(a) Includes charges related to impairment of long-lived assets of $25.4 million ($16.2 million after-tax) and $26.1 million ($15.9 million after-tax) for the years ended December 31, 1999 and 1998, respectively, and gain on impairment of long-lived assets of $1.4 million ($0.8 million after-tax) for the year ended December 31, 2000. (b) EBITDA is defined as income from continuing operations before depreciation and amortization, interest expense, management fees, impairment of long-lived assets, ESOP expense, minority interests in earnings of consolidated entities and income taxes. EBITDA is commonly used as an analytical indicator within the healthcare 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 thus susceptible to varying calculations, EBITDA as presented may not be comparable to other similarly titled measures of other companies. (c) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. (d) Represents the average number of licensed beds weighted based on periods owned. (e) Represents the total number of patients admitted (in the facility for a period in excess of 23 hours) to our hospitals and is used by management and investors as a general measure of inpatient volume. Amounts for the years ended December 31, 1998 and 1999 have been restated to conform to current year definitions. (f) Equivalent admissions is used by management and investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions is computed by multiplying admissions (inpatient volume) by 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. Amounts for the years ended December 31, 1998 and 1999 have been restated to conform to current year definitions. (g) Represents the average number of days admitted patients stay in our hospitals. Average length of stay has declined as a result of the continuing pressures from managed care and other payers to restrict admissions and reduce the number of days that are covered by the payers for certain procedures and by technological and pharmaceutical improvements.
At December 31, 2000, we operated 20 general, acute care hospitals. For the year ended December 31, 2000, we generated $557.1 million in net revenues. Effective January 2, 2001, we opened Bluegrass Community Hospital located in Versailles, Kentucky. We currently operate in the states of Alabama, Florida, Kansas, Kentucky, Tennessee, Utah and Wyoming.
- possible changes in the Medicare program that may further limit reimbursements to healthcare providers and insurers;
- the ability to attract and retain qualified management and personnel, including physicians, both general practitioners and specialists, consistent with our expectations and targets;
- the ability to enter into, renegotiate and renew payor arrangements on acceptable terms;
- our ongoing efforts to monitor, maintain and comply with applicable laws, regulations, policies and procedures including those required by the corporate integrity agreement that we entered into with the government in December, 2000;
- the ability to increase patient volumes and control the costs of providing services and supply costs;
Reductions in Medicare and Medicaid payment levels, the increase in outpatient services and the patient volume being related to patients participating in managed care plans will present ongoing
Effective July 1, 2000, we acquired Lander Valley Medical Center in Lander, Wyoming for approximately $33.0 million. Effective June 16, 2000, we acquired Putnam Community Medical Center in Palatka, Florida for approximately $49.4 million. We accounted for these two acquisitions using the purchase method of accounting and allocated the purchase price of each transaction to identifiable assets acquired and liabilities assumed based on their respective fair values.
Effective April 1, 2000, we sold Halstead Hospital in Halstead, Kansas and effective February 1, 2000, we sold Trinity Hospital in Erin, Tennessee. We previously held Halstead Hospital, Trinity Hospital and Barrow Medical Center for sale. We recorded an impairment of long-lived assets related to these three hospitals of $24.8 million in 1998 and an additional impairment of $25.4 million in 1999.
We consolidated the operating results of the acquisitions and divestitures for the periods subsequent to acquisition and for the periods prior to sale, respectively.
Because of the relatively small number of hospitals we own, each hospital acquisition can materially affect our overall operating margin. We typically take a number of steps to lower operating costs when we acquire a hospital. The impact of our actions may be offset by other cost increases to expand services, strengthen medical staff and improve market position. The benefits of our 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 our overall operating margins in the short term. As we acquire additional hospitals, this effect should be mitigated by the expanded financial base of our existing hospitals and the allocation of corporate overhead among a larger number of hospitals.
