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EXHIBIT 99.4
Index to Unaudited Pro Forma
Condensed Consolidated Financial Statements
VANGUARD HEALTH SYSTEMS, INC.
Pro Forma Condensed Consolidated Financial Statements (unaudited) 2
Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 2002 (unaudited) 3
Pro Forma Condensed Consolidated Statement of Operations
for the six months ended December 31, 2002 (unaudited) 4
Pro Forma Condensed Consolidated Statement of Operations
for the year ended June 30, 2002 (unaudited) 5
Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited) 6
Notes to Pro Forma Condensed Consolidated Statement of Operations
for the six months ended December 31, 2002 (unaudited) 8
Notes to Pro Forma Condensed Consolidated Statement of Operations
for the year ended June 30, 2002 (unaudited) 9
VANGUARD HEALTH SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On January 3, 2003, but effective January 1, 2003, Vanguard Health Systems,
Inc. ("the Company"), through its subsidiary VHS San Antonio Partners, L.P.,
acquired substantially all of the assets of five acute care hospitals and
related health care businesses located in San Antonio, Texas and surrounding
areas of south Texas from Baptist Health System ("BHS"), a Texas not-for-profit
corporation. The following unaudited pro forma condensed consolidated balance
sheet as of December 31, 2002, gives effect to the acquisition of BHS by the
Company as if the transaction had been completed as of December 31, 2002. The
following unaudited condensed consolidated statements of operations for the six
months ended December 31, 2002, and for the year ended June 30, 2002, give
effect to the acquisition of BHS by the Company as if the transaction had been
completed July 1, 2002 and 2001, respectively.
The unaudited pro forma condensed consolidated financial statements
presented herein do not intend to represent what the Company's financial
position or results of operations would have been had such transaction occurred
at the beginning of the periods presented or to project the Company's results of
operations in any future period. The pro forma results of operations, which do
not consider certain operational changes instituted by the Company upon the
acquisition of BHS, do not necessarily indicate the results of BHS' operations
while under the Company's ownership. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in its Annual
Report on Form 10-K for the fiscal year ended June 30, 2002, its unaudited
condensed consolidated financial statements included in its Quarterly Report on
Form 10-Q for the three months and six months ended December 31, 2002, and the
audited consolidated financial statements of BHS, included elsewhere in this
Current Report on Form 8-K/A. Certain reclassifications have been made to BHS'
historical financial statements to conform to the Company's presentation.
2
VANGUARD HEALTH SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2002
ACQUISITION PRO FORMA
HISTORICAL PRO FORMA ACQUISITION
VANGUARD BHS ADJUSTMENTS CONSOLIDATED
--------- --------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 74,876 $ 31,856 $ (31,836) a)
197,811 b)
(246,581) c) $ 26,126
Accounts receivable, net 163,164 51,107 214,271
Supplies 16,736 12,041 28,777
Prepaid expenses and other current assets 17,765 6,536 (5,255) a)
826 d) 19,872
--------- --------- ---------- ----------
Total current assets 272,541 101,540 (85,035) 289,046
Assets limited as to use - 28,273 (28,273) a) -
Property, plant and equipment, net 469,442 187,793 60,402 e) 717,637
Goodwill 79,010 - 9,942 f) 88,952
Intangible assets, net 36,143 - 6,000 g)
2,690 h) 44,833
Other assets 4,252 15,716 (9,899) a)
16,084 i) 26,153
--------- --------- ---------- ----------
Total assets $ 861,388 $ 333,322 $ (28,089) $1,166,621
========= ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,175 $ 27,991 $ (1,804) a) $ 69,362
Accrued interest 12,210 1,296 (1,250) a) 12,256
Accrued health claims 24,826 - 24,826
Other accrued expenses and current liabilities 94,585 20,075 (6,619) a)
3,500 j)
8,348 k) 119,889
Current maturities of long-term debt 3,284 676
3,960
--------- --------- ---------- ----------
Total current liabilities 178,080 50,038 2,175 230,293
Other liabilities 36,532 24,391 (24,391) a) 36,532
Long-term debt, less current maturities 306,092 199,674 (194,297) a)
167,642 l)
479,111
Payable-In-Kind Preferred Stock 25,039 - 30,000 m) 55,039
Stockholders' equity:
Preferred Stock - - -
Common Stock 2 - - 2
Additional paid in capital 304,436 - 50,001 n) 354,437
Retained earnings 11,207 59,219 (59,219) o) 11,207
--------- --------- ---------- ----------
Total liabilities and stockholders' equity $ 861,388 $ 333,322 $ (28,089) $1,166,621
========= ========= ========== ==========
SEE ACCOMPANYING NOTES.
