EXHIBIT 99.1
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Financial Statements
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NLVH, Inc.
(d/b/a Lake Mead Hospital Medical Center):
We have audited the accompanying balance sheets of NLVH, Inc. (d/b/a Lake Mead
Hospital Medical Center) (the Medical Center) as of December 31, 2002 and 2001,
and the related statements of operations, shareholder's equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Medical Center's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NLVH, Inc. (d/b/a Lake Mead
Hospital Medical Center) as of December 31, 2002 and 2001, and the results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Dallas, Texas
January 16, 2004
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Balance Sheets
December 31, 2002 and 2001
2002 2001
------------- ----------
ASSETS
Current assets:
Cash $ 71,420 33,717
Accounts receivable, less allowance for doubtful
accounts of $2,744,874 in 2002 26,960,011 --
Inventories of supplies, at cost 1,292,909 1,055,856
Prepaid expenses and other current assets 1,455,487 1,211,442
Note receivable from affiliate -- 21,020,576
------------- ----------
Total current assets 29,779,827 23,321,591
Property and equipment, net 40,881,489 41,136,199
Due from affiliate -- 3,641,229
Other assets 57,789 56,739
Intangible assets, net of accumulated amortization of
$461,333 and $285,439 in 2002 and 2001, respectively 1,170,504 1,343,891
------------- ----------
Total assets $ 71,889,609 69,499,649
============= ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,922,455 5,279,777
Other current liabilities 171,505 151,194
------------- ----------
Total current liabilities 6,093,960 5,430,971
Due to affiliate 4,401,122 --
Note payable to affiliate 55,000,000 55,000,000
------------- ----------
Total liabilities 65,495,082 60,430,971
------------- ----------
Commitments and contingencies -- --
Shareholder's equity:
Common stock, no par value; 10,000 shares authorized;
5,000 shares issued and outstanding -- --
Additional paid-in-capital 10,520,000 10,520,000
Accumulated deficit (4,125,473) (1,451,322)
------------- ----------
Total shareholder's equity 6,394,527 9,068,678
------------- ----------
Total liabilities and shareholder's equity $ 71,889,609 69,499,649
============= ==========
See accompanying notes to financial statements.
2
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Statements of Operations
Years Ended December 31, 2002 and 2001
2002 2001
-------------- ----------
Net patient service revenue $ 85,224,216 74,816,349
Other revenue 202,356 247,064
-------------- ----------
Net operating revenues 85,426,572 75,063,413
-------------- ----------
Operating expenses:
Salaries and benefits 33,063,483 28,250,544
Supplies 16,321,456 12,794,701
Provision for doubtful accounts 11,840,420 --
Other operating expenses 17,187,611 14,362,342
Depreciation 2,650,958 2,666,552
Amortization 175,895 162,291
Loss on sale of patient accounts receivable 2,996,268 17,848,956
-------------- ----------
Total operating expenses 84,236,091 76,085,386
-------------- ----------
Income (loss) from operations 1,190,481 (1,021,973)
Interest income from affiliate (82,368) (764,654)
Interest expense 5,500,000 5,500,000
-------------- ----------
Loss before income taxes (4,227,151) (5,757,319)
Income tax benefit (1,553,000) (2,127,000)
-------------- ----------
Net loss $ (2,674,151) (3,630,319)
============== ==========
See accompanying notes to financial statements.
3
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Statements of Shareholder's Equity
Years Ended December 31, 2002 and 2001
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
--------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ---------- ------------ ----------
Balance, December 31, 2000 5,000 $ -- 10,520,000 2,178,997 12,698,997
Net loss -- -- -- (3,630,319) (3,630,319)
----- ------ ---------- ---------- ----------
Balance, December 31, 2001 5,000 -- 10,520,000 (1,451,322) 9,068,678
Net loss -- -- -- (2,674,151) (2,674,151)
----- ------ ---------- ---------- ----------
Balance, December 31, 2002 5,000 $ -- 10,520,000 (4,125,473) 6,394,527
===== ====== ========== ========== ==========
See accompanying notes to financial statements.
