-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B4ZG9+9EmwIRKIUZfKwZeXMCPYbXbfxxFxQKBNLFEDTSnojY0/UQbGeBqrHS4b6p wugc7za2Xu6FDpYU0G7R7w== 0000950144-01-502167.txt : 20010515 0000950144-01-502167.hdr.sgml : 20010515 ACCESSION NUMBER: 0000950144-01-502167 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVINCE HEALTHCARE CO CENTRAL INDEX KEY: 0001044942 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 621710772 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23639 FILM NUMBER: 1633138 BUSINESS ADDRESS: STREET 1: 105 WESTPARK DR STREET 2: STE 400 CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 6153701377 MAIL ADDRESS: STREET 1: 105 WESTPARK DR SUITE 180 STREET 2: 105 WESTPARK DR SUITE 180 CITY: BRENTWOOD STATE: TN ZIP: 37207 10-Q 1 g69320e10-q.txt PROVINCE HEALTHCARE COMPANY 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________________ to _________________ Commission File Number 0-23639 PROVINCE HEALTHCARE COMPANY (Exact Name of Registrant as Specified in Its Charter) DELAWARE 62-1710772 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 105 WESTWOOD PLACE SUITE 400 BRENTWOOD, TENNESSEE 37027 (Address of Principal Executive Offices) (Zip Code) (615) 370-1377 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT APRIL 30, 2001 COMMON STOCK, $.01 PAR VALUE 31,299,967 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Condensed Consolidated Balance Sheets March 31, 2001 and December 31, 2000............................1 Condensed Consolidated Statements of Income Three Months Ended March 31, 2001 and 2000......................2 Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2001 and 2000......................3 Notes to Condensed Consolidated Financial Statements................4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................................17
3 PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
March 31, December 31, 2001 2000 --------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,290 $ -- Accounts receivable, less allowance for doubtful accounts of $11,255 in 2001 and $8,321 in 2000 90,024 89,208 Inventories 11,872 11,805 Prepaid expenses and other 10,799 7,282 --------- -------- Total current assets 119,985 108,295 Property, plant and equipment, net 216,193 210,277 Other assets: Cost in excess of net assets acquired 183,545 183,331 Other assets 30,010 28,949 --------- -------- Total assets $ 549,733 $530,852 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,933 $ 12,359 Accrued salaries and benefits 15,635 14,736 Accrued expenses 16,037 15,655 Current maturities of long-term obligations 2,220 2,179 --------- -------- Total current liabilities 44,825 44,929 Long-term obligations, less current maturities 165,628 162,086 Other liabilities 8,109 7,343 Minority interest 1,878 1,780 Stockholders' equity: Common stock - $0.01 par value; 50,000,000 shares authorized; issued and outstanding 31,297,817 and 30,908,588 shares at March 31, 2001 and December 31, 2000, respectively 313 309 Additional paid-in-capital 280,212 273,858 Accumulated other comprehensive income (287) -- Retained earnings 49,055 40,547 --------- -------- Total stockholders' equity 329,293 314,714 --------- -------- Total liabilities and stockholders' equity $ 549,733 $530,852 ========= ========
See accompanying notes. 1 4 PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31, ------------------- 2001 2000 -------- -------- Revenue: Net patient service revenue $116,886 $103,413 Management and professional services 2,636 3,139 Reimbursable expenses 1,481 1,711 Other 1,433 839 -------- -------- Net operating revenue 122,436 109,102 Expenses: Salaries, wages and benefits 46,955 44,206 Reimbursable expenses 1,481 1,711 Purchased services 11,183 10,492 Supplies 13,775 12,351 Provision for doubtful accounts 10,919 8,069 Other operating expenses 12,294 9,799 Rentals and leases 1,728 1,803 Depreciation and amortization 6,682 6,332 Interest expense 2,622 5,212 Minority interest 98 36 Loss on sale of assets 30 2 -------- -------- Total expenses 107,767 100,013 -------- -------- Income before provision for income taxes 14,669 9,089 Income taxes 6,161 3,863 -------- -------- Net income $ 8,508 $ 5,226 ======== ======== Net income per common share: Basic $ 0.27 $ 0.22 ======== ======== Diluted $ 0.26 $ 0.21 ======== ========