Revenues per equivalent admission increased 3.2% primarily due to our acquisition of two hospitals in fiscal 2000 with higher revenues per equivalent admission compared to our average. The higher revenues per equivalent admission at one of the acquired hospitals resulted primarily from a low number of outpatient procedures performed at that hospital as revenues from outpatient services are generally lower than inpatient services. In addition, the higher revenues per equivalent admission at the other acquired hospital resulted primarily from a lower percentage of revenues from managed care plans as compared to our average. The increase in revenues per equivalent admission was partially offset by an increase in outpatient revenues for the year ended December 31, 2000 compared to the same period last year. Outpatient revenues as a percentage of patient revenues were 48.1% for the year ended December 31, 2000 compared to 47.2% for the same period last year. We also recorded favorable adjustments to estimated third party settlements of $3.2 million for the year ended December 31, 2000 compared to $0.7 million for the year ended December 31, 1999.
Management fees incurred during 1999 represent fees allocated to us by HCA before the distribution. This amount represented allocations, using revenues as the allocation basis, of the corporate, general and administrative expenses of HCA.
The provision (benefit) for income taxes for the year ended December 31, 2000 was $15.2 million compared to $(2.7) million for the year ended December 31, 1999. These provisions reflect effective income tax rates of 46.1% for 2000 and 26.7% for 1999. The increase in the effective rate relates primarily to the impairment charge taken in the fourth quarter of 1999 as discussed above and also due to the increase in the nondeductible portion of ESOP expense.
Net income (loss) increased to $17.9 million for the year ended December 31, 2000 compared to $(7.4) million for the year ended December 31, 1999 due to the reasons described above.
Revenues increased 3.4% to $515.2 million for the year ended December 31, 1999 compared to $498.4 million for the year ended December 31, 1998 primarily because of increases in the volume of patients treated at our facilities. Inpatient admissions increased 3.2% and equivalent admissions, adjusted to reflect combined inpatient and outpatient volume, increased 4.2% for the year ended December 31, 1999 compared to the year ended December 31, 1998. Revenues per equivalent admission decreased 0.8% for the year ended December 31, 1999 compared to the prior year. The decline in revenues per equivalent admission resulted from several factors, including:
- favorable adjustments to third party settlements of $0.7 million recorded during the year ended December 31, 1999 compared to $1.2 million recorded during the year ended December 31, 1998.
Salaries and benefits decreased as a percentage of revenues to 42.2% for the year ended December 31, 1999 from 44.3% for the year ended December 31, 1998 primarily as a result of improvements in labor productivity. Man-hours per equivalent admission decreased 9.2% over the prior year.
Management fees allocated by HCA equaled $3.2 million for the year ended December 31, 1999 and $8.9 million for the year ended December 31, 1998. These amounts represented allocations, using revenues as the allocation basis, of the corporate, general and administrative expenses of HCA; HCA stopped allocating management fees to us after the distribution. Increases in salaries, supplies and other operating costs related to the establishment and operation of our corporate office during 1999 offset the elimination of management fee allocations by HCA.
During the fourth quarter of 1998, we decided to sell three hospital facilities that we identified as not compatible with our operating plans based on management's review of all facilities, consideration of current and expected market conditions and consideration of current and expected capital needs in each market. At December 31, 1998, the carrying value before the impairment charge of the long-lived assets related to these hospital facilities equaled approximately $47.2 million. We reduced the carrying value to fair value, based on estimates of selling values at that time, for a total non-cash charge of $24.8 million. During the fourth quarter of 1999, based on revised selling values, we recorded an additional non-cash charge of $25.4 million (comprised of $22.4 million in further impairment charges for these facilities and $3.0 million in anticipated selling/closing costs). For the year ended December 31, 1999 and 1998, these facilities had net revenues of $42.6 million and $48.0 million, EBITDA of $(0.7) million and $0.3 million, admissions of 4,689 and 5,454 and equivalent admissions of 8,722 and 9,295, respectively.