4
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Statements of Cash Flows
Years Ended December 31, 2002 and 2001
2002 2001
------------- -----------
Cash flows from operating activities:
Net loss $ (2,674,151) (3,630,319)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 2,650,958 2,666,552
Amortization 175,895 162,291
Provision for doubtful accounts 11,840,420 --
Loss on sale of patient accounts receivable 2,996,268 17,848,956
Increase (decrease) in cash from changes in
operating assets and liabilities:
Note receivable from affiliate 21,020,576 (19,117,956)
Accounts receivable (41,666,491) --
Inventories, prepaid expenses, and other
current assets (443,802) (366,913)
Accounts payable, accrued, and other liabilities 662,987 1,425,671
------------- -----------
Net cash used in operating activities (5,437,340) (1,011,718)
Cash flows from investing activities:
Capital expenditures (2,317,308) (1,769,681)
Other investing activities (250,000) --
------------- -----------
Net cash used in investing activities (2,567,308) (1,769,681)
Cash flows used in financing activity:
Net change in due from (to) affiliate 8,042,351 2,538,275
------------- -----------
Net change in cash 37,703 (243,124)
Cash, beginning of year 33,717 276,841
------------- -----------
Cash, end of year $ 71,420 33,717
============= ===========
Supplemental disclosure:
Interest paid through due from (to) affiliate $ 5,500,000 5,500,000
Noncash transactions:
Accounts payable related to capital expenditures $ (172,454) 216,432
Tax payments are made at the parent company level.
See accompanying notes to financial statements.
5
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
NLVH, Inc. (d/b/a Lake Mead Hospital Medical Center) (the
Medical Center), a Nevada corporation, is an indirect, wholly
owned subsidiary of Tenet HealthSystem Healthcorp, which is a
wholly owned subsidiary of Tenet Healthcare Corporation
(together with its subsidiaries, " Tenet"). The Medical Center
is a 198-bed acute care hospital that provides inpatient,
outpatient, and emergency care services in the Las Vegas,
Nevada service area.
The Medical Center is subject to changes in government
legislation that could impact Medicare and Medicaid payment
levels and to increased levels of managed care penetration and
changes in payor patterns that may impact the level and timing
of payment for services rendered.
The accounting and reporting policies of the Medical Center
conform to accounting principles generally accepted in the
United States of America. The preparation of 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 amounts
reported in the financial statements and accompanying notes.
In general, those estimates are based on historical
experience, and on various other assumptions that the Medical
Center believes to be reasonable under the particular facts
and circumstances. Actual results could differ from those
estimates.
In March 2003, Tenet announced that its fiscal year-end was
retroactively changed to a December 31 calendar year-end from
a May 31 fiscal year-end basis. Accordingly, the Medical
Center has a calendar fiscal year-end effective December 31,
2002.
(b) NET PATIENT SERVICE REVENUE
Net patient service revenue is recognized in the period when
services are performed and is recorded based on established
billing rates (gross charges) less estimated discounts for
contractual allowances principally for patients covered by
Medicare, Medicaid, managed care and other health plans. Gross
charges are retail charges. They are not the same as actual
pricing, and they generally do not reflect what a hospital is
ultimately paid and therefore are not displayed in the
statements of operations. Hospitals are typically paid amounts
that are negotiated with insurance companies or are set by the
government. Gross charges are used to calculate Medicare
outlier payments and to determine certain elements of
managed-care contracts (such as stop-loss payments). And,
because Medicare requires that a hospital's gross charges be
the same for all patients (regardless of payor category),
gross charges are also what hospitals charge self-pay
patients. The discounts for Medicare and Medicaid contractual
allowances are based primarily on prospective payment systems.
Discounts are estimated based on historical and current
factors. Before final settlement of cost reports, claims are
subjected to administrative reviews and audits by third
parties. This process can take several years to complete.
Because the laws and regulations governing the Medicare and
Medicaid programs are ever-changing and complex, the estimates
recorded by the Medical Center could change by material
amounts. The Medical Center records adjustments to its
previously recorded contractual allowances in future
(Continued)
6
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
periods as final settlements are determined. Adjustments due
to final settlements decreased net patient service revenue by
approximately $1,187,000 and $2,309,000 during the years ended
December 31, 2002 and 2001, respectively. Estimated cost
report settlements and contractual allowances are deducted
from accounts receivable in the accompanying balance sheets.