See accompanying notes. 2 5 PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended March 31, -------------------- 2001 2000 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 11,474 $ 5,533 INVESTING ACTIVITIES Purchase of property, plant and equipment (12,749) (7,265) Purchase of hospitals -- (1,549) -------- -------- Net cash used in investing activities (12,749) (8,814) FINANCING ACTIVITIES Proceeds from long-term debt 23,519 28,935 Repayments of debt (19,936) (26,090) Issuance of common stock 4,982 3,070 Net cash provided by financing activities 8,565 5,915 -------- -------- Net increase in cash and cash equivalents 7,290 2,634 Cash and cash equivalents at beginning of period -- -- -------- -------- Cash and cash equivalents at end of period $ 7,290 $ 2,634 ======== ======== ACQUISITIONS Fair value of assets acquired $ -- $ 2,330 Liabilities assumed -- (781) -------- -------- Cash paid $ -- $ 1,549 ======== ========
See accompanying notes. 3 6 PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2001 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 footnotes required by accounting principles generally accepted in the United States for complete financial statements. Interim results are not necessarily indicative of results that may be expected for the full year. In the opinion of management, the accompanying interim financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows of Province Healthcare Company (the "Company"). The balance sheet at December 31, 2000, has been derived from the audited financial statements at that date, but does not include all of the financial information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. On September 28, 2000, the Company completed a three-for-two stock split in the form of a 50% common stock dividend to shareholders of record on September 15, 2000. All historical references in this document to transactions in the common stock and earnings per share data have been restated to reflect the stock split. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivatives Instruments and Hedging Activities, as amended by SFAS No. 137 and SFAS No. 138, requires that all derivatives be recorded on the balance sheet at fair value, which results in offsetting changes in fair values or cash flows of both the hedge and the hedged item being recognized in earnings or other comprehensive income in the same period. The Company's only derivative is an interest swap agreement. The Company believes that its hedge is highly effective, with changes in effectiveness reported in other comprehensive income. Changes in any ineffectiveness will be reported through earnings. The Company adopted the Statement on January 1, 2001, and the adoption did not have a significant effect on results of operations or financial position. 4 7 PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES ENNIS REGIONAL HOSPITAL In February 2000, the Company acquired, through a long-term capital lease agreement, the assets and business of the City of Ennis Hospital in Ennis, Texas. The hospital had been closed prior to its acquisition by the Company and was reopened in April 2000. BOLIVAR MEDICAL CENTER In April 2000, the Company acquired, through a long-term capital lease agreement, the assets and business of Bolivar Medical Center in Cleveland, Mississippi. OJAI VALLEY COMMUNITY HOSPITAL In October 2000, the Company sold substantially all of the assets of Ojai Valley Community Hospital, a 110-bed general acute-care facility located in Ojai, California, to the Ojai Valley Community Hospital Foundation. GENERAL HOSPITAL In December 2000, the Company completed the sale of substantially all of the assets of General Hospital, a 75-bed acute-care hospital located in Eureka, California, to St. Joseph Health System. OTHER INFORMATION In accordance with its stated policy, management of the Company evaluates all acquisitions independently to determine the appropriate amortization period for cost in excess of net assets acquired. Each evaluation includes an analysis of factors such as historic and projected financial performance, evaluation of the estimated useful lives of buildings and fixed assets acquired, the indefinite lives of certificates of need and licenses acquired, the competition within local markets, and lease terms where applicable. The foregoing acquisitions were accounted for using the purchase method of accounting. The operating results of the acquired companies have been included in the accompanying consolidated statements of income from the respective dates of acquisition. 5 8 PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) 4. LONG-TERM OBLIGATIONS At March 31, 2001, the Company had $6.7 million outstanding under its revolving credit facility and $256.5 million available, which includes availability under the end-loaded lease facility that can be converted to revolver availability at the Company's option. 5. COMPREHENSIVE INCOME The following table presents the components of comprehensive income, net of related taxes (in thousands):
Three Months Ended ------------------------ March 31, March 31, 2001 2000 ------- ------ Net income $ 8,508 $5,226 Net change in fair value of interest rate swaps (287) -- ------- ------ Comprehensive income $ 8,221 $5,226 ======= ======