We recorded, during the third quarter of 1998, an impairment loss of approximately $1.3 million related to the write-off of intangibles and other long-lived assets of physician practices where we determined that the recorded asset values were not fully recoverable based on the operating results trends and projected future cash flows. We have now recorded these assets being held and used at estimated fair value based on discounted, estimated future cash flows.
These impairment charges did not have a significant impact on our cash flows and we do not expect the charges to significantly impact cash flows for future periods. Depreciation and amortization expense related to these assets will decrease in future periods as a result of the right downs. In the aggregate, we do not expect the net effect of the change in depreciation and amortization expense to have a material effect on operating results for future periods.
Net loss equaled $7.4 million for the year ended December 31, 1999 compared to a loss of $21.8 million for the year ended December 31, 1998. The year ended December 31, 1998 included a $4.1 million after-tax loss from our discontinued home health operations, resulting primarily from declines in Medicare rates of reimbursement under the Balanced Budget Act and declines in home health visits. We divested our home health operations during 1998.
Cash used in investing activities increased to $91.8 million during 2000 compared to $68.8 million in 1999 and $31.5 million in 1998. The increase in 2000 resulted primarily from our two hospital acquisitions during fiscal 2000. The increase was partially offset by proceeds of $24.3 million from the sale of facilities and by decreased capital expenditures of $31.4 million during 2000 compared to $64.8 million in 1999 (which included the construction of a replacement facility). Capital expenditures totaled $29.3 million in 1998. At December 31, 2000, we had projects under construction which had an estimated additional cost to complete and equip of approximately $12.0 million. We anticipate that these projects will be completed over the next twelve months. We believe our capital expenditure program is adequate to expand, improve and equip our existing healthcare facilities. We expect to make total capital expenditures in 2001 of approximately $35 to $40 million, excluding acquisitions.
Cash provided by financing activities increased to $35.6 million in 2000 compared to $22.0 million in 1999. This increase resulted primarily from an increase in long-term debt to pay for acquisitions. Cash used in financing activities was $16.0 million in 1998 primarily due to a decrease in intercompany balances with HCA.
In June 2000, we borrowed the remaining $35 million from our $60 million term loan facility and $30 million under our $65 million revolving credit facility. We utilized this additional debt to fund acquisitions. Effective August 1, 2000, we sold Riverview Medical Center in Gonzales, Louisiana for approximately $20.7 million. We used the proceeds from this transaction and our available cash to pay off the $30 million outstanding balance under our revolving credit facility. As of December 31, 2000 and as of February 28, 2001, we did not have any amounts outstanding under our revolving credit facility.
The $85 million term loan facility was drawn in full at the time of the distribution from HCA. The final payment under this term loan facility is due November 11, 2005.
With respect to our interest-bearing liabilities, approximately $139.3 million of our long-term debt at December 31, 2000 is subject to variable rates of interest. The remaining balance in long-term debt of $150.1 million at December 31, 2000 is subject to fixed interest rates. The fair value of our total long-term debt (including current portion) equaled $301.4 million at December 31, 2000. We determined the fair value of our senior subordinated notes using the quoted market price at December 31, 2000. We estimate the fair value of the remaining long-term debt using discounted cash flows, based on our incremental borrowing rates. Based on a hypothetical 1% increase in interest rates on our variable rate debt, the potential annualized losses in future pretax earnings would be approximately $1.4 million. The impact of this change in interest rates on the carrying value of long-term debt would not be significant. We determine the estimated changes to interest expense and the fair value of long-term debt by considering the impact of hypothetical interest rates on our borrowing cost and long-term debt balances. These analyses do not take into account the effects, if any, of the potential changes in our credit ratings or the overall level of economic activity. Further, in the event of a change in interest rates of significant magnitude, management would expect to take actions intended to further mitigate its exposure to such change. For further information, see the discussion above of our long-term debt.
We did not experience any material disruptions or other effects caused by the Year 2000 problem, nor do we expect to experience any material disruptions or other effects caused by the Year 2000 problem in the future.