The Medical Center recorded approximately $900,000 and
$1,338,000 of revenues related to Medicare outliers during the
years ended December 31, 2002 and 2001, respectively. In the
June 9, 2003 Federal Register, Centers for Medicare and
Medicaid Services (CMS) issued new rules governing the
calculation of outlier payments to hospitals. These new rules,
which became effective August 8, 2003, include the following
changes: (1) beginning October 1, 2003, Medicare uses the
latest of either the most recently submitted or the most
recently settled cost report to calculate the cost-to-charge
ratio for outlier payments, (2) the use of the statewide
average ratio of costs to charges is eliminated for hospitals
with very low computed cost-to-charge ratios, (3) Medicare
fiscal intermediaries have been given specific criteria for
identifying hospitals that may have received inappropriately
high outlier payments, and they are allowed to review and, if
deemed necessary, recover overpayments, including interest, if
the actual costs of a hospital stay (which are reflected in
the settled cost report) are less than that which was claimed
by the provider, or if there are other indications of
potential abuse, and (4) hospitals may request changes to
their cost-to-charge ratio to adjust their outlier payments,
in much the same way that an individual taxpayer can adjust
the amount of withholding from income, to avoid over or
underpayments for outlier cases. In anticipation of these
changes, on January 6, 2003, Tenet announced to CMS that it
had voluntarily adopted a new method of calculating Medicare
outlier payments, retroactive to January 1, 2003. With this
new method, instead of using recently settled cost reports for
its outlier calculations, Tenet, including the Medical Center,
is using current year cost-to-charge ratios. Tenet has also
eliminated the use of the statewide average, where applicable,
while continuing to use the current threshold amounts. It is
anticipated that these two changes will result in a reduction
of the Medical Center's Medicare inpatient outlier payments to
approximately $298,000 per year effective January 1, 2003.
Tenet voluntarily adopted this new method to demonstrate its
good faith and to support CMS's likely industry-wide solution
to the outlier issue.
Revenues under managed care health plans are based primarily
on the payment terms involving predetermined rates per
diagnosis, per-diem rates, discounted fee-for-service rates,
and other similar contractual arrangements combined with
stop-loss payments for high-cost patients and pass-through
payments (for high cost devices and Pharmaceuticals). These
revenues are also subject to review and possible audit by the
payors.
Management believes that adequate provision has been made for
adjustments that may result from final determination of
amounts earned under all the above arrangements. There are no
known material claims, disputes, or unsettled matters with
payors not adequately provided for in the accompanying
financial statements.
(Continued)
7
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
Percentages of net patient service revenue by payor for the
Medical Center were as follows:
2002 2001
---- ----
Medicare 22% 23%
Medicaid 21% 13%
Managed care 37% 37%
Indemnity and other 20% 27%
The Medical Center, without charge or at amounts substantially
less than its established rates, provides care to patients who
meet certain financial or economic criteria. Because the
Medical Center does not pursue collection of amounts
determined to qualify as charity care, they are not reported
in net patient service revenue or in operating expenses. The
amount of charges forgone under the charity policy for the
years ended December 31, 2002 and 2001 was approximately
$18,185,000 and $11,177,000, respectively (unaudited).
(c) CASH CONCENTRATION
Medical Center cash receipts are routinely transferred into a
bank account of Tenet. Cash disbursements of the Medical
Center are funded by Tenet through a zero-balance bank account
as checks are presented for payment. Medical Center cash on
deposit in the accounts of Tenet is presented net of amounts
payable to Tenet and is classified in "Due from (to)
affiliate" in the accompanying balance sheets, a non
interest-bearing account.
(d) PROVISION FOR DOUBTFUL ACCOUNTS
The Medical Center provides for accounts receivable that could
become uncollectible in the future by establishing an
allowance to reduce the carrying value of such receivables to
their estimated net realizable value. The Medical Center
estimates this allowance based on the aging of its accounts
receivable and its historical collection experience for each
type of payor.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost.
The Medical Center uses the straight-line method of
depreciation for buildings, building improvements, and
equipment over their estimated useful lives as follows:
Building and improvements 25 to 40 years
Equipment 3 to 15 years
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which was adopted June 1, 2002, the Medical
Center evaluates its long-lived assets to be held and used for
possible impairment whenever circumstances indicate that the
carrying amount of the asset, or related group of assets, may
not be recoverable from estimated future cash flows. Fair
value estimates are derived from independent appraisals,
established market values of comparable assets or internal
calculations of estimated future
(Continued)
8
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
net cash flows. The estimates of these future cash flows are
based on assumptions and projections believed by management to
be reasonable and supportable. These assumptions and
projections consider patient volumes, changes in payor mix,
revenue and expense growth rates and changes in legislation
and other payor payment patterns, which may vary by type of
facility (see note 10).
