UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
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 0-29816
Triad Hospitals, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 75-2816101 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 5800 Tennyson Parkway | ||
| Plano, Texas | 75024 | |
| (Address of principal executive offices) | (Zip Code) | |
(214) 473-7000
(Registrant’s telephone number, including area code)
Not Applicable
(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, and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock of the latest practical date.
As of April 30, 2004, the number of shares of common stock of Triad Hospitals, Inc. outstanding was 76,047,533.
Part I: Financial Information
Item 1: Financial Statements
TRIAD HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the periods ended March 31, 2004 and 2003
Unaudited
(Dollars in millions, except per share amounts)
| For the three months ended |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 1,126.6 | $ | 914.1 | ||||
| Salaries and benefits |
457.4 | 376.6 | ||||||
| Reimbursable expenses |
13.5 | 13.9 | ||||||
| Supplies |
183.9 | 139.6 | ||||||
| Other operating expenses |
201.3 | 165.4 | ||||||
| Provision for doubtful accounts |
114.4 | 72.3 | ||||||
| Depreciation |
43.7 | 39.4 | ||||||
| Amortization |
1.4 | 1.5 | ||||||
| Interest expense |
32.7 | 33.1 | ||||||
| Interest income |
(0.5 | ) | (0.6 | ) | ||||
| ESOP expense |
2.4 | 2.1 | ||||||
| Gain on sales of assets |
(1.0 | ) | (1.3 | ) | ||||
| Total operating expenses |
1,049.2 | 842.0 | ||||||
| Income from continuing operations before minority interests, equity in earnings and income tax provision |
77.4 | 72.1 | ||||||
| Minority interests in earnings of consolidated entities |
(2.2 | ) | (2.3 | ) | ||||
| Equity in earnings of affiliates |
5.6 | 7.2 | ||||||
| Income from continuing operations before income tax provision |
80.8 | 77.0 | ||||||
| Income tax provision |
(31.2 | ) | (30.2 | ) | ||||
| Income from continuing operations |
49.6 | 46.8 | ||||||
| Income from discontinued operations, net of tax |
48.2 | 0.5 | ||||||
| Net income |
$ | 97.8 | $ | 47.3 | ||||
| Income per common share: |
||||||||
| Basic: |
||||||||
| Continuing operations |
$ | 0.67 | $ | 0.64 | ||||
| Discontinued operations |
$ | 0.64 | $ | 0.01 | ||||
| Net income |
$ | 1.31 | $ | 0.65 | ||||
| Diluted |
||||||||
| Continuing operations |
$ | 0.66 | $ | 0.62 | ||||
| Discontinued operations |
$ | 0.63 | $ | 0.01 | ||||
| Net income |
$ | 1.29 | $ | 0.63 | ||||
See notes to the condensed consolidated financial statements
2
TRIAD HOSPITALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(Dollars in millions)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 92.2 | $ | 15.2 | ||||
| Accounts receivable, less allowances for doubtful accounts of $287.1 at March 31, 2004 and $257.4 at December 31, 2003 |
655.3 | 607.0 | ||||||
| Inventories |
112.6 | 110.8 | ||||||
| Deferred income taxes |
37.7 | 36.5 | ||||||
| Prepaid expenses |
42.8 | 43.1 | ||||||
| Discontinued operations assets |
25.6 | 122.5 | ||||||
| Other |
89.0 | 60.5 | ||||||
| 1,055.2 | 995.6 | |||||||
| Property and equipment, at cost: |
||||||||
| Land |
174.6 | 173.5 | ||||||
| Buildings and improvements |
1,425.3 | 1,440.8 | ||||||
| Equipment |
1,195.7 | 1,145.0 | ||||||
| Construction in progress |
189.0 | 145.2 | ||||||
| 2,984.6 | 2,904.5 | |||||||
| Accumulated depreciation |
(826.2 | ) | (784.4 | ) | ||||
| 2,158.4 | 2,120.1 | |||||||
| Goodwill |
1,252.9 | 1,233.2 | ||||||
| Intangible assets, net of accumulated amortization |
75.5 | 71.5 | ||||||
| Investment in and advances to affiliates |
195.2 | 191.1 | ||||||
| Other |
114.5 | 123.9 | ||||||
| Total assets |
$ | 4,851.7 | $ | 4,735.4 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 138.0 | $ | 153.5 | ||||
| Accrued salaries |
113.9 | 123.4 | ||||||
| Current portion of long-term debt |
76.1 | 74.5 | ||||||
| Current income taxes payable |
47.0 | — | ||||||
| Discontinued operations liabilities |
2.0 | 9.4 | ||||||
| Other current liabilities |
149.1 | 145.7 | ||||||
| 526.1 | 506.5 | |||||||
| Long-term debt |
1,649.9 | 1,685.0 | ||||||
| Other liabilities |
128.8 | 118.1 | ||||||
| Deferred taxes |
185.7 | 174.7 | ||||||
| Minority interests in equity of consolidated entities |
177.0 | 174.8 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock .01 par value: 120,000,000 shares authorized, 75,970,047 and 75,633,354 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
0.8 | 0.8 | ||||||
| Additional paid-in capital |
1,913.6 | 1,904.6 | ||||||
| Unearned ESOP compensation |
(16.4 | ) | (17.2 | ) | ||||
| Accumulated other comprehensive loss |
(1.8 | ) | (2.1 | ) | ||||
| Accumulated earnings |
288.0 | 190.2 | ||||||
| Total stockholders’ equity |
2,184.2 | 2,076.3 | ||||||
| Total liabilities and stockholders’ equity |
$ | 4,851.7 | $ | 4,735.4 | ||||
See notes to the condensed consolidated financial statements.