6. INCOME TAXES The income tax provision for the three months ended March 31, 2001 and 2000, differs from the statutory income tax computation primarily due to permanent differences and the provision for state income taxes. 6 9 PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) 7. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended March 31, ---------------------- 2001 2000 ------- ------- Numerator Net income $ 8,508 $ 5,226 ======= ======= Denominator: Denominator for basic income per share-- Weighted-average shares 31,056 23,655 Effect of dilutive securities-- Employee stock options 1,374 843 ------- ------- Denominator for diluted income per share-- Adjusted weighted average shares 32,430 24,498 ======= ======= Basic net income per share $ 0.27 $ 0.22 ======= ======= Diluted net income per share $ 0.26 $ 0.21 ======= =======
During the three-month period ended March 31, 2001, employees exercised options to acquire 202,004 shares of common stock at an average exercise price of $14.82 per share, and issued 188,771 shares of common stock at a price of $10.77 per share under its Employee Stock Purchase Plan. There were 32% more diluted shares outstanding in the first quarter of 2001, compared with the first quarter of 2000, primarily as a result of the common stock offering of 6,333,756 shares in April 2000. 8. CONTINGENCIES Management continually evaluates contingencies based on the best available evidence and believes that adequate provision for losses has been provided to the extent necessary. In the opinion of management, the ultimate resolution of the following contingencies will not have a material effect on the Company's results of operations or financial position. 7 10 PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) GENERAL AND PROFESSIONAL LIABILITY RISKS Effective January 1, 2000, the Company purchased a professional liability unlimited claim reporting policy. This coverage is subject to a $5,000 deductible per occurrence and limited to an annual deductible cap of $100,000. The policy provides coverage up to $51,000,000 for claims incurred during the annual policy term. Effective January 1, 2001, the Company purchased a claims-made policy and provides an accrual for incurred but not reported claims. LITIGATION The Company currently is, and from time to time is expected to be, subject to claims and suits arising in the ordinary course of business. NET PATIENT SERVICE REVENUE Final determination of amounts earned under the Medicare and Medicaid programs often occurs in subsequent periods because of audits by the programs, rights of appeal and the application of numerous technical provisions. Differences between original estimates and subsequent revisions (including settlements) are included in the consolidated statement of income in the period in which revisions are made, and resulted in minimal adjustments for the three-month periods ended March 31, 2001 and 2000. FINANCIAL INSTRUMENTS Interest rate swap agreements are used to manage the Company's interest rate exposure under the Credit Agreement. In 1998, the Company entered into an interest rate swap agreement, which effectively converted for a five-year period $45.0 million of floating-rate borrowings to fixed-rate borrowings. In January 2001, the Company terminated $16.5 million of the $45.0 million swap agreement, leaving a notional amount of $28.5 million converted to fixed-rate borrowings. The Company secured a 5.625% fixed interest rate on the swap agreement. This agreement exposes the Company to credit losses in the event of non-performance by the counterparty to the financial instrument. The Company anticipates that the counterparty will fully satisfy its obligations under the contract. 8 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following along with the Condensed Consolidated Financial Statements and accompanying notes. OVERVIEW We are a healthcare services company focused on acquiring and operating hospitals in attractive non-urban markets in the United States. As of March 31, 2001, we owned and operated 14 general acute care hospitals in nine states with a total of 1,358 licensed beds, and managed 38 hospitals in 14 states, with a total of 3,098 licensed beds. Our owned and leased hospitals accounted for 96.6% and 95.5% of our net operating revenue in the three months ended March 31, 2001 and 2000, respectively. IMPACT OF ACQUISITIONS AND DIVESTITURES Acquisitions In February 2000, we acquired through a long-term capital lease agreement, the assets and business of the 45-bed City of Ennis Hospital from the City of Ennis, Texas. The aggregate rental payments required under the thirty-year lease total $3.0 