed by LifePoint Hospitals, Inc. on April 19, 2005, File No. 333-124151). | ||
3.2 | | Fourth Amended and Restated By-Laws of LifePoint Hospitals, Inc. (incorporated by reference from exhibits to the LifePoint Hospitals, Inc. Current Report on Form 8-K dated December 15, 2010, File No. 000-51251). | ||
31.1 | | Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | | Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. pursuant to Section 302 of the Sarbanes Oxley Act of 2002. | ||
32.1 | | Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | | Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. pursuant to Section 906 of the Sarbanes Oxley Act of 2002. | ||
101.INS | | XBRL Instance Document* | ||
101.SCH | | XBRL Taxonomy Extension Schema Document* | ||
101.CAL | | XBRL Taxonomy Calculation Linkbase Document* | ||
101.DEF | | XBRL Taxonomy Definition Linkbase Document* | ||
101.LAB | | XBRL Taxonomy Label Linkbase Document* | ||
101.PRE | | XBRL Taxonomy Presentation Linkbase Document* |
* | Furnished electronically herewith |
58
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.
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LifePoint Hospitals, Inc. | ||
By: /s/ Michael S. Coggin |
Date: October 28, 2011
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Exhibit Number |
Description of Exhibits | |||
3.1 | | Amended and Restated Certificate of Incorporation (incorporated by reference from exhibits to the Registration Statement on Form S-8 filed by LifePoint Hospitals, Inc. on April 19, 2005, File No. 333-124151). | ||
3.2 | | Fourth Amended and Restated By-Laws of LifePoint Hospitals, Inc. (incorporated by reference from exhibits to the LifePoint Hospitals, Inc. Current Report on Form 8-K dated December 15, 2010, File No. 000-51251). | ||
31.1 | | Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | | Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. pursuant to Section 302 of the Sarbanes Oxley Act of 2002. | ||
32.1 | | Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | | Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. pursuant to Section 906 of the Sarbanes Oxley Act of 2002. | ||
101.INS | | XBRL Instance Document* | ||
101.SCH | | XBRL Taxonomy Extension Schema Document* | ||
101.CAL | | XBRL Taxonomy Calculation Linkbase Document* | ||
101.DEF | | XBRL Taxonomy Definition Linkbase Document* | ||
101.LAB | | XBRL Taxonomy Label Linkbase Document* | ||
101.PRE | | XBRL Taxonomy Presentation Linkbase Document* |
* | Furnished electronically herewith |