1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 17, 1999
------------------------------
PROVINCE HEALTHCARE COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-23639 62-1710772
(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
105 WESTWOOD PLACE
SUITE 400
BRENTWOOD, TENNESSEE 37027
(Address of Principal Executive Offices) (Zip Code)
(615) 370-1377
(Registrant's telephone number, including area code)
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2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Province Healthcare Company (the "Company"), a Delaware corporation,
hereby amends its current Report on Form 8-K, dated October 18, 1999, relating
to the acquisitions of Trinity Valley Medical Center and Minden Medical Center
on October 1, 1999 (the "Acquisitions"). The Company is filing this amendment
for the purpose of including the required financial statements and pro forma
financial information with respect to the Acquisitions in accordance with the
requirements of Form 8-K.
(a) Financial Statements of Businesses Acquired
The required audited combined financial statements of Trinity
Valley Medical Center and Minden Medical Center (collectively
the "Tenet Province Hospitals") as of May 31, 1999, and for
the year then ended are filed herewith.
The required unaudited condensed combined financial statements
of Tenet Province Hospitals as of August 31, 1999, and for the
three-month periods ended August 31, 1999 and 1998, are filed
herewith.
(b) Pro Forma Financial Information.
The required pro forma financial statements of the Company and
its subsidiaries, giving effect to the Acquisitions as if they
had occurred on September 30, 1999, as to the balance sheets,
and on January 1, 1998, as to the income statements, are filed
herewith.
(c) Exhibits:
2.1 Asset Sale Agreement, dated July 23, 1999,
between Tenet Healthcare Corporation and Province Healthcare
Company is incorporated herein by reference to the Company's
Current Report on Form 8-K; filed October 18, 1999, Commission
File No. 0-23629.
2.2 Amendment No. 1 to Asset Sale Agreement, dated
September 29, 1999, between Tenet Healthcare Corporation and
Province Healthcare Company is incorporated herein by
reference to the Company's Current Report on Form 8-K; filed
October 18, 1999, Commission File No. 0-23629.
23.1 Consent of KPMG LLP.
99.1 Copy of the press release, dated October 1,
1999, relating to the completion of the acquisitions of
Trinity Valley Medical Center and Minden Medical Center is
incorporated herein by reference to the Company's Current
Report on Form 8-K; filed October 18, 1999, Commission File
No. 0-23629.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PROVINCE HEALTHCARE COMPANY
By: /s/ Brenda B. Rector
-------------------------------------
Brenda B. Rector
Vice President and Controller
Date: December 17, 1999
2
4
INDEX TO FINANCIAL STATEMENTS
PAGE
----
TENET PROVINCE HOSPITALS
Independent Auditors' Report-------------------------------------------------- 1
Combined Balance Sheet at May 31, 1999---------------------------------------- 2
Combined Statement of Operations and Changes in Ownership Equity for the
Year Ended May 31, 1999---------------------------------------------------- 3
Combined Statement of Cash Flows for the Year Ended May 31, 1999-------------- 4
Notes to Combined Financial Statements---------------------------------------- 5
Condensed Combined Balance Sheet at August 31, 1999 (Unaudited)--------------- 13
Condensed Combined Statements of Operations and Changes in Ownership
Equity for the Three Months Ended August 31, 1999 and 1998 (Unaudited)----- 14
Condensed Combined Statements of Cash Flows for the Three Months Ended
August 31, 1999 and 1998 (Unaudited)--------------------------------------- 15
Notes to Condensed Combined Financial Statements (Unaudited)------------------ 16
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
Pro Forma Condensed Consolidated Financial Statements------------------------- 17
Pro Forma Condensed Consolidated Balance Sheet at September 30, 1999
(Unaudited)---------------------------------------------------------------- 18
Pro Forma Condensed Consolidated Statement of Income for the Year
Ended December 31, 1998 (Unaudited)---------------------------------------- 19
Pro Forma Condensed Consolidated Statement of Income for the Nine Months
Ended September 30, 1999 (Unaudited)--------------------------------------- 20
Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)---- 21
5
(KPMG Letterhead)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tenet Healthcare Corporation:
We have audited the accompanying combined balance sheet of Minden Medical
Center and Trinity Valley Medical Center including certain medical office
buildings and other healthcare businesses related to the operations of these
hospitals (collectively the Tenet Province Hospitals) as of May 31, 1999, and
the related combined statements of operations and changes in ownership equity