million, including a prepayment of $2.0 million. To finance the lease prepayment, we borrowed $2.0 million under our revolving credit facility. The hospital had been closed prior to our acquisition, and we reopened the hospital in April 2000. In April 2000, we acquired, through a long-term capital lease agreement, the assets and business of the 165-bed Bolivar Medical Center in Cleveland, Mississippi, from Bolivar County. Aggregate rental payments required under the forty-year lease total $26.4 million, and were prepaid at the date of the acquisition. To finance the prepaid lease payment and the purchase of working capital, we borrowed $24.6 million under our revolving credit facility. The acquisitions described above were accounted for as purchase business combinations, and the results of operations of the hospitals have been included in our results of operations from the purchase dates forward. The March 31, 2001 results include City of Ennis Hospital and Bolivar Medical Center for the entire period. The March 31, 2000 results include one and one-half months of start-up operations for City of Ennis Hospital. Due to the relatively small number of hospitals owned and leased by us, each hospital acquisition can affect materially our overall operating margin. Upon the acquisition of a hospital, we typically take a number of steps to lower operating costs. The impact of such actions may be offset by other cost increases to expand services, strengthen medical staff and improve market position. The benefits of these investments and of other activities to improve operating margins generally do not occur immediately. Consequently, the financial performance of a newly acquired hospital may adversely affect overall operating margins in the short term. 9 12 As we make additional hospital acquisitions, we expect that this effect will be mitigated by the expanded financial base of existing hospitals and the allocation of corporate overhead among a larger number of hospitals. Divestitures In October 2000, we sold substantially all of the assets of Ojai Valley Community Hospital, a 110-bed general acute-care facility located in Ojai, California, to the Ojai Valley Community Hospital Foundation. In December 2000, we completed the sale of substantially all of the assets of General Hospital, a 75-bed acute-care hospital located in Eureka, California, to St. Joseph Health System. The March 31, 2000 results include three months of operations for the sold hospitals. RESULTS OF OPERATIONS The following table presents, for the periods indicated, information expressed as a percentage of net operating revenue. Such information has been derived from our Condensed Consolidated Statements of Income included elsewhere in this report. The results of operations or the periods presented include hospitals from their acquisition dates, as discussed above.
Percentage Three Months Ended Increase March 31, (Decrease) ------------------- of Dollar 2001 2000 Amounts ----- ----- ---------- Net operating revenue 100.0% 100.0% 12.2% Operating expenses (1) (80.3) (81.1) 11.2 ----- ----- EBITDA (2) 19.7 18.9 16.6 Depreciation and amortization (5.5) (5.8) 5.5 Interest (2.1) (4.8) (49.7) Minority interest (0.1) -- 172.2 ----- ----- Income before income taxes 12.0 8.3 61.4 Provision for income taxes (5.1) (3.5) 59.5 ----- ----- Net income 6.9% 4.8% 62.8% ===== =====
(1) Operating expenses represent expenses before interest, minority interest, loss on sale of assets, income taxes, depreciation and amortization expense. (2) EBITDA represents the sum of income before income taxes, interest, minority interest, depreciation and amortization, and loss on sale of assets. We understand that industry analysts generally consider EBITDA to be one measure of the financial performance of a company that is presented to assist investors in analyzing the operating performance of the Company and its ability to service debt. We believe that an increase in EBITDA level is an indicator of our improved ability to service existing debt, to sustain potential future increases in debt and to satisfy capital requirements. However, EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered an alternative to net income as a measure of operating performance or to cash flows from operating, investing, or financing activities 10 13 as a measure of liquidity. Given that EBITDA is not a measurement determined in accordance with accounting principles generally accepted in the United States and is thus susceptible to varying calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. SELECTED OPERATING STATISTICS - OWNED OR LEASED HOSPITALS The following table sets forth certain operating statistics for our company's owned or leased hospitals for each of the periods presented.