3
VANGUARD HEALTH SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2002
ACQUISITION PRO FORMA
HISTORICAL PRO FORMA ACQUISITION
VANGUARD BHS ADJUSTMENTS CONSOLIDATED
--------- --------- ----------- ------------
(IN THOUSANDS)
Patient service revenues $ 427,294 $ 234,820 $ $ 662,114
Premium revenues 107,911 - 107,911
Investment and other revenues - 1,340 (1,340) a) -
--------- --------- --------- ---------
Total revenues 535,205 236,160 (1,340) 770,025
Costs and expenses:
Salaries and benefits 227,036 110,135 337,171
Supplies 71,397 51,032 2,988 b) 125,417
Medical claims expense 78,350 - 78,350
Purchased services 35,080 25,174 60,254
Provision for doubtful
accounts 27,618 8,342 35,960
Insurance 12,530 16,210 28,740
Other operating expenses 34,006 10,467 2,050 c) 46,523
Rents and leases 7,505 4,788 12,293
Depreciation and amortization 19,061 13,323 (13,323) d)
8,518 d)
600 e) 28,179
Interest, net 14,593 6,010 (5,763) f)
5,491 g) 20,331
Other (383) (73) (456)
--------- --------- --------- ---------
Income (loss) from operations before
income taxes 8,412 (9,248) (1,901) (2,737)
Income tax expense (benefit) 3,450 - (4,377) h) (927)
--------- --------- --------- ---------
Income (loss) from operations $ 4,962 $ (9,248) $ 2,476 $ (1,810)
========= ========= ========= =========
SEE ACCOMPANYING NOTES.
4
VANGUARD HEALTH SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED JUNE 30, 2002
ACQUISITION PRO FORMA
HISTORICAL PRO FORMA ACQUISITION
VANGUARD BHS ADJUSTMENTS CONSOLIDATED
--------- --------- ----------- -----------
(IN THOUSANDS)
Patient service revenues $ 725,769 $ 427,418 $ - $ 1,153,187
Premium revenues 184,801 - 184,801
Investment and other revenues - 3,662 (3,662) a) -
--------- --------- --------- -----------
Total revenues 910,570 431,080 (3,662) 1,337,988
Costs and expenses:
Salaries and benefits 384,436 206,695 591,131
Supplies 116,125 95,657 5,977 b) 217,759
Medical claims expense 132,005 - 132,005
Purchased services 66,374 59,647 126,021
Provision for doubtful
accounts 53,253 31,889 85,142
Insurance 19,692 6,256 25,948
Other operating expenses 53,080 15,014 4,100 c) 72,194
Rents and leases 14,397 2,366 16,763
Depreciation and amortization 29,509 26,419 (26,419) d)
17,036 d)
1,200 e) 47,745
Interest, net 26,686 11,850 (11,356) f)
10,981 g) 38,161
Debt extinguishment costs 6,627 - 6,627
Other (1,268) (251) (1,519)
--------- --------- --------- -----------
Income (loss) from operations before
income taxes 9,654 (24,462) (5,181) (19,989)
Income tax expense (benefit) 2,877 - (3,297) h) (420)
--------- --------- --------- -----------
Income (loss) from operations $ 6,777 $ (24,462) $ (1,884) $ (19,569)
========= ========= ========= ===========
SEE ACCOMPANYING NOTES.