and cash flows for the year then ended. These combined financial statements are
the responsibility of the Tenet Province Hospitals' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Tenet Province
Hospitals as of May 31, 1999 and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
December 5, 1999
1
6
TENET PROVINCE HOSPITALS
Combined Balance Sheet (note 1)
May 31, 1999
ASSETS
Current assets:
Cash $ 14,872
Accounts receivable, less allowance for doubtful accounts of $2,050,995 2,869,002
Inventories of supplies 1,160,036
Deferred income taxes 699,000
Other receivables 1,505,602
Prepaid expenses 102,487
-------------
Total current assets 6,350,999
Property and equipment, net 35,431,334
Costs in excess of net assets acquired, less accumulated
amortization of $144,305 103,061
Other intangible assets at cost, less accumulated amortization of $239,321 1,976,119
Other assets 47,211
-------------
$ 43,908,724
=============
LIABILITIES AND OWNERSHIP EQUITY (DEFICIT)
Current liabilities:
Obligations under capital leases $ 60,757
Accounts payable 1,638,538
Employee compensation and benefits 1,296,128
Accrued property taxes 309,169
Other current liabilities 231,511
-------------
Total current liabilities 3,536,103
Long-term obligations under capital leases 411,364
Deferred income taxes 3,709,000
Due to affiliate 48,847,626
-------------
Total liabilities 56,504,093
Commitments and contingencies
Ownership equity (deficit) (12,595,369)
-------------
$ 43,908,724
=============
See accompanying notes to combined financial statements.
2
7
TENET PROVINCE HOSPITALS
Combined Statement of Operations and Changes in Ownership Equity
Year ended May 31, 1999
Net patient service revenues $ 60,011,109
Other revenue 569,393
-------------
Net operating revenues 60,580,502
Operating expenses:
Salaries and benefits 26,340,399
Supplies 6,560,531
Provision for doubtful accounts 5,661,176
Other operating expenses 13,748,853
Depreciation 3,198,031
Amortization 176,296
Overhead allocated from affiliate 912,882
-------------
Operating income 3,982,334
Investment earnings 13,131
Interest expense, primarily to affiliate (5,654,021)
-------------
Loss before income taxes (1,658,556)
Income tax benefit 614,000
-------------
Net loss (1,044,556)
Ownership equity (deficit), beginning of year (11,550,813)
-------------
Ownership equity (deficit), end of year $ (12,595,369)
=============
See accompanying notes to combined financial statements.
3
8
TENET PROVINCE HOSPITALS
Combined Statement of Cash Flows
Year ended May 31, 1999
Cash flows from operating activities:
Net loss $ (1,044,556)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 3,374,327
Provision for doubtful accounts 5,661,176
Deferred income tax benefit (566,000)
Increase (decrease) in cash from changes in operating
assets and liabilities
Accounts receivable (3,791,993)
Inventories, prepaid expenses and other receivables (144,206)
Accounts payable and accrued expenses 503,085
-------------
Net cash provided by operating activities 3,991,833
-------------
Cash flows from investing activities:
Purchases of property and equipment (1,657,855)
Increase in other intangible assets (1,088,364)
-------------
Net cash used in investing activities (2,746,219)
-------------
Cash flows from financing activities:
Net decrease in due to affiliate (1,155,277)
Payments on obligations under capital leases (75,465)
-------------
Net cash used in financing activities (1,230,742)
-------------
Net increase in cash 14,872
Cash, beginning of year --
-------------
Cash, end of year $ 14,872
=============
Supplemental disclosures:
Interest paid, net of amounts capitalized 45,773
Taxes received (paid) are made at the Parent level
See accompanying notes to combined financial statements.
4
9
TENET PROVINCE HOSPITALS
Notes to Combined Financial Statements
Year ended May 31, 1999
(1) SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Effective October 1, 1999, Tenet Healthcare Corporation
(Tenet) and certain of its wholly-owned subsidiaries completed
the sale to Province Healthcare Company (Province) of
substantially all of the property, equipment and lease rights
related to the operations of two acute care hospitals,
including certain medical office buildings and other
healthcare businesses related to the operations of these
hospitals for a purchase price of $77 million, subject to
certain net working capital and other adjustments at the
closing date. The two hospitals, including certain medical
office buildings and other healthcare businesses related to
the operations of these hospitals are referred to collectively
herein as the Tenet Province Hospitals.
The Tenet Province Hospitals are primarily engaged in the
operation of general hospitals and related healthcare
facilities and are subject to changes in government
legislation that could impact Medicare and Medicaid
reimbursement levels and to increased levels of managed care
penetration and changes in payor patterns that may impact the
level and timing of payments for services rendered.
