The following table lists the hospitals owned, except as other wise indicated, by Triad as of December 31, 1999. Triad currently intends to sell the general, acute care hospitals listed below as held for sale.
Triad's headquarters are located in approximately 45,000 square feet of space in one office building in Dallas, Texas. Triad sub-leases this space from Columbia/HCA. See "NOTE 13-AGREEMENTS WITH COLUMBIA/HCA" in the consolidated financial statements for a more detailed description of such arrangement.
. changes in accounting practices, . changes in general economic conditions, . future divestitures which may result in additional charges, . the ability to enter into managed care provider arrangements on acceptable terms, . the availability and terms of capital to fund the expansion of Triad, . changes in business strategy on development plans, . timeliness of reimbursement payments received under government programs, and . other risk factors described herein.
As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of Triad. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this "Management's Discussion and Analysis of Financial Condition and Results of Operations."
In addition, during the year ended December 31, 1999, three additional factors contributed to the decline in revenue:
from capitation arrangements, or prepaid health service agreements, are less than 1% of net patient revenues in each period presented. See Item I "Business - Reimbursement."
Management also believes that Columbia/HCA's restructuring of operations, including the distribution of Triad and LifePoint and the announced divestitures of several facilities, have created similar uncertainties with physicians, patients and payers. In addition, management believes that Triad's revenues and volume growth have been affected by the focus of management and resources on Triad's planned divestiture program during 1998. Management also believes that the financial results of Triad were impacted by Columbia/HCA's strategy, which has been developed on a system-wide basis and has generally focused on larger facilities and markets.
Losses from continuing operations before income tax benefit decreased to $121.1 million in the year ended December 31, 1999 from $124.9 million in the year ended December 31, 1998. The decrease in pretax loss was primarily attributable to gain on sales of ten hospitals in the year ended December 31, 1999 of $8.6 million. Additional factors contributing to the decrease in pretax loss were $16.7 million of lease income from the leased facilities, a $10.8 million reduction in interest expense and corporate overhead compared to the allocation of interest expense and management fees from Columbia/HCA and $30.9 million improvement in the operations of facilities that will remain after the planned divestiture. These were partially offset by an increase in impairment charges of $69.2 million recorded in the year ended December 31, 1999 compared to $55.1 million in the year ended December 31, 1998 due to the management reassessment of the facilities that would not be part of Triad's core markets. Additional offsetting factors included a reduction in the operations of $26.7 million relating to the leased facilities in the Kansas City, Missouri area, a $26.4 million reduction in the operations of the facilities which were
Other operating expenses, which includes contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance, marketing and non-income taxes, decreased as a percentage of revenues to 22.8% in the year ended December 31, 1998 from 24.0% in the year ended December 31, 1997. The decrease was due to small decreases in several of these expense categories as a percentage of revenues, including lower marketing costs being incurred due to the cancellation of a national branding campaign.
Provision for doubtful accounts, as a percentage of revenues, increased to 8.7% in the year ended December 31, 1998 from 8.6% in the year ended December 31, 1997. The increase was due to internal factors such as information system conversions, including patient accounting systems, at certain facilities and external factors such as payer mix shifts to managed care plans, which resulted in increased amounts of patient co-payments and deductibles and increases in claim audits and remittance denials from certain payers. Management is not able to quantify the effects of each of these factors, but the shift in payer mix is expected to continue and the provisions for doubtful accounts is likely to remain at higher levels than in past years.
Minority interests were 0.7% as a percentage of revenues in both years ended December 31, 1998 and 1997.
Triad incurred a $1.6 million net loss from operations of its discontinued home health businesses in the year ended December 31, 1998 compared to net income of $4.9 million during the year ended December 31, 1997. The loss is primarily due to revenue reductions related to Medicare rates of reimbursement for home health visits under the Balanced Budget Act and a decline in home health visits.
(5) To adjust interest expense to an annual amount of $69.6 million for the periods prior to the distribution in 1999 and the years ended December 31, 1998 and 1997. The interest expense adjustment is based on the elimination of all intercompany amounts payable to Columbia/HCA and the assumption of certain indebtedness from Columbia/HCA in the aggregate amount of approximately $673.8 million at an assumed average interest rate of 9.83% and approximately $1.5 million in amortization of the estimated loan issuance costs.
On a core (pro forma) basis, salaries and benefits, as a percentage of net revenue, decreased to 40.8% in the year ended December 31, 1999 from 40.9% in the year ended December 31, 1998. Salaries and benefits decreased 0.8% per adjusted admission due to decreasing staffing levels to be more in line with volume. This decrease was partially offset by increasing costs per full time equivalents.
On a core (pro forma) basis, interest expense has decreased to $67.6 million from $69.6 million in the years ended December 31, 1999 and 1998, respectively. This was due to the repayment of indebtedness assumed from Columbia/HCA earlier than originally planned.
The following discussion compares the results of the year ended December 31, 1998 on a core (pro forma) basis to the results of the year ended December 31, 1997 on a core (pro forma) basis, in each case giving effect to the assumptions set forth above the summary table of core operating (pro forma) results from continuing operations for the year ended December 31, 1998 and December 31, 1997.
December 31, 1997. The decrease was due primarily to decreases in Medicare reimbursement rates mandated by the Balanced Budget Act which became effective October 1, 1997.
On a core (pro forma) basis, provision for doubtful accounts, as a percentage of net revenue, decreased to 9.3% in the year ended December 31, 1998 from 9.5% in the year ended December 31, 1997 due primarily to increased focus by management during the latter half of 1998 on the core facilities
Triad sold its joint venture facility in Amarillo, Texas, which was not part of the facilities that were identified elsewhere as held for sale, for $27.9 million on September 1, 1999 and received $23.1 million as its share of the proceeds. A gain on the sale of $14.2 million was recognized during the year ended December 31, 1999. Triad retained the accounts receivables and certain liabilities with a net book value of $(0.3) million at December 31, 1999. For the year ended December 31, 1999, this facility had net revenues of $6.6 million, and pre-tax income before gain on sale of assets and impairment charges of $0.3 million. For the year ended December 31, 1998, net revenues were $10.9 million, and pre-tax income before gain on sale of assets and impairment charges was $2.1 million.
Triad sold its acute care hospital in DeQueen, Arkansas for approximately $4.0 million plus approximately $0.5 million of assumed liabilities on November 30, 1999. A loss on the sale of $0.5 million was recognized during the year ended December 31, 1999. Triad retained the accounts receivable and certain liabilities with a book value at December 31, 1999 of $1.6 million. For the years ended December 31, 1999 and 1998, this facility had net revenues of $11.5 million and $14.1 million, respectively, and pre-tax losses before loss on sale of assets and impairment charges of $4.2 million and $1.8 million, respectively.
Triad received a working capital contribution from its partner in a non- consolidating joint venture facility of approximately $5.0 million during the year ended December 31, 1999. On February 28, 2000, Triad received an additional $37.0 million capital contribution from its partner.
In connection with the distribution, Triad established an ESOP, which purchased from Triad at fair market value 3.0 million shares of Triad common stock. The ESOP financed the purchase primarily by issuing a promissory note to Triad, which is amortized in equal installments over 10 years beginning December 31, 1999. ESOP expense is recognized based on the number of shares to be released based on loan repayments during each year multiplied by the average share price during that year. ESOP shares outstanding for the earnings per share calculation will be the average number of shares to be released.