In general, long-lived assets to be disposed of are reported
at the lower of either their carrying amounts or fair values
less costs to sell or close. In such circumstances, the
Medical Center's estimates of fair value are usually based on
independent appraisals, established market prices for
comparable assets or internal calculations of estimated future
net cash flows.
(f) INTANGIBLES ASSETS
Intangibles assets consist primarily of capitalized software
costs, which are amortized using the straight-line method over
periods ranging from 3 to 15 years.
(g) INCOME TAXES
Tenet files consolidated federal and state of Nevada income
tax returns, both of which include the operating results of
the Medical Center. Tenet allocates taxes to the Medical
Center on a separate return basis whereby current and deferred
taxes are allocated to the Medical Center pursuant to the
asset and liability method as if the Medical Center were a
separate taxpayer. For balance sheet purposes, such
allocations are recorded in "Due from (to) affiliate."
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
2002 2001
------------- -----------
Land $ 1,516,188 1,426,106
Building and improvements 44,173,671 44,070,152
Equipment 21,712,157 20,797,929
Construction in progress 1,480,668 401,725
------------- -----------
68,882,684 66,695,912
Less accumulated depreciation (28,001,195) (25,559,713)
------------- -----------
$ 40,881,489 41,136,199
============= ===========
(3) RELATED-PARTY TRANSACTIONS
Related-party transactions include the following:
(a) Tenet advanced funds to the Medical Center for insurance
coverage, other operating costs and asset purchases during the
years ended December 31, 2002 and 2001. Additionally, Tenet
charged the Medical Center a management fee recorded in other
operating expenses of $2,209,491 and $2,370,809 for 2002 and
2001, respectively, for administrative, financial, and
technical support, the basis for which are generally allocated
on a pro rata basis utilizing net operating revenues for all
of
(Continued)
9
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
Tenet's hospitals. Such expense allocations to the Medical
Center may not be representative of the costs to be incurred
in the future or on a stand alone basis. Management believes
the allocation method described above is reasonable.
(b) Effective August 31, 1999, Tenet and certain Tenet
subsidiaries, including the Medical Center, entered into a
Receivables Sale Agreement pursuant to which those Tenet
subsidiaries agreed to sell to Tenet, without recourse,
patient-related receivables net of estimated cost report
settlements, allowances for doubtful accounts and contractual
allowances existing on August 31, 1999 as well as receivables
generated thereafter. On March 1, 2002, Tenet and certain
Tenet subsidiaries, including the Medical Center, entered into
a Receivables Purchase Agreement pursuant to which those Tenet
subsidiaries agreed to repurchase from Tenet, without
recourse, patient-related receivables previously sold that
remained uncollected as of such date net of estimated cost
report settlements, allowances for doubtful accounts and
contractual allowances.
Approximately $15,271,000 and $77,051,000 of net receivables
were sold by the Medical Center to Tenet during the period
January 1, 2002 through February 28, 2002 and during the year
ended December 31, 2001, respectively. The patient-related
receivables sold by the Medical Center to Tenet were sold at
their fair values, which were less than the balances of such
receivables on the Medical Center's balance sheets due to the
fact that they were discounted to primarily reflect the time
value of money and future collection costs. During the period
January 1, 2002 through February 28, 2002 and during the year
ended December 31, 2001, the Medical Center recorded a loss on
sale of patient accounts receivable related to these sales of
$3,984,099 and $17,848,956, including $3,595,842 and
$15,912,833 to reduce the receivables to net realizable value,
respectively.
(c) Through February 28, 2002, the Medical Center had a note
receivable due from an affiliate of Tenet, which bore interest
at LIBOR plus 1% (2.883% on February 28, 2002 and 2.876% on
December 31, 2001). During the period January 1, 2002 through
February 28, 2002 and during the year ended December 31, 2001,
the note balance was increased by sales of net receivables
generated by the Medical Center and decreased by cash
collections on these receivables by the affiliate. Interest
income on the note receivable during the period January 1,
2002 through February 28, 2002 and during the year ended
December 31, 2001 was $82,368 and $764,654, respectively, and
is included in interest income from affiliate in the
accompanying statements of operations. On March 1, 2002, the
note receivable was effectively paid off through the
aforementioned repurchase of patient-related receivables by
the Medical Center. The difference between the sales price
paid by the Medical Center of $26,890,109 and the book value
of the patient-related receivables was $987,831, which
decreased the loss on sale of patient accounts receivable
during the period January 1, 2002 through February 28, 2002.