The combined financial statements of the Tenet Province
Hospitals include the accounts of Minden Medical Center and
Trinity Valley Medical Center. These entities are ultimately
wholly-owned by subsidiaries of Tenet.
Minden Medical Center is a 121-bed acute care hospital
located in Minden, Louisiana (West Louisiana), which provides
inpatient, outpatient and emergency care services to
residents in the Minden, Louisiana service area. Trinity
Valley Medical Center is a 153-bed acute care hospital
located in Palestine, Texas (East Texas), which provides
inpatient, outpatient and emergency care services to
residents in the Palestine, Texas service area.
The accompanying combined financial statements reflect the
historical accounts of the Tenet Province Hospitals for the
May 31 fiscal year end of Tenet. The combined financial
statements include allocations for certain general and
administrative, financial, legal, human resources,
information systems and other services from Tenet. The basis
for allocations are generally determined on a pro-rata basis
utilizing net operating revenues for all of Tenet's
hospitals. Such expense allocations to the Tenet Province
Hospitals may not be representative of the costs of such
services to be incurred in the future.
The Tenet Province Hospitals maintain their books and records
on the accrual basis of accounting. All significant
transactions and balances resulting from business conducted
between the Tenet Province Hospitals have been eliminated.
(B) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
of the Tenet Province Hospitals to make estimates and
assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Actual results
could differ from those estimates.
(Continued)
5
10
TENET PROVINCE HOSPITALS
Notes to Combined Financial Statements
Year ended May 31, 1999
(C) REVENUE RECOGNITION
Net patient service revenues consist primarily of charges
that are based on the hospitals' established billing rates
less contractual allowances and discounts, principally for
patients covered by Medicare, Medicaid and other contractual
programs. These allowances and discounts were $58,535,401 for
the year ended May 31, 1999. Payments under these programs
are based on either predetermined rates or the costs of
services. Estimates of governmental contractual allowances
(Medicare and Medicaid) are based on historically developed
models adjusted for currently effective reimbursement or
contract rates, the results of which are adjusted as final
settlements of cost reports are reached, and are determined
on a hospital-by-hospital year-by-year basis. Estimates of
commercial contractual allowances are based primarily on the
terms of the contractual arrangements with commercial payors.
Amounts related to settlements are included in accounts
receivable in the accompanying combined balance sheet.
Management of the Tenet Province Hospitals believes that
adequate provision has been made for adjustments that may
result from final determination of amounts earned under these
programs. There are no known material claims, disputes or
unsettled matters with third-party payors not adequately
provided for in the combined financial statements.
Approximately 50% of 1999 combined net patient service
revenues were from participation in Medicare and Medicaid
programs.
The Tenet Province Hospitals provide care to patients who
meet certain financial or economic criteria without charge or
at amounts substantially less than their established rates.
Because the Tenet Province Hospitals do not pursue collection
of amounts determined to qualify as charity care, they are
not reported in the accompanying combined statement of
operations and changes in ownership equity. As a result of
providing services to certain qualifying low-income and
uninsured patients during 1999, Trinity Valley Medical Center
received $1,031,448 in connection with the State of Texas
Disproportionate Share Program which amount is included in
net patient service revenues in the accompanying combined
statement of operations and changes in ownership equity.
(D) LONG-LIVED ASSETS
The Tenet Province Hospitals use the straight-line method of
depreciation for buildings, building improvements and
equipment over their estimated useful lives as follows:
buildings and improvements - 25 to 40 years; equipment - 3 to
15 years. Capital leases are recorded at the beginning of the
lease term as assets and liabilities at the lower of the
present value of the minimum lease payments or the fair value
of the assets, and such assets, including improvements, are
amortized over the shorter of the lease term or estimated
useful life.
Costs in excess of the fair value of the net assets of
purchased businesses (goodwill) generally are amortized using
the straight-line method over 5 years.
Other intangible assets consist primarily of software
conversion costs which are amortized using the straight-line
method over 3 years.
(Continued)
6
11
TENET PROVINCE HOSPITALS
Notes to Combined Financial Statements
Year ended May 31, 1999
Impairment of long-lived assets, including goodwill related
to such assets, is recognized whenever events or changes in
circumstances indicate that the carrying amount of the asset,
or related groups of assets, may not be recoverable from
estimated future cash flows. Measurement of the amount of
impairment may be based on appraisal, market values of
similar assets or estimates of future discounted cash flows
resulting from use and ultimate disposition of the asset.