Three Months Ended March 31, ---------------------------- 2001 2000 ------------ ------------ CONSOLIDATED HOSPITALS: Number of hospitals at end of period 14 15 Licensed beds at end of period 1,358 1,327 Beds in service at end of period 1,256 1,231 Inpatient admissions 13,413 10,949 Patient days 56,837 51,559 Adjusted patient days 92,680 87,856 Average length of stay (days) 4.2 4.7 Occupancy rates (average licensed beds) 46.5% 42.7% Occupancy rates (average beds in service) 50.3% 46.0% Gross inpatient revenue $149,107,615 $127,213,506 Gross outpatient revenue 93,973,875 89,617,715
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Net operating revenue was $122.4 million for the three months ended March 31, 2001, compared to $109.1 million for the comparable period of 2000, an increase of $13.3 million or 12.2%. Cost report settlements and the filing of cost reports resulted in minimal revenue adjustments for the three months ended March 31, 2001 and 2000. Net patient revenue generated by hospitals owned during both periods increased $14.6 million, or 15.9%, resulting from inpatient volume increases, new services and price increases. Operating expenses were $98.3 million, or 80.3% of net operating revenue, for the three months ended March 31, 2001, compared to $88.4 million, or 81.1% of net operating revenue, for the comparable period of 2000. The provision for doubtful accounts increased to 8.9% of net operating revenue in 2001 from 7.4% of net operating revenue in 2000. EBITDA was $24.1 million, or 19.7% of net operating revenue, for the three months ended March 31, 2001, compared to $20.7 million, or 18.9% of net operating revenue, for the comparable period of 2000, primarily as a result of improved operations at hospitals owned during both periods. Depreciation and amortization expense was $6.7 million, or 5.5% of net operating revenue, for the three months ended March 31, 2001, compared to $6.3 million, or 5.8% of net 11 14 operating revenue for the comparable period of 2000. The increase in depreciation and amortization resulted primarily from capital expenditures at hospitals owned during both periods. Interest expense was $2.6 million for the three months ended March 31, 2001, compared to $5.2 million for the comparable period of 2000, a decrease of $2.6 million or 49.7%. This was a result of our using the net proceeds of the common stock offering in April 2000 to reduce the amount of indebtedness outstanding under the revolving credit facility. Also, proceeds from the sale of our 4 1/2% convertible subordinated notes were used to reduce the higher-rate amount of indebtedness outstanding under the revolving credit facility. Income before provision for income taxes was $14.7 million for the three months ended March 31, 2001, compared to $9.1 million for the comparable period of 2000, an increase of $5.6 million or 61.4%. Our provision for income taxes was $6.2 million for the three months ended March 31, 2001, compared to $3.9 million for the comparable period of 2000. These provisions reflect effective income tax rates of 42.0% for the 2001 period, compared to 42.5% for the 2000 period. As a result of the foregoing, our net income was $8.5 million, or 6.9% of net operating revenue, for the three months ended March 31, 2001, compared to $5.2 million, or 4.8% of net operating revenue for the comparable period of 2000. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, we had working capital of $75.2 million, including cash and cash equivalents of $7.3 million. The ratio of current assets to current liabilities was 2.7 to 1.0 at March 31, 2001, and 2.4 to 1.0 at December 31, 2000. Total long-term obligations, less current maturities, increased to $165.6 million at March 31, 2001, from $162.1 million at December 31, 2000. The increase resulted primarily from additional borrowings under the revolving credit facility. Cash provided by operations was $11.5 million for the three months ended March 31, 2001. Cash used in investing activities was $12.7 million for the three months ended March 31, 2001, relating primarily to capital expenditures. Net cash provided by financing activities was $8.6 million for the three months ended March 31, 2001, primarily as a result of borrowings under our revolving credit facility and issuance of common stock through exercises of stock options and through the Employee Stock Purchase Plan. We intend to acquire additional acute care facilities, and are actively seeking out such acquisitions. There can be no assurance that we will not require additional debt or equity financing for any particular acquisition. Also, we continually review our capital needs and financing opportunities and may seek additional equity or debt financing for our acquisition program or other needs. Capital expenditures, excluding acquisitions, for the three months ended March 31, 2001 and 2000, were $12.7 million and $7.3 million, respectively, inclusive of construction projects. Capital expenditures for the owned hospitals may vary from year to year depending on facility 12 15 improvements and service