(d) Note payable to affiliate of $55,000,000 consists of a note
payable to an affiliate, bearing interest at 10% due May 31,
2015. Interest expense on the note for the years ended
December 31, 2002 and 2001 was $5,500,000 for each year.
(e) Substantially all of the Medical Center's professional and
comprehensive general liability risks in excess of
self-insured retentions, which vary by policy year from $1
million to $3 million per occurrence, are insured through
wholly owned insurance subsidiaries of Tenet. A significant
portion of these risks is, in turn, reinsured with major
independent insurance companies. The Medical Center
(Continued)
10
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
is charged an allocation of cost by Tenet for its portion of
cost relating to this program. The amount allocated to the
Medical Center for these costs was $1,736,049 and $550,882 for
the years ended December 31, 2002 and 2001, respectively.
(4) CLAIMS AND LAWSUITS
In the normal course of business, the Medical Center is subject to
claims and lawsuits. The Medical Center believes that its liability for
damages resulting from such claims and lawsuits is a dequately covered
by insurance or is adequately provided for in its financial statements.
The healthcare industry is also the subject of federal and state
agencies heightened and coordinated civil and criminal enforcement
efforts. Through the use of national initiatives, the government is
scrutinizing, among other things, outlier payments, the terms of
acquisitions of physician practices and the coding practices related to
certain clinical laboratory procedures and inpatient procedures.
Healthcare providers, including Tenet, continue to see increased use of
the False Claims Act, particularly by individuals who bring actions on
behalf of the government alleging that a hospital has defrauded the
federal government. Companies in the healthcare industry in general,
and Tenet in particular, have been and may continue to be subjected to
these government investigations and other actions. At this time, Tenet
and the Medical Center are unable to predict the impact of such actions
on its business, financial condition or results of operations.
In April 2003, Tenet received an administrative subpoena duces tecum
from the U. S. Department of Health and Human Services, Office of
Inspector General ("OIG"), seeking documents relating to any agreements
with Women's Cancer Center, a physician's group that is based in Palo
Alto, California, which is not owned by Tenet, practicing in the field
of gynecologic oncology, and certain physicians affiliated with that
group. The subpoena seeks documents from Tenet as well as five hospital
subsidiaries, including the Medical Center.
In July 2003, Tenet and several of its subsidiaries received
administrative subpoenas from the U.S. Attorney's Office for the
Central District of California seeking documents since 1997 related to
physician relocation agreements at seven Southern California hospitals
owned by Tenet subsidiaries, as well as summary information about
physician relocation agreements related to all of its hospital
subsidiaries, including the Medical Center. Specifically, the
subpoenas, issued in connection with a criminal investigation, seek
information from Tenet, three intermediary Tenet corporate subsidiaries
and Tenet subsidiaries that own seven of its Southern California
hospitals. Tenet is cooperating with the government regarding this
investigation.
Tenet cannot presently determine the ultimate resolution of these
investigations. Accordingly, the likelihood of a loss attributable to
the Medical Center, if any, for these matters cannot be reasonably
estimated and the Medical Center has not recognized in the financial
statements the potential liability that may arise from these matters.
If adversely determined, the outcome of these matters could have a
material adverse effect on the Medical Center's business, financial
condition or results of operations.
(5) BENEFIT PLANS
Substantially all employees who are employed by the Medical Center,
upon qualification, are eligible to participate in Tenet's defined
contribution 401(k) plan. Employees who elect to participate may make
contributions from 1% to 20% (25% effective January 1, 2003) of their
eligible compensation, and Tenet
(Continued)
11
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
matches such contributions up to a maximum percentage. Expenses
allocated to the Medical Center for the plan were $285,723 and $251,130
for the years ended December 31, 2002 and 2001, respectively.
The Medical Center does not provide post-retirement healthcare or life
insurance benefits.
(6) LEASES
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 2002:
Year ending December 31:
2003 $ 1,459,243
2004 1,462,352
2005 1,327,728
2006 1,023,180
2007 1,010,111
Thereafter 10,157,893
-------------
$ 16,440,507
=============
Total rental expense for all operating leases was $1,301,889 and
$1,039,343, net of sublease rental income of $911,219 and $1,122,399,
for the years ended December 31, 2002 and 2001, respectively.