5
VANGUARD HEALTH SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
a) To eliminate the following assets and liabilities of BHS that were
retained by the seller at the date of purchase: 1) $31,836,000 of cash
and cash equivalents; 2) $5,255,000 of prepaid expenses and other
current assets; 3) $28,273,000 of assets limited as to use; 4)
$9,899,000 of other assets; 5) $1,804,000 of accounts payable; 6)
$1,250,000 of accrued interest related to debt instruments and capital
leases not acquired; 7) $6,619,000 of other accrued expenses and
current liabilities; 8) $676,000 representing the current portion of
debt instruments and capital leases not acquired; 9) $24,391,000 of
other liabilities; and 10) $194,297,000 of long-term debt instruments
and capital leases not acquired.
b) To record cash proceeds of $197,811,000 representing amounts borrowed
under term loans to finance the acquisition of $147,810,000 (net of
$2,190,000 of loan costs) and proceeds from private sales of the
Company's common stock of approximately $50,001,000.
c) To record cash paid for the BHS acquisition of $246,581,000 at closing
of the transaction.
d) To record the estimated net working capital settlement receivable due
from the seller of $826,000 based upon the initial estimate of working
capital as of December 31, 2002.
e) To increase property, plant and equipment by $60,402,000 to
$248,195,000, the Company's estimate of fair market value based upon
independent appraisals.
f) To record estimated goodwill from the acquisition, calculated as
follows:
Adjusted sales price $ 294,581,000
Working capital acquired, including settlement receivable (18,866,000)
Property, plant and equipment and other assets acquired (270,095,000)
Long-term debt assumed 5,377,000
Remaining accrued acquisition costs 4,945,000
--------------
Excess purchase price over net assets acquired 15,942,000
Estimated intangible assets acquired (6,000,000)
--------------
Goodwill $ 9,942,000
==============
g) To record estimated intangible assets acquired of $6,000,000.
h) To record estimated deferred loan costs of $2,690,000 associated with
the expansion of the Company's credit facility to finance a portion of
the transaction purchase price.
i) To increase other assets acquired by $16,084,000 to $21,900,000, the
Company's estimate of fair market value.
j) To record the estimated liability for assumed employee benefit costs of
$3,500,000 as agreed to by the seller at the closing date.
k) To record estimated liabilities related to the acquisition of
$8,348,000 including remaining transaction costs such as legal and
accounting fees, severance liabilities, unfavorable leases and acquired
guarantee arrangements.
6
l) To record debt incurred to finance the acquisition including term loans
under an expanded credit facility of $150,000,000 and 8.18% convertible
subordinated notes issued to the seller of $17,642,000.
m) To record the issuance to the seller of 30,000 shares of the Company's
Payable In Kind Cumulative Redeemable Convertible Preferred Stock
(Series B), valued at $30,000,000 for the purposes of the transaction
based upon an independent appraisal.
n) To record additional paid-in capital of approximately $50,001,000
related to proceeds received from the sale of 29,392 shares of the
Company's common stock to finance a portion of the transaction purchase
price.
o) To eliminate the acquired equity of BHS of $59,219,000 against the
Company's investment.
The pro forma balance sheet adjustments presented above are based upon the
Company's initial purchase price allocation utilizing the best information
available at the time of this filing. The purchase price allocation is
preliminary in nature and could change as a result of adjustments to working
capital acquired, adjustments to estimates of the fair value of assets acquired
or other adjustments that may be required as better information is obtained.
Management believes that future adjustments to the purchase price allocation
would not have a material impact on the pro forma consolidated balance sheet
presented herein.