For the year ended December 31, 2000, we derived 47.0% of our revenues from the Medicare and Medicaid programs. In recent years, federal and state governments made significant changes in the Medicare and Medicaid programs. These changes have decreased the amounts of money we receive for our services to patients who participate in these programs.
In addition, insurance and managed care companies and other third parties from whom we receive payment for our services increasingly attempt to control healthcare costs by requiring that hospitals discount their fees in exchange for exclusive or preferred participation in their benefit plans. We believe that this trend may continue and may reduce the payments we receive for our services.
The laws and regulations that we must comply with are complex and subject to change. In the future, different interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses.
We also may acquire businesses with unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations. We have policies to conform the practices of acquired facilities to our standards and applicable law and generally will seek indemnification from prospective sellers covering these matters. We may, however, incur material liabilities for past activities of acquired businesses.
We are highly leveraged. At December 31, 2000, our consolidated long-term debt equaled approximately $289.4 million. We also may draw on a revolving credit commitment of up to $65 million under our bank credit agreement. In addition, we have the ability to incur additional debt, subject to limitations imposed by our credit agreement and the indenture governing the notes issued by our subsidiary, LifePoint Hospitals Holdings, Inc. Our leverage and debt service requirements could have important consequences to our stockholders, including the following:
- make us vulnerable to increases in interest rates because some of our borrowings are at variable rates of interest; and
Any substantial increase in our debt levels could affect our ability to borrow funds at favorable interest rates and our future operating cash flow.
On December 14, 2000, HCA announced that it signed an agreement with the Department of Justice and four U.S. attorneys' offices resolving all pending federal criminal issues in the government's investigation. HCA also announced at this time that it signed a civil settlement agreement with the Department of Justice resolving civil false claims issues related to DRG coding, outpatient laboratory and home health. The criminal agreement has been accepted by the federal district courts. The civil settlement agreement is conditioned on court approval of the settlement, which HCA expects to receive in the first quarter of 2001. These agreements relate only to conduct that was the subject of the federal investigations resolved in the agreements, and HCA has stated publicly that it continues to discuss civil claims relating to cost reporting and physician relations with the government.
Prior to May 11, 1999, we operated as the America Group division of HCA. Accordingly, we do not have a long operating history as an independent, publicly-traded company. Before the distribution of our stock from HCA, we historically relied on HCA for various financial, administrative and managerial expertise relevant to the conduct of our business. HCA continues to provide some support services to us on a contractual basis. We did not generate a profit for 1999. Although we generated a profit in 2000, we may not have net profits in the future. See "Business -- Arrangements Relating to the Distribution" for more information regarding our arrangements with HCA and see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for factors that could affect our ability to generate profits.
In recent years, physicians, hospitals and other healthcare providers have become subject to an increasing number of legal actions alleging malpractice or related legal theories. Many of these actions involve large claims and significant defense costs. To protect ourselves from the cost of these claims, we generally maintain professional malpractice liability insurance and general liability insurance coverage in amounts and with deductibles that we believe to be appropriate for our operations. However, our insurance coverage may not cover all claims against us or continue to be available at a reasonable cost for us to maintain adequate levels of insurance.
We could incur substantial liability if the distribution of our stock from HCA were to be taxable.
Our anti-takeover provisions may discourage acquisitions of control even though our stockholders may consider these proposals desirable.
These provisions may also have the effect of discouraging third parties from making proposals involving our acquisition or change of control, although a proposal, if made, might be considered desirable
by a majority of our stockholders. These provisions could further have the effect of making it more difficult for third parties to cause the replacement of our board of directors.
We have also adopted a stockholder rights plan. This stockholder rights plan is designed to protect stockholders in the event of an unsolicited offer and other takeover tactics which, in the opinion of the board of directors, could impair our ability to represent stockholder interests. The provisions of this stockholder rights plan may render an unsolicited takeover more difficult or might prevent a takeover.
The trading price of our common stock has been and may continue to be subject to wide fluctuations. Our stock price may fluctuate in response to a number of events and factors, including: