Exhibit 99.2
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Contents
Unaudited Interim Condensed Financial Statements as of and for each of the three
months ended December 31, 2003 and 2002.
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Balance Sheets
December 31, 2002 and 2003
2003
2002 (unaudited)
--------------- --------------
ASSETS
Current assets:
Cash $ 71,420 $ -
Accounts receivable, less allowance for doubtful accounts
of $2,744,874 and $ 6,956,219 in 2002 and 2003, respectively 26,960,011 28,660,351
Inventories of supplies, at cost 1,292,909 1,756,208
Prepaid expenses and other current assets 1,455,487 1,414,572
--------------- --------------
Total current assets 29,779,827 31,831,131
Property and equipment, net 40,881,489 23,966,779
Other assets 57,789 58,914
Intangible assets, net of accumulated amortization
of $ 481,333 and $622,379 in 2002 and 2003, respectively 1,170,504 1,033,221
--------------- --------------
$ 71,889,609 $ 56,890,045
=============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 5,922,455 $ 8,879,906
Other current liabilities 171,505 1,380,197
--------------- --------------
Total current liabilities 6,093,960 10,260,103
Due to affiliate 4,401,122 1,254,417
Note payable to affiliate 55,000,000 55,000,000
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Total liabilities 65,495,082 66,514,520
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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) (20,144,475)
--------------- --------------
Total shareholder's equity 6,394,527 (9,624,475)
--------------- --------------
Total liabilities and shareholder's equity $ 71,889,609 $ 56,890,045
=============== ==============
See accompanying notes to financial statements.
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Statements of Operations
Three Months Ended December 31, 2002 and 2003
(unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2003
----------------- -----------------
Net Revenues
Net patient service revenue $21,544,089 $ 29,253,929
Other revenue 128,525 66,661
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Net operating revenues 21,672,614 29,320,590
------------ --------------
Operating expenses:
Salaries and benefits 8,349,047 8,745,174
Supplies 4,499,930 4,691,204
Provision for doubtful accounts 4,629,717 10,095,711
Other operating expenses 4,883,525 5,635,822
Depreciation 649,524 632,695
Amortization 44,049 37,516
Impairment of long-lived assets - 16,849,938
------------ --------------
Total operating expenses 23,055,792 46,688,060
------------ --------------
Loss from operations (1,383,178) (17,367,470)
Interest expense 1,375,000 1,375,000
------------ --------------
Loss before Income taxes (2,758,178) (18,742,470)
Income tax benefit (1,023,000) (7,020,000)
------------ --------------
Net loss ($ 1,735,178) ($ 11,722,470)
============ ==============
See accompanying notes to financial statements.
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Statements of Cash Flows
Three Months Ended December 31, 2002 and 2003
(unaudited)
Three Months Ended Three Months Ended
December 31, 2002 December 31, 2003
------------------ ------------------
Cash flows from operating activities;
Net loss $ (1,735,178) $ (11,722,470)
Adjustments to reconcile net loss to net cash provided By
(used in) operating activities:
Depreciation 649,524 632,695
Amortization 44,049 37,516
Provision for doubtful accounts 4,629,717 10,096,711
Impairment of long-lived assets - 16,848,938
Deferred income tax expense (benefit) 3,000 (7,974,000)
Increase (decrease) In cash from changes in operating assets and
liabilities:
Accounts receivable (3,701,658) (15,175,822)
Inventories, prepaid expenses, and other current assets 247,261 (111,476)
Accounts payable, accrued, and other liabilities 172,186 1,983,339
------------ -------------
Net cash provided by (used in) operating activities 308,901 (5,384,569)
Cash flows used in Investing activity;
Capital expenditures (1,124,315) (119,434)
Cash flows provided by (used in) financing activity;
Net change in due to affiliate 886,834 5,470,189
------------ -------------
Net change In cash 71,420 (33,814)
------------ -------------
Cash, beginning of period - 33,814
------------ -------------
Cash, end of period $ 71,420 $ -
============ =============
Supplemental disclosure;
Interest paid through due to affiliate $ 1,375,000 $ 1,375,000
Noncash transaction;
Accounts payable related to capital expenditures $ (172,454) $ 268,188
See accompanying notes to financial statements.
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Unaudited Condensed Financial Statements
Three Months Ended December 31, 2002 and 2003
1. 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.
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.
The unaudited condensed financial statements include the accounts of the Medical
Center and have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial reporting.
Accordingly, they do not include all of the information and notes required by
accounting principles generally accepted in the United States of America for
complete financial statements.
The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. For further information,
refer to the financial statements and footnotes thereto included in the Medical
Center's audited financial statements for the fiscal year ended December 31,
2002.
Although the condensed financial statements within this document are unaudited,
all of the adjustments considered necessary for fair presentation have been
included. Unusual adjustments are discussed in the following notes. The results
of operations for any interim period are not necessarily indicative of results
for the full year.
2. Net Patient Service Revenue
Revenues under the traditional fee-for-service Medicare and Medicaid programs
are based primarily on prospective payment systems. Discounts for
retrospectively cost-based revenues, which were more prevalent in earlier
periods, and certain other payments, which are based on the Medical Center's
cost reports, are estimated using historical trends and current factors. Cost
report settlements under these programs are subject to audit by Medicare and
Medicaid auditors and administrative and judicial review, which can take several
years until final settlement of such matters are determined and completely
resolved. Because the laws, regulations, instructions and rule interpretations
governing Medicare and Medicaid reimbursement are complex and change frequently,
the estimates recorded by the Medical Center could change by material amounts.
Adjustments related to cost report settlements increased net patient
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Unaudited Condensed Financial Statements
Three Months Ended December 31, 2002 and 2003
service revenue by approximately $1.3 million in the three month period ended
December 31, 2003.
Prior to 2003, the Medical Center recorded estimates for contractual allowances
and cost report settlements based on the amounts generated from information
accumulated from various accounting and information systems. Adjustments to
these accruals were generally made upon the final settlement of Medicare and
Medicaid cost reports. In 2003, the Medical Center completed the implementation
of a new system and methodology for recording Medicare net revenue and estimated
cost report settlements. This resulted in a refinement in recording the accruals
to more closely reflect the expected final settlements on its cost reports. For
filed cost reports, the Medical Center now records the accrual based on those
cost reports and subsequent activity, and records a valuation allowance against
those cost reports based on historical settlement trends. Beginning in the year
ended December 31, 2003, the accrual is recorded based on estimates of what the
Medical Center expects to report on the filed cost reports and a corresponding
valuation allowance is recorded as previously described. Cost reports must be
filed generally within the five months after the end of the annual cost
reporting period. After the cost report is filed, the accrual may be adjusted
accordingly. This change in approach during 2003 was inseparable from a change
in estimate.
3. Provision for Doubtful Accounts
The Medical Center provides for an allowance against accounts receivable for an
amount that could become uncollectible whereby such receivables are reduced to
their estimated net realizable value. The Medical Center estimates this
allowance based on the aging of its accounts receivable, its historical
collection experience by each type of payor and other relevant factors.
During 2003, the Medical Center recorded additional provisions for doubtful
accounts of approximately $2.4 million to write down its patient accounts
receivables to their estimated net realizable value. The significant increase in
the provision for doubtful accounts resulted primarily from an adverse change in
the Medical Center's business mix as admissions of uninsured patients have grown
at an escalating rate. The Medical Center believes these new trends are due to a
combination of broad economic factors, including higher unemployment rates,
increasing numbers of patients who are uninsured, and the increasing burden of
co-payments to be made by patients instead of insurers. Additionally, many of
these patients are being admitted through the emergency department and often
require more costly care, resulting in higher billings.
The additional charge in 2003 consisted of two components (1) the effect of
accelerating the write-down of self-pay accounts, and (2) the effect of
re-evaluating the historical collection patterns for self-pay and managed care
accounts receivable in light of recent trends. The Medical Center's practice is
to write down all self-pay accounts receivable, including accounts receivable
related to the co-payments and deductibles due from patients with insurance, to
their estimated net realizable value as they age over the course
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Unaudited Condensed Financial Statements
Three Months Ended December 31, 2002 and 2003
of 120 days, at which time any uncollected balances are assigned to an in-house
collection agency. In 2002, the Medical Center employed a methodology that
utilized graduated write-downs that escalated toward the end of the 120-day
period. Given the speed and severity of the new trends in self-pay account
collection identified in 2003, the Medical Center changed to a straight-line
write-down methodology in 2003.
4. Claims and Lawsuits
Tenet and its subsidiaries, including the Medical Center, are subject to a
significant number of claims and lawsuits. Tenet is also the subject of federal
and state agencies' heightened and coordinated civil and criminal investigations
and enforcement efforts, and has received subpoenas and other requests for
information relating to a variety of subjects. In the present environment, Tenet
expects these enforcement activities to take on additional importance, that
government enforcement activities will intensify, and that additional matters
concerning Tenet and its subsidiaries may arise. Tenet expects similar and new
claims and lawsuits to be brought against Tenet and its subsidiaries from time
to time.