7
VANGUARD HEALTH SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2002
a) To eliminate $1,340,000 of investment and other revenues related to
assets retained by the seller.
b) To record sales and use taxes of $2,988,000 associated with the
conversion of the hospital to a for-profit taxable entity.
c) To record property taxes of $2,050,000 associated with the conversion
of the hospital to a for-profit taxable entity.
d) To eliminate depreciation expense recorded by BHS during the six-month
period of $13,323,000 and to record depreciation expense of $8,518,000
for the six-month period based upon the fair value of property, plant
and equipment recorded as part of the acquisition purchase price
allocation and initiating Vanguard's depreciation policies.
e) To record amortization of $600,000 for the six-month period related to
$6,000,000 of estimated acquired intangible assets with a weighted
average useful life of 5 years.
f) To eliminate $5,763,000 of interest expense recorded by BHS during the
period related to debt and capital lease obligations retained by the
seller.
g) To record estimated interest incurred by Vanguard for the six-month
period related to debt assumed in the transaction and debt incurred to
finance the acquisition, including the use of cash on hand, as follows:
$150.0 million credit facility term loan proceeds at 5.65%
floating interest rate $ 4,237,500
$48.8 million of cash on hand used at 1.38% overnight funds rate 336,500
$2.7 million of deferred loan costs amortized over the life
of the credit facility 195,500
$17.6 million of 8.18% convertible subordinated notes issued 721,500
------------
Total estimated interest incurred by Vanguard $ 5,491,000
============
Each 1/8% change in the floating interest rate applicable to the
$150.0 million credit facility term loan debt would result in a
pre-tax increase or decrease to interest expense of approximately
$94,000 during the six-month period.
h) To record income taxes associated with the conversion of the hospital
to a for-profit taxable entity to reflect a pro forma consolidated
income tax benefit of $927,000 during the period, a combined federal
and state rate of 33.9%.
The pro forma adjustments presented above are subject to change given
adjustments to the preliminary purchase price allocation. Management believes
that any such changes would not have a material impact on the pro forma
consolidated statement of operations for the six months ended December 31, 2002.
8
VANGUARD HEALTH SYSTEMS
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED JUNE 30, 2002
a) To eliminate $3,662,000 of investment and other revenues related to
assets retained by the seller.
b) To record sales and use taxes of $5,977,000 associated with the
conversion of the hospital to a for-profit taxable entity.
c) To record property taxes of $4,100,000 associated with the conversion
of the hospital to a for-profit taxable entity.
d) To eliminate year-to-date depreciation expense recorded by BHS of
$26,419,000 and to record annual depreciation expense of $17,036,000
based upon the fair value of property, plant and equipment recorded as
part of the acquisition purchase price allocation and initiating
Vanguard's depreciation policies.
e) To record amortization of $1,200,000 related to $6,000,000 of
intangible assets acquired as part of the purchase price having a
weighted average useful life of 5 years.
f) To eliminate $11,356,000 of interest expense recorded by BHS during the
period related to debt and capital lease obligations retained by the
seller.
g) To record annual interest incurred by Vanguard on debt assumed in the
transaction and debt incurred to finance the transaction, including the
use of cash on hand, as follows:
$150.0 million credit facility term loan proceeds at 5.65%
floating interest rate $ 8,475,000
$48.8 million of cash on hand used at 1.38% overnight
funds rate 673,000
$2.7 million of deferred loan costs amortized over the life
of the credit facility 390,000
$17.6 million of 8.18% convertible subordinated notes issued 1,443,000
--------------
Total estimated annual interest incurred by Vanguard $ 10,981,000
==============
Each 1/8% change in the floating interest rate applicable to the $150.0
million credit facility term loan debt would result in a pre-tax
increase or decrease to annual interest expense of approximately
$188,000.
h) To record income taxes associated with the conversion of the hospital
to a for-profit taxable entity to reflect a pro forma consolidated
income tax benefit of $420,000 during the period, a combined federal
and state rate of 2.1%.
The pro forma adjustments presented above are subject to change given
adjustments to the preliminary purchase price allocation. Management believes
that any such changes would not have a material impact on the pro forma
consolidated statement of operations for the year ended June 30, 2002.
9