enhancements undertaken by the hospitals. We expect to make total capital expenditures in 2001 of approximately $52.2 million, exclusive of any acquisitions of businesses. Planned capital expenditures for 2001 consist principally of capital improvements to owned and leased hospitals. We expect to fund these expenditures through cash provided by operating activities and borrowings under our revolving credit facility. MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS Our interest expense is sensitive to changes in the general level of interest rates. To mitigate the impact of fluctuations in interest rates, we generally maintain 50% - 75% of our debt at a fixed rate, either by borrowings on a long-term basis or entering into an interest rate swap. At March 31, 2001, approximately 100% of our outstanding debt and end-loaded lease facility amounts were effectively at a fixed rate. Our interest rate swap contract allows us to periodically exchange fixed rate and floating rate payments over the life of the agreement. Floating-rate payments are based on LIBOR and fixed-rate payments are dependent upon market levels at the time the interest rate swap was consummated. Our interest rate swap is a cash flow hedge, which effectively converts an aggregate notional amount of $28.5 million of floating rate borrowings to fixed rate borrowings at March 31, 2001. Our policy is not to hold or issue derivatives for trading purposes and to avoid derivatives with leverage features. We are exposed to credit losses in the event of nonperformance by the counterparty to the financial instrument. We anticipate that the counterparty will fully satisfy its obligations under the contract. GENERAL The federal Medicare program accounted for approximately 55.1% and 60.5% of hospital patient days for the three months ended March 31, 2001 and 2000, respectively. The state Medicaid programs accounted for approximately 18.3% and 13.7% of hospital patient days for the three months ended March 31, 2001 and 2000, respectively. The payment rates under the Medicare program for inpatients are prospective, based upon the diagnosis of a patient. The Medicare payment rate increases historically have been less than actual inflation. Both federal and state legislatures are continuing to scrutinize the healthcare industry for the purpose of reducing heath care costs. While we are unable to predict what, if any, future health reform legislation may be enacted at the federal or state level, we expect continuing pressure to limit expenditures by governmental healthcare programs. The Balanced Budget Act of 1997 imposed certain limitations on increases in the inpatient Medicare rates paid to acute care hospitals. Payments for Medicare outpatient services provided at acute care hospitals and home health services historically have been paid based on costs, subject to certain limits. The Balanced Budget Act of 1997 required that the payment for those services be converted to a prospective payment system, which will be phased in over time. The Balanced Budget Act of 1997 also includes a managed care option that could direct Medicare patients to managed care organizations. Further changes in the Medicare or Medicaid programs and other proposals to limit healthcare spending could have a material adverse effect on the healthcare industry and our company. 13 16 Some of our acute care hospitals, like most acute care hospitals in the United States, have significant unused capacity. The result is substantial competition for patients and physicians. Inpatient utilization continues to be affected negatively by payor-required pre-admission authorization and by payor pressure to maximize outpatient and alternative health care delivery services for less acutely ill patients. We expect increased competition and admission constraints to continue in the future. The ability to respond successfully to these trends, as well as spending reductions in governmental health care programs, will play a significant role in determining the ability of our hospitals to maintain their current rate of net revenue growth and operating margins. We expect the industry trend in increased outpatient services to continue because of the increased focus on managed care and advances in technology. Outpatient revenue of our owned or leased hospitals was approximately 38.7% and 41.3% of gross patient service revenue for the three months ended March 31, 2001 and 2000, respectively. The billing and collection of accounts receivable by hospitals are complicated by: - the complexity of the Medicare and Medicaid regulations; - increases in managed care; - hospital personnel turnover; - the dependence of hospitals on physician documentation of medical records; and - the subjective judgment involved. These factors, or any combination of them, may impact our ability to bill and collect our accounts receivable at the rates we have anticipated, which could negatively affect our future cash flows. The federal government and a number of states are increasing the resources devoted to investigating allegations of fraud and abuse