The Tenet Province Hospitals begin the process of determining
if their facilities are impaired at each fiscal year-end by
reviewing all of the facilities' three-year historical and
one-year projected cash flows. Facilities whose cash flows
are negative or trending significantly downward on this basis
are selected for further impairment analysis. Their future
cash flows (undiscounted and without interest charges) are
estimated over the expected useful life of the facility and
consider patient volumes, changes in payor mix, revenue and
expense growth rates and reductions in Medicare payments due
to the Balanced Budget Act of 1997 (the "BBA") and other
regulatory actions, which assumptions vary by hospital, home
health agency and physician practice. The sum of those
expected future cash flows is compared to the carrying value
of the assets. If the sum of the expected future cash flows
is less than the carrying amount of the assets, the Tenet
Province Hospitals recognize an impairment loss. No such
impairment loss has been recorded at May 31, 1999.
(E) INVENTORIES OF SUPPLIES
Inventories of supplies are stated at cost.
(F) DUE TO AFFILIATE
Due to affiliate includes net intercompany activity with
Tenet. Intercompany activity includes advances to the Tenet
Province Hospitals by Tenet for insurance coverage, working
capital requirements, other operating expenses, and asset
purchases. Additionally, Tenet charged the Tenet Province
Hospitals management fees of $912,882 in 1999 for general and
administrative, financial, legal, human resources,
information services and other services. Offsetting these
advances and management fees are excess cash amounts Tenet
transfers daily from the Tenet Province Hospitals resulting
in a net due to affiliate balance at May 31, 1999.
Intercompany interest expense was $5,608,248 in 1999 for the
portion of the due to affiliate balances subject to interest
charges pursuant to Tenet internal policy.
(G) OWNERSHIP EQUITY (DEFICIT)
Ownership equity (deficit) includes contributed capital and
current and prior years' results of operations, net of
dividends. This account represents Tenet's investment
(deficit) in the net assets and liabilities of the Tenet
Province Hospitals and is non-interest bearing.
(Continued)
7
12
TENET PROVINCE HOSPITALS
Notes to Combined Financial Statements
Year ended May 31, 1999
(H) INCOME TAXES
Tenet files a consolidated federal income tax return and
state income tax returns for the respective states in which
it does business, which include the operating results of the
Tenet Province Hospitals as appropriate. Tenet allocates
taxes to each of the Tenet Province Hospitals on a
separate-return basis, whereby current and deferred taxes are
allocated to each of the Tenet Province Hospitals pursuant to
the asset and liability method, as if each of the Tenet
Province Hospitals were a separate taxpayer.
(2) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the
following:
1999
-------------
Land $ 2,298,346
Buildings and improvements 33,557,366
Equipment 23,402,192
Construction in progress 324,584
-------------
59,582,488
Less accumulated depreciation and amortization (24,151,154)
-------------
Property and equipment, net $ 35,431,334
=============
(3) LEASES
The Tenet Province Hospitals have long-term lease obligations that
expire at various dates for certain facilities and equipment. The
leases generally contain renewal provisions and provide for the lessee
to pay taxes, maintenance, insurance, and certain other operating
costs of the leased property.
(Continued)
8
13
TENET PROVINCE HOSPITALS
Notes to Combined Financial Statements
Year ended May 31, 1999
Future minimum payments under capitalized leases and under operating
leases that have initial or remaining noncancelable lease terms in
excess of one year at May 31, 1999 are as follows:
YEAR ENDING CAPITAL OPERATING
MAY 31, LEASES LEASES
------------------------------------ ------------ ------------
2000 $ 93,132 $ 191,465
2001 74,995 98,785
2002 62,040 67,031
2003 62,040 18,780
2004 62,040 6,000
Later years 284,350 --
------------ ------------
Total minimum lease payments 638,597 $ 382,061
============
Less amount representing interest (166,476)
Present value of net minimum lease
payments 472,121
Less current portion (60,757)
------------
Long-term portion $ 411,364
============
Assets recorded under capital leases with a historical cost of
approximately $700,000 and accumulated depreciation of approximately
$298,000 are included in property and equipment. Future minimum lease
payments under capital leases have not been reduced for sublease
rental income of approximately $147,000.
Total rental expense in 1999 for all operating leases was $841,394.