(7) INCOME TAXES
Income tax benefit allocated by Tenet on a separate return basis for
the years ended December 31, 2002 and 2001 consists of:
2002 2001
----------- ----------
Current:
Federal $ (716,000) (588,000)
State (81,000) (66,000)
----------- ----------
(797,000) (654,000)
----------- ----------
Deferred:
Federal (679,000) (1,325,000)
State (77,000) (148,000)
----------- ----------
(756,000) (1,473,000)
----------- ----------
$(1,553,000) (2,127,000)
=========== ==========
The total amount of the net deferred tax liability included in "Due
from (to) affiliate" as of December 31, 2002 and 2001 was approximately
$5,996,000 and $6,752,000, respectively.
(Continued)
12
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
A reconciliation between the amount of reported income tax benefit and
the amount computed by multiplying income before tax by the statutory
Federal income tax rate is shown below:
2002 2001
----------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ---------- -------
Tax benefit at statutory
federal rate $ (1,480,000) 35.0% (2,015,000) 35.0%
State income taxes, net of
federal income tax impact (102,000) 2.4% (139,000) 2.4%
Other 29,000 (0.7%) 27,000 (0.5%)
------------ ---- ---------- ----
Tax benefit on loss $ (1,553,000) 36.7% (2,127,000) 36.9%
============ ==== ========== ====
Deferred tax assets and liabilities as of December 31, 2002 and 2001
relate to the following:
2002 2001
----------------------------- --------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
----------- ----------- ------- -----------
Depreciation and fixed asset
basis differences $ -- 5,410,000 -- 5,579,000
Receivables - doubtful
accounts and adjustments -- 954,000 -- 1,119,000
Accruals for insurance risks 690,000 -- 366,000 --
Intangible assets -- 422,000 -- 470,000
Benefit plans 100,000 -- 13,000 --
Other items -- -- 37,000 --
----------- --------- ------- ---------
$ 790,000 6,786,000 416,000 7,168,000
=========== ========= ======= =========
Management of the Medical Center believes that realization of the
deferred tax assets is more likely than not to occur as temporary
differences reverse against future taxable income. Accordingly, no
valuation allowance has been established.
(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable,
and accrued liabilities approximate fair value because of the short
maturity of these instruments. The carrying value of the "Due from (to)
affiliate" account, while classified as long-term since the total
account balance is not required to be settled within one year,
approximates fair value based on the high level of cash receipts and
disbursements routinely processed through this account. In addition,
the carrying values of note receivable from affiliate and note payable
to affiliate approximate fair value.
(Continued)
13
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Financial Statements
December 31, 2002 and 2001
(9) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. The standard requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred. Under previous accounting standards, a liability
for an exit or disposal cost was recognized at the date of an entity's
commitment to an exit or disposal plan. The provisions of the standard
apply to exit or disposal activities initiated after December 31, 2002.
In the event that the Medical Center initiates exit or disposal
activities after this date, the new accounting standard might have a
material effect on the timing of the recognition of exit costs in the
Medical Center's financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45. The
interpretation elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing
the guarantee. The initial recognition and measurement provisions of
this interpretation are applicable, on a prospective basis, to
guarantees issued or modified after December 31, 2002. Management does
not believe this interpretation will have a material effect on the
Medical Center's financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46. This
interpretation of Accounting Research Bulletin No. 51 is intended to
achieve more consistent application of consolidation policies to
variable-interest entities. Management does not believe this
interpretation will have a material impact on the Medical Center's
financial statements.
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity was issued in May 2003.
This statement establishes standards for clarifying and measuring
certain financial instruments with characteristics of both liabilities
and equity. It requires that a company classify a financial instrument
that is within its scope as a liability. Many of those instruments
could previously be classified as equity. This statement is effective
for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Management does not believe this
statement will have a material impact on the Medical Center's financial
statements.
(10) SUBSEQUENT EVENTS
On January 16, 2004, Tenet, through a subsidiary, entered into an Asset
Sale Agreement (the Agreement) to sell the Medical Center to IASIS
Healthcare Corporation for approximately $25,000,000 plus the value of
net working capital, as defined. The transaction is expected to close
in the first quarter of calendar year 2004. No adjustments have been
made to the accompanying financial statements related to this
transaction.
During 2003, based upon internal calculations of estimated future net
cash flows of the Medical Center, management of the Medical Center
identified that the carrying value of the Medical Center's long-lived
assets may not be fully recoverable. It is anticipated that the Medical
Center will record a SFAS 144 impairment charge (see note 1(e)) of
approximately $16 million in 2003 to write-down the carrying value of
its long-lived assets to their estimated fair value of approximately
$25 million, the anticipated sales price of the Medical Center.
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