(1) Triad holds a fifty percent equity interest in a non-consolidated joint venture which owns and operates this facility. (2) Triad continues to own the assets related to these hospitals, but has transferred the exclusive rights to use and control the hospitals' operations to a separate, independent entity pursuant to a long-term lease agreement effective as of January 1, 1999. (3) At December 31, 2000, Triad held a fifty percent equity interest in a non- consolidated joint venture which owned and operated this facility. Effective January 1, 2001, Triad acquired the other fifty percent interest in this joint venture. (4) Triad currently leases this hospital pursuant to a long-term lease which provides that it has the exclusive right to use and control the hospital operations. (5) Triad ceased operations of this facility on November 30, 2000. (6) Triad ceased operations of this facility on February 11, 2000.
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 HCA. See "NOTE 13-AGREEMENTS WITH HCA" in the consolidated financial statements for a more detailed description of such arrangement. Triad is currently inquiring about additional office space at its headquarters for additional employees that will be necessary due to the Quorum acquisition.
Triad's hospitals and other facilities are suitable for their respective uses and are, in general, adequate for Triad's present needs.
The above described events significantly affect the comparability of the results of operations for the years ended December 31, 2000, 1999 and 1998.
. the possible enactment of federal or state health care reform,
. claims and legal actions relating to professional liabilities and other matters,
. the transfer pursuant to a long-term lease to an unaffiliated third party of two acute care hospitals and three ambulatory surgery centers;
Triad's revenues also continue to be affected by the trend toward certain services being performed more frequently on an outpatient basis. Growth in outpatient services is expected to continue in the health care industry as procedures performed on an inpatient basis are converted to outpatient procedures through continuing advances in pharmaceutical and medical technologies. The redirection of certain procedures to an outpatient basis is also influenced by pressures from payers to perform certain procedures as outpatient care rather than inpatient care. Net outpatient revenues for facilities that remain after sales and closures were 44.9% in the year ended December 31, 2000 compared to 45.3% in the comparable period in 1999.
(a) EBITDA is defined as income (loss) from continuing operations before depreciation and amortization, interest expense, ESOP expense, management fees, gain on sales of assets, impairment of long-lived assets, minority interests in earnings of consolidated entities and income taxes. EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA should not be considered in isolation or as an alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity. Because EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is
Income before income taxes increased to $17.3 million in the year ended December 31, 2000 from a loss of $121.1 million in the year ended December 31, 1999. The increase in pretax income was attributable to impairment charges of $69.2 million in the year ended December 31, 1999 compared to $8.0 million in the year ended December 31, 2000. Other factors contributing to the increase were decreased losses before impairment charges of $36.1 million in the facilities that were divested and improvement in the operations of the facilities that comprise ongoing operations of $23.5 million. In addition, there were $8.6 million of favorable prior year cost report settlements and contractual estimates during the year ended December 31, 2000 and $3.7 million increases in equity in earnings, primarily due to one non-consolidating entity which opened in May 1999. These increases were partially offset during the year ended December 31, 2000 by $5.2 million of unfavorable contractual adjustments at one facility, $1.1 million of unfavorable adjustments at one facility from write-offs of certain expenses that were previously capitalized and other adjustments and $1.1 million of unfavorable adjustments in equity in earnings at a non-consolidating entity from various changes of estimates and other adjustments.
Salaries and benefits, as a percentage of revenues, decreased to 41.4% in the year ended December 31, 2000 from 42.9% in the year ended December 31, 1999. For the year ended December 31, 2000 and 1999, salaries and benefits for the facilities sold or closed were $35.9 million and $133.3 million, respectively. The salaries and
Interest expense, which is offset by $4.9 million and $2.5 million of interest income in the year ended December 31, 2000 and 1999, respectively, increased to $57.3 million in the year ended December 31, 2000 from $42.7 million in the year ended December 31, 1999 due to the assumption of additional debt from HCA in the distribution.
Impairments on long-lived assets were $8.0 million and $69.2 million during the years ended December 31, 2000 and 1999, respectively. The impairments during 2000 were due primarily to the carrying value of the long-lived assets related to one hospital closed being reduced to fair value, based on estimated disposal value. The impairments during 1999 were due to reductions of the book value of certain facilities that Triad divested during 1999 to fair value, based on estimates of selling values.
