Exhibit 99.2
Hospice USA, LLC and Affiliates
Combined Condensed Financial Statements
For the Six Months Ended June 30, 2004 and 2003
(unaudited)
Hospice USA, LLC and Affiliates
Contents
| | | | | |
Combined Condensed Financial Statements | | | | |
| Balance Sheets | | | 3 | |
| Statements of Income and Changes in Members’ Equity | | | 4 | |
| Statements of Cash Flows | | | 5 | |
| Summary of Accounting Policies | | | 6-9 | |
| Notes to Combined Financial Statements | | | 10-11 | |
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Hospice USA, LLC and Affiliates
Combined Condensed Balance Sheets
| | | | | | | | | |
| | | June 30, 2004 | | December 31, |
| | | (Unaudited)
| | 2003
|
Assets | | | | | | | | |
Current | | | | | | | | |
| Cash and cash equivalents | | $ | 3,245,585 | | | $ | 2,437,739 | |
| Trade accounts receivable, net of allowance for possible losses of $338,000 and $224,000 respectively (Note 3) | | | 4,845,486 | | | | 5,331,406 | |
| Due from related parties (Note 1) | | | 461,807 | | | | 164,199 | |
| Prepaid expenses and other current assets | | | 199,653 | | | | 403,473 | |
| | | |
| | | |
| |
Total current assets | | | 8,752,531 | | | | 8,336,817 | |
Property and equipment,net | | | 1,480,318 | | | | 1,424,139 | |
Goodwill,net | | | 1,985,115 | | | | 1,985,115 | |
Other intangibles | | | 20,000 | | | | 20,000 | |
Other assets | | | 23,620 | | | | 23,419 | |
| | | |
| | | |
| |
| | | $ | 12,261,584 | | | $ | 11,789,490 | |
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| | | |
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Liabilities and Members’ Equity | | | | | | | | |
Current liabilities | | | | | | | | |
| Accounts payable | | $ | 194,089 | | | $ | 41,455 | |
| Accrued expenses and other current liabilities | | | 4,567,817 | | | | 3,419,687 | |
| Current maturities of long-term debt | | | 481,952 | | | | 443,168 | |
| | | |
| | | |
| |
Total current liabilities | | | 5,243,858 | | | | 3,904,310 | |
Long-term debt,less current maturities | | | 1,611,691 | | | | 1,786,130 | |
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| | | |
| |
Total liabilities | | | 6,855,549 | | | | 5,690,440 | |
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| | | |
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Commitments and contingencies(Notes 3 and 4) | | | | | | | | |
Members’ equity,net | | | 5,406,035 | | | | 6,099,050 | |
| | | |
| | | |
| |
| | | $ | 12,261,584 | | | $ | 11,789,490 | |
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| | | |
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See accompanying summary of accounting policies and notes to unaudited combined financial statements.
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Hospice USA, LLC and Affiliates
Combined Condensed Statements of Income and Changes in Members’ Equity
| | | | | | | | | |
Six Months ended June 30,
| | 2004
(unaudited)
| | 2003
(unaudited)
|
Revenues | | | | | | | | |
| Net patient service revenues | | $ | 15,817,254 | | | $ | 13,403,115 | |
| Other | | | 10,794 | | | | 4,275 | |
| | | |
| | | |
| |
Operating revenues | | | 15,828,048 | | | | 13,407,390 | |
| | | |
| | | |
| |
Costs and expenses | | | | | | | | |
| Pharmacy | | | 976,801 | | | | 777,379 | |
| Medical equipment and supplies | | | 682,386 | | | | 312,826 | |
| Patient care mileage | | | 770,568 | | | | 518,839 | |
| Nursing home care | | | 163,684 | | | | 164,346 | |
| Inpatient costs | | | 187,799 | | | | 292,075 | |
| Other patient expenses | | | 478,737 | | | | 431,028 | |
| Wages | | | 6,490,719 | | | | 4,793,851 | |
| Payroll taxes | | | 574,103 | | | | 416,887 | |
| Other employee costs | | | 634,657 | | | | 539,404 | |
| Travel and entertainment | | | 124,140 | | | | 87,382 | |
| Office supplies | | | 97,433 | | | | 85,084 | |
| Rent | | | 352,594 | | | | 220,184 | |
| Depreciation | | | 181,896 | | | | 160,599 | |
| Bad debts | | | 277,521 | | | | 15,353 | |
| Other administrative costs | | | 1,394,697 | | | | 693,412 | |
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| | | |
| |
Total costs and expenses | | | 13,387,735 | | | | 9,508,649 | |
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| | | |
| |
Net income | | | 2,440,313 | | | | 3,898,741 | |
Members’ equity,beginning of period | | | 6,099,050 | | | | 3,284,458 | |
Distributions | | | (3,133,328 | ) | | | (2,830,422 | ) |
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| | | |
| |
Members’ equity,end of period | | $ | 5,406,035 | | | $ | 4,352,777 | |
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| | | |
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See accompanying summary of accounting policies and notes to unaudited combined financial statements.
4
Hospice USA, LLC and Affiliates
Combined Condensed Statements of Cash Flows
| | | | | | | | | |
| | | 2004 | | 2003 |
Six months ended June 30,
| | (unaudited)
| | (unaudited)
|
Cash flows from operating activities | | | | | | | | |
| Net income | | $ | 2,440,313 | | | $ | 3,898,741 | |
| Adjustments to reconcile net income to net cash used for operating activities: | | | | | | | | |
| Depreciation | | | 181,896 | | | | 160,599 | |
| Provision for possible losses | | | 277,521 | | | | 15,353 | |
| Net changes in assets and liabilities affecting operating activities: | | | | | | | | |
| Accounts receivable | | | 208,399 | | | | (372,678 | ) |
| Prepaid expenses | | | 203,619 | | | | 102,654 | |
| Accounts payable and accrued expenses | | | 1,300,764 | | | | 645,354 | |
| | | |
| | | |
| |
| Net cash provided by operating activities | | | 4,612,512 | | | | 4,450,023 | |
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| |
Cash flows from investing activities | | | | | | | | |
| Purchase of property and equipment | | | (242,846 | ) | | | (467,791 | ) |
| Proceeds from sale of equipment | | | — | | | | 32,955 | |
| Advances to related companies, net | | | (297,608 | ) | | | (14,017 | ) |
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| | | |
| |
| Net cash used in investing activities | | | (540,454 | ) | | | (448,853 | ) |
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| | | |
| |
Cash flows from financing activities | | | | | | | | |
| Principal payments on long-term debt | | | (219,344 | ) | | | (237,518 | ) |
| Payment of member distributions | | | (3,133,328 | ) | | | (2,830,422 | ) |
| Proceeds from the issuance of debt | | | 88,460 | | | | 219,975 | |
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| | | |
| |
| Net cash used in financing activities | | | (3,264,212 | ) | | | (2,847,965 | ) |
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| | | |
| |
Net increase (decrease) in cash | | | 807,846 | | | | 1,153,205 | |
Cash and cash equivalents, beginning of period | | | 2,437,739 | | | | 649,758 | |
| | | |
| | | |
| |
Cash, and cash equivalents,at end of period | | $ | 3,245,585 | | | $ | 1,802,963 | |
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| | | |
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See accompanying summary of accounting policies and notes to unaudited combined financial statements.
5
Hospice USA, LLC and Affiliates
Summary of Accounting Policies
Business and Basis of Presentation
We have prepared these condensed combined financial statements without audit. In management’s opinion, these condensed combined financial statements include all normal recurring adjustments necessary for a fair presentation of the results of operations for the six months ended June 30, 2004 and 2003. Although certain information and footnote disclosures required by generally accepted accounting principles in the United States have been condensed or omitted, we believe that the disclosures in these condensed combined financial statements are adequate to make the information presented not misleading. These condensed combined financial statements should be read along with our Combined Financial Statements for the year ended December 31, 2003. Our results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results for a full year.
The combined financial statements include the financial statements of Hospice USA, LLC and the below affiliated entities, related primarily by common ownership (together “the Company”). The companies are primarily in the business of providing hospice care to terminally ill patients. Significant intercompany transactions have been eliminated.
| |
Company |
|
| Rice Enterprises, LLC |
| American Home Medical Equipment, LLC |
| New Horizon Hospice of Tennessee, LLC |
| Hospice South of Marshall County, LLC |
| Hospice South of Corinth, LLC |
| Hospice South of Meridian, LLC |
| Hospice South of New Albany, LLC |
| Hospice South of Philadelphia, LLC |
| Hospice South of Senatobia, LLC |
| Hospice South of Birmingham, LLC |
| Hospice South of Demopolis, LLC |
| Hospice South of Hamilton, LLC |
| Hospice South of Jackson, LLC |
| Hospice South of Mobile, LLC |
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Hospice USA, LLC and Affiliates
Summary of Accounting Policies
| |
Company |
|
| Hospice South of Decatur, LLC |
| Hospice South of Monroeville, LLC |
| Hospice South of Russellville, LLC |
| Hospice South of Tennessee, LLC |
| Hospice South of Memphis, LLC |
| Hospice South of Clarksville, LLC |
Patient Service Revenue
Patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered based on established billing rates, less contractual allowances, for patients covered by Medicaid and other contractual programs.
Accounts Receivable
The Company has significant accounts receivable whose collectibility or realizability is dependent upon the performance of certain governmental programs, primarily Medicaid and Medicare. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an adequate provision has been made for the possibility of these receivables and other assets proving uncollectible and continually monitors and adjusts these allowances as necessary.
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts based on specifically identified amounts that it believes may be uncollectible. The Company also records an additional allowance based on certain percentages of their aged receivables, which are determined based on historical experience and management’s assessment of the general financial conditions affecting the Company’s customer base. If actual collection experience changes, revisions to the allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
Property, Equipment and Depreciation
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method for financial reporting purposes over the assets’ estimated useful lives as follows:
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Hospice USA, LLC and Affiliates
Summary of Accounting Policies
| | | | | |
| | | Years
|
| Furniture and equipment | | | 5-20 | |
| Leasehold improvements | | | 5-25 | |
| Automobiles | | | 4 | |
Expenditures for major renewals and betterments that extend the useful life of assets are capitalized. Maintenance and repair costs are charged to expense as incurred. Upon sale or retirement, the asset cost and related accumulated depreciation are eliminated from the respective accounts, and any resulting gain or loss is included in income.
The carrying values of long-lived assets are periodically reviewed by the Company and impairments would be recognized if the expected future operating non-discounted cash flows derived from an asset were less than its carrying value.
Goodwill
Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. In accordance with Statement of Financial Accounting Standards No. 141,Business Combinations,the Company assessed goodwill for impairment at the end of each period presented.
Income Taxes
The Company has elected to be treated as a pass-through entity for federal and state income tax reporting purposes. As such, its taxable income will be included in the income tax returns of the respective members.
Use of Estimates
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of
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Hospice USA, LLC and Affiliates
Summary of Accounting Policies
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Financial Instruments
Financial instruments consist primarily of accounts receivable, accounts payable, accrued liabilities and long-term debt. The carrying amounts of financial instruments are estimated by management to approximate their respective fair values.
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Hospice USA, LLC and Affiliates
Notes to Unaudited Combined Condensed Financial Statements
| 1. | | Related Party Transactions |
At June 30, 2004 and December 31, 2003, the Company had receivables due from companies under common ownership of $461,807 and $164,199, respectively. Such receivables relate mainly to the payment of expenses by the Company on behalf of the companies under common ownership. Such amounts are offset by payments received by the Company on behalf of the companies under common ownership.
The Company’s two members are also executive officers of the Company. These officers/members are not paid a salary, but are compensated through profit distributions. Accordingly, no compensation expense related to the executive management services rendered by these two officers has been recorded in the accompanying financial statements.
| 2. | | Supplemental Cash Flow Information |
For purposes of the statements of cash flow, cash consists of cash on hand, demand deposit accounts and short-term investments in certificates of deposit with initial maturities of three months or less.
Cash paid for interest totaled approximately $44,000 and $16,000 for the six months ended June 30, 2004 and 2003, respectively.
| 3. | | Risks and Uncertainties |
The Company has significant accounts receivable whose collectibility or realizability is dependent upon the performance of certain governmental programs, primarily Medicare. During the six months ended June 30, 2004 and 2003 the Company earned approximately 92% of its revenue from patients under the Medicare program. Medicare reimbursement for hospice care is generally made based on predetermined daily rates. There are no retroactive adjustments other than the application of a statutory “cap” on overall payments and the limitation on payments for inpatient care. Amounts due from Medicare amounted to approximately $2,624,000 and $3,081,000 as of June 30, 2004 and December 31, 2003, respectively. The Company does not believe there are significant credit risks associated with these governmental programs. The Company believes that an adequate provision has been made for the possibility of receivables proving uncollectible and appropriate liabilities have been recorded for potential retroactive adjustments. The Company
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Hospice USA, LLC and Affiliates
Notes to Unaudited Combined Condensed Financial Statements
continually monitors and adjusts these allowances and accruals as necessary.
The Company, in the normal course of business, is subject to litigation on general business issues. In the opinion of management, such litigation will not have a material adverse effect on the Company.
On July 30, 2004 substantially all of the assets of the Company were acquired by Beverly Enterprises, Inc. through its indirect wholly-owned subsidiary, Hospice Preferred Choice, Inc. The purchase price for the assets of the Company was $69,123,152.
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