The results of these claims and lawsuits cannot be predicted, and it is
reasonably possible that the ultimate resolution of these claims and lawsuits,
individually or in the aggregate, may have a material adverse effect on Tenet
and/or the Medical Center's business in both the near and long term, financial
position, results of operations or cash flows. Although Tenet and the Medical
Center defend themselves vigorously against claims and lawsuits and cooperate
with investigations, these matters (1) could require payment of substantial
damages or amounts in judgments or settlements, which in the aggregate are
likely to exceed amounts, if any, that may be recovered under insurance policies
where coverage applies and is available, (2) cause substantial expenses to be
incurred, (3) require significant time and attention from management and (4)
could cause Tenet to close or sell hospitals or otherwise modify the way its
business is conducted. Reserves for claims and lawsuits are recorded when they
are probable and reasonably estimable.
Currently pending legal proceedings and investigations that are not in the
ordinary course of business are principally related to the subject matters set
forth below. Management undertakes no obligation to update this disclosure for
any new developments.
Federal government agencies are conducting an investigation into agreements with
the Women's Cancer Center, a physician's group practicing in the field of
gynecologic oncology, and certain physicians affiliated with that group. An
administrative subpoena seeking documents from Tenet and several of its hospital
subsidiaries, including the Medical Center, related to that investigation was
issued in April 2003. Tenet is cooperating with the government with respect to
this investigation.
In July 2003, Tenet and several of its subsidiaries received administrative
subpoenas from the United States Attorney's Office for the Central District of
California seeking
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Unaudited Condensed Financial Statements
Three Months Ended December 31, 2002 and 2003
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 corporate subsidiaries and subsidiaries that own seven of Tenet's
Southern California hospitals. Tenet is cooperating with the government
regarding this investigation.
The United States Department of Justice (DOJ), in conjunction with the Office of
the Inspector General of the Department of Health and Human Services, has been
investigating certain hospital billings to Medicare for inpatient stays
reimbursed pursuant to the diagnosis-related groups (DRG) 79 (pneumonia), 415
(operating room procedure for infectious and parasitic diseases), 416
(septicemia) and 475 (respiratory system diagnosis with mechanical ventilator).
The investigation is believed to have stemmed initially from the government's
nationwide pneumonia "upcoding" initiative and focuses on 103 acute care
hospitals owned by subsidiaries of Tenet or its predecessors, including the
Medical Center, during the period September 1992 through December 1998. In
January 2003, the government filed a lawsuit in the United States District Court
for the Central District of California in regard to this matter alleging
violations of the federal False Claims Act and various common law theories of
liability. The government seeks treble damages and other relief, including
punitive damages. In November 2003, the District Court (1) granted Tenet's
motion to dismiss for failure to plead fraud with the requisite particularity,
with leave to amend, (2) granted, in part, Tenet's motion to sever, with leave
to amend, and (3) dismissed, with prejudice, the government's claims for unjust
enrichment, disgorgement and recoupment. Pursuant to the District Court's order,
in February 2004, the government filed a Second Amended Complaint and two
additional related complaints against Tenet and various subsidiaries alleging
successor liability for claims submitted by predecessors of Tenet. Tenet has not
yet responded to these complaints. No trial date has been set in the case.
The DOJ has been investigating certain hospital billings to Medicare for
inpatient stays reimbursed under the DRG system from January 1, 1992 to June 30,
2000. The investigation has focused on the coding of patients' post-discharge
status. The investigation arose from the federal government's nationwide
transfer-discharge initiative. In January 2004, Tenet reached an understanding
with attorneys at the DOJ to recommend settlement of all civil claims against
Tenet with respect to the transfer-discharge matter at substantially all Tenet
hospitals, including the Medical Center, subject to further approval by the DOJ
and negotiation of a definitive agreement. Tenet has adequately provided for the
proposed settlement of this matter as of December 31, 2003 in its consolidated
financial statements. No amount of the proposed settlement has been allocated to
the Medical Center as of December 31, 2003.
NLVH, INC.
(d/b/a Lake Mead Hospital Medical Center)
Notes to Unaudited Condensed Financial Statements
Three Months Ended December 31, 2002 and 2003
5. Subsequent Events
In January 2004, Tenet, through a subsidiary, entered into an Asset Sale
Agreement to sell the Medical Center to IASIS Healthcare Corporation for
approximately $25 million plus the value of net working capital, as defined. The
transaction closed in February 2004. No adjustments have been made to the
accompanying financial statements related to this transaction.
During 2003, the Medical Center recorded an impairment charge of approximately
$16.8 million to write-down the carrying value of its long-lived assets to their
estimated fair values based upon the anticipated sales price of the Medical
Center.