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 HCA and $30.9 million improvement in the operations of facilities that will remain after planned divestitures. 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 sold during 1999, $3.0 million of favorable cost report settlements in 1998 and $6.5 million reduction in equity in earnings of non-consolidating entities due to the start up of operations of a hospital that opened in May 1999.
Salaries and benefits, as a percentage of revenues, decreased to 42.9% in the year ended December 31, 1999 from 44.1% in the year ended December 31, 1998. Salaries and benefits per adjusted admissions decreased 6.6% during 1999 compared to 1998. The decrease was primarily attributable to the leased facilities, which had a higher percentage of salaries and benefits to net revenue.
Supply costs decreased as a percentage of revenues to 15.0% in the year ended December 31, 1999 from 15.2% in the year ended December 31, 1998. Supply costs per adjusted admissions decreased 4.8% during 1999 compared to 1998. This was primarily due to the leased facilities having a higher percentage of supply costs to net revenue. This decrease was partially offset by the purchases of higher cost items due to higher acute care patients and increases in prices.
On February 5, 2001, Triad acquired the remaining 50% interest in the joint venture that owns SouthCrest Hospital in Tulsa, Oklahoma, which opened in May 1999, from its not-for-profit partner, Hillcrest Healthcare System ("Hillcrest"), for $44.6 million, the amount of Hillcrest's investment in the venture. The acquisition consolidated 100% ownership and control of the hospital in Triad effective January 1, 2001. Triad has an option to acquire an adjacent 26-acre parcel of land from Hillcrest for future expansion and a right of first refusal on certain other real estate. SouthCrest Hospital will continue to participate in Hillcrest's joint contracting network that includes other Hillcrest hospitals in Tulsa. Under certain conditions and for a limited time, Hillcrest will have an option to repurchase a 49% interest in SouthCrest Hospital at then fair market value, subject to minimum valuations and minimum returns on investment to Triad; if Hillcrest were to exercise the option, Triad would retain governance of the facility and continue consolidating it for financial reporting. The purchase was funded with a draw on Triad's delay draw loan. For the years ended December 31, 2000 and 1999, this facility had net revenue of $56.1 million and $16.6 million, respectively, and losses before income taxes of $6.8 million and $12.9 million, respectively. Triad recorded equity in earnings (loss) of affiliate of $(2.7) million and $(6.4) million for the years ended December 31, 2000 and 1999, respectively, related to this joint venture.
Triad has a $125.0 million line of credit which bears interest at LIBOR plus 3.0%, of which approximately $2.0 million has been allocated to letters of credit securing certain lease obligations. No amounts were outstanding under the revolving credit facility at December 31, 2000.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which was required to be adopted in years beginning after June 15, 1999. In May 1999, the effective date of SFAS 133 was deferred until years beginning after June 15, 2000. Because of Triad's minimal use of derivatives, management does not anticipate that the adoption of the new statement will have a significant effect on the results of operations or the financial position of Triad.
On December 14, 2000, HCA also announced that it had signed an agreement with the Criminal Division of the Department of Justice to resolve all pending Federal criminal actions against HCA relating to health care billing issues. As part of the criminal agreement, HCA paid the government $95 million and will enter certain pleas in respect of the criminal actions. The criminal agreement is conditional upon entry of certain guilty pleas in Federal district court and necessary court approvals, which HCA expects will occur in the first quarter of 2001. HCA also stated that representatives of state attorneys general have agreed to recommend to state officials that HCA be released from corresponding criminal liability in all states in which it conducts business.
distribution and that relate to the proceedings described above. HCA has also agreed that, in the event that any hospital owned by Triad at the time of the distribution is permanently excluded from participation in the Medicare and Medicaid programs as a result of the proceedings described above, then HCA will make a cash payment to Triad, in an amount (if positive) equal to five times the excluded hospital's 1998 income from continuing operations before depreciation and amortization, interest expense, management fees, impairment of long-lived assets, minority interests and income taxes, as set forth on a schedule to the distribution agreement, less the net proceeds of the sale or other disposition of the excluded hospital. Triad has agreed that, in connection with the government investigations described above, it will participate with HCA in negotiating one or more compliance agreements setting forth each of HCA's and Triad's agreements to comply with applicable laws and regulations.