3
TRIAD HOSPITALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the periods ended March 31, 2004 and 2003
Unaudited
(Dollars in millions)
| For the three months ended |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 97.8 | $ | 47.3 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Income from discontinued operations, net of tax |
(48.2 | ) | (0.5 | ) | ||||
| Provision for doubtful accounts |
114.4 | 72.3 | ||||||
| Depreciation and amortization |
45.1 | 40.9 | ||||||
| ESOP expense |
2.4 | 2.1 | ||||||
| Minority interests |
2.2 | 2.3 | ||||||
| Equity in earnings of affiliates |
(5.6 | ) | (7.2 | ) | ||||
| Gain on sales of assets |
(1.0 | ) | (1.3 | ) | ||||
| Deferred income tax provision (benefit) |
(5.9 | ) | 29.4 | |||||
| Non-cash interest expense |
2.7 | 2.0 | ||||||
| Non-cash stock option expense |
0.2 | 0.1 | ||||||
| Increase (decrease) in cash from operating assets and liabilities: |
||||||||
| Accounts receivable |
(163.1 | ) | (104.3 | ) | ||||
| Inventories and other assets |
2.5 | (11.5 | ) | |||||
| Accounts payable and other current liabilities |
2.3 | (25.0 | ) | |||||
| Other |
10.4 | 10.2 | ||||||
| Net cash provided by operating activities |
56.2 | 56.8 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(103.9 | ) | (55.5 | ) | ||||
| Distributions and advances from affiliates |
1.5 | 3.2 | ||||||
| Proceeds received on sales of assets |
155.2 | 3.7 | ||||||
| Other |
— | (0.2 | ) | |||||
| Net cash provided by (used in) investing activities |
52.8 | (48.8 | ) | |||||
| Cash flows from financing activities: |
||||||||
| Payments of long-term debt |
(110.5 | ) | (17.3 | ) | ||||
| Proceeds from issuance of long-term debt |
75.0 | — | ||||||
| Payment of debt issue costs |
(1.6 | ) | — | |||||
| Proceeds from issuance of common stock |
5.3 | 1.2 | ||||||
| Distributions to minority partners, net |
(0.2 | ) | (3.8 | ) | ||||
| Net cash used in financing activities |
(32.0 | ) | (19.9 | ) | ||||
| Change in cash and cash equivalents |
77.0 | (11.9 | ) | |||||
| Cash and cash equivalents at beginning of period |
15.2 | 68.3 | ||||||
| Cash and cash equivalents at end of period |
$ | 92.2 | $ | 56.4 | ||||
| Cash paid for: |
||||||||
| Interest |
$ | 7.6 | $ | 9.7 | ||||
| Income taxes, net of refunds |
$ | 5.6 | $ | 1.6 | ||||
See notes to the condensed consolidated financial statements.
4
TRIAD HOSPITALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 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 notes required by accounting principles generally accepted in the United States for complete financial statements of Triad Hospitals, Inc. (“Triad”). In the opinion of management, all adjustments necessary for a fair presentation have been included and are of a normal recurring nature. Interim results are not necessarily indicative of the results that may be expected for the year. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2003 included in Triad’s Form 10-K.
The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.
Certain prior year amounts have been reclassified to conform to the current presentation.
NOTE 2—STOCK BENEFIT PLANS
Triad’s stock-based compensation plans are accounted for under the recognition and measurement principles of APB Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. APB 25 uses the intrinsic value method to account for options granted to employees. Stock-based compensation is generally not recognized since the option price is typically equal to the market value of the underlying common stock on the date of grant. Triad discloses the pro forma effect on net income and earnings per share in its interim financial statements under the disclosure provisions of Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosures” (“SFAS 148”). The disclosure provisions of SFAS 148 require proforma disclosure as if Triad had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” to all stock-based compensation. The following table illustrates the pro forma effect (dollars in millions except per share amounts):
| For the three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Income from continuing operations, as reported |
$ | 49.6 | $ | 46.8 | ||||
| Add: Stock option expense recorded |
0.1 | 0.1 | ||||||
| Less: Fair value stock option expense |
(4.4 | ) | (3.8 | ) | ||||
| Pro forma |
$ | 45.3 | $ | 43.1 | ||||
| Net income, as reported |
$ | 97.8 | $ | 47. | ||||