in the Medicare and Medicaid programs. At the same time, regulatory and law enforcement authorities are taking an increasingly strict view of the requirements imposed on providers by the Social Security Act and Medicare and Medicaid regulations. Although we believe that we are in material compliance with such laws, a determination that we have violated such laws, or even the public announcement that we were being investigated concerning possible violations, could have a material adverse effect on our company. Our historical financial trend has been impacted favorably by our success in acquiring acute care hospitals. While we believe that trends in the healthcare industry described above may create possible future acquisition opportunities, there can be no assurances that we can continue to maintain our current growth rate through hospital acquisitions and successfully integrate the hospitals into our system. 14 17 The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in our financial statements. Resolution of matters, for example, final settlements with third party payors, may result in changes from those estimates. The timing and amount of such changes in estimates may cause fluctuations in our quarterly or annual operating results. 15 18 FORWARD-LOOKING STATEMENTS Our disclosure and analysis in this report contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change include, but are not limited to: - the highly competitive nature of the healthcare business; - the efforts of insurers, healthcare providers and others to contain healthcare costs; - possible changes in the levels and terms of reimbursement for our charges by government programs, including Medicare and Medicaid or other third-party payors; - changes in or failure to comply with federal, state or local laws and regulations affecting the healthcare industry; - the possible enactment of federal or state healthcare reform; - the departure of key members of our management; - claims and legal actions relating to professional liability; - our ability to implement successfully our acquisition and development strategy; - our ability to attract and retain qualified personnel and recruit physicians; - potential federal or state investigations; - fluctuations in the market value of our common stock or notes; - changes in accounting principles generally accepted in the United States; and - changes in demographic, general economic and business conditions, both nationally and in the regions in which we operate. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. We advise you, however, to consult any additional disclosures we make in our Form 10-Q, 8-K 16 19 and 10-K reports to the Securities and Exchange Commission, as well as the discussion of risks and uncertainties under the caption "Risk Factors" contained in our Registration Statement on Form S-3, filed with the Securities and Exchange Commission on January 24, 2001 (Commission File No. 333-54192), and any amendments to such registration statement. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here also could affect us adversely. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the three months ended March 31, 2001, there were no material changes in the quantitative and qualitative disclosures about market risks presented in our Annual Report on Form 10-K for the year ended December 31, 2000. Our only derivative instrument relates to an interest rate swap agreement. 17 20 PART II OTHER INFORMATION ITEM 5. OTHER INFORMATION The deadline for delivering your notice of a shareholder proposal, other than a proposal to be included in the proxy statement, for the 2002 annual meeting of shareholders will be March 11, 2002, pursuant to Rule 14a-4 under the Securities Exchange Act of 1934. The persons named as proxies in the proxy statement may exercise discretionary voting authority with respect to any matter that is not submitted to us by such date. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit Number Description of Exhibits 3.1 Amended and Restated Certificate of Incorporation of Province Healthcare Company, as filed with the Delaware Secretary of State on June 16, 2000 (a) 3.2 Amended and Restated Bylaws of Province Healthcare Company (b)
- ------------------ (a) Incorporated by reference to the exhibits filed with the Registrant's Quarterly Report filed on Form 10-Q, for the quarterly period ended June 30, 2000, Commission File No. 0-23639. (b) Incorporated by reference to the exhibits filed with the Registrant's Registration Statement on Form S-1, Registration No. 333-34421. (b) Reports on Form 8-K During the three months ended March 31, 2001, the Company filed a Form 8-K, dated January 8, 2001, relating to the Company's sale of substantially all of the assets of General Hospital, located in Eureka, California, to St. Joseph Health System. 18 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROVINCE HEALTHCARE COMPANY Date: May 14, 2001 By: /s/ Brenda B. Rector ---------------------------------------- Brenda B. Rector Vice President and Controller 19 -----END PRIVACY-ENHANCED MESSAGE-----