(4) PROFESSIONAL AND GENERAL LIABILITY INSURANCE
In their normal course of business, the Tenet Province Hospitals are
subject to claims and lawsuits relating to patient treatment. The
Tenet Province Hospitals believe that their liability for damages
resulting from such claims and lawsuits is adequately covered by
insurance or is adequately provided for in the accompanying combined
financial statements.
The Tenet Province Hospitals insure substantially all of their
professional and comprehensive general liability risks in excess of
self-insured retentions through a majority-owned insurance subsidiary
of Tenet. These self-insured retentions currently are $1 million per
occurrence and in prior years varied by hospital and by policy period
from $500,000 to $3 million per occurrence. A significant portion of
these risks is, in turn, reinsured with major independent insurance
companies. The Tenet Province Hospitals are charged an allocation of
cost by Tenet for their portion of cost relating to this program. The
amount allocated to the Tenet Province Hospitals for these costs was
$326,319 in 1999, which amount is included in other operating expenses
in the accompanying combined statement of operations and changes in
ownership equity.
(Continued)
9
14
TENET PROVINCE HOSPITALS
Notes to Combined Financial Statements
Year ended May 31, 1999
(5) INCOME TAXES
Income tax benefit consists of the following approximate amounts:
1999
-----------
Current:
Federal $ (43,000)
State (5,000)
-----------
(48,000)
-----------
Deferred:
Federal (508,000)
State (58,000)
-----------
(566,000)
-----------
$ (614,000)
===========
A reconciliation between the approximate amount of reported income tax
benefit and the amount computed by multiplying loss before income
taxes by the statutory Federal income tax rate is shown below:
1999
---------------------------------
AMOUNT PERCENT
----------- -----------
Tax benefit at statutory federal rates $ (580,000) 35.0%
State income tax benefit net of federal income
tax impact (41,000) 2.5%
Other 7,000 (0.5%)
----------- -----------
Income tax benefit $ (614,000) 37.0%
=========== ===========
Deferred tax assets and liabilities as of May 31, 1999 relate to the
following approximate amounts:
1999
---------------------------------
ASSETS LIABILITIES
----------- -----------
Depreciation and fixed asset basis differences $ -- 3,681,000
Receivables - doubtful accounts and adjustments 565,000 --
Other long-term liabilities 189,000 --
Intangible assets -- 252,000
Other accrued liabilities 134,000 --
Other 35,000 --
----------- -----------
$ 923,000 3,933,000
=========== ===========
(Continued)
10
15
TENET PROVINCE HOSPITALS
Notes to Combined Financial Statements
Year ended May 31, 1999
Based on historical and projected taxable income, management of the
Tenet Province Hospitals believes that realization of the deferred tax
assets is more likely than not to occur. Accordingly, no valuation
allowance has been established.
(6) EMPLOYEE BENEFIT PLANS
Substantially all employees who are employed by the Tenet Province
Hospitals, upon qualification, are eligible to participate in the
Tenet defined contribution 401(k) plan. Employees who elect to
participate generally make contributions ranging from 1% to 20% of
their eligible compensation, and Tenet matches such contributions up
to a maximum percentage. Expenses allocated to the Tenet Province
Hospitals during 1999 for the plan were $165,687 and are included in
salaries and benefits in the accompanying combined statement of
operations and changes in ownership equity.
The Tenet Province Hospitals do not provide post-retirement healthcare
or life insurance benefits.
(7) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of accounts and notes receivable, current portion
of obligations under capital leases, accounts payable and interest
payable approximate fair value because of the short maturity of these
instruments. The carrying values of other assets and long-term
obligations under capital leases are not materially different from the
estimated fair values of these instruments.
(8) SEGMENT DISCLOSURES
The Tenet Province Hospitals have adopted Statement of Financial
Accounting Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information." Because the Tenet Province
Hospitals' business of providing health care through its domestic
general hospitals, physician practices, and related health care
facilities is a single reportable operating segment under this
accounting standard, no new or additional disclosures are required of
the Tenet Province Hospitals. Tenet Province Hospitals' chief
operating decision maker, as that term is defined in the accounting
standard, regularly reviews financial information about each of its
hospitals including the Tenet Province Hospitals' facilities for
assessing performance and allocating resources.
(9) RECENTLY ISSUED ACCOUNTING STANDARDS
As of June 1, 1999, the Tenet Hospitals changed their method of
accounting for start-up costs in accordance with SOP 98-5, "Reporting
on the Costs of Start-up Activities" which requires such costs to be
expensed as incurred instead of capitalized and amortized. Previously,
the Tenet Hospitals capitalized start-up costs and amortized them over
one year.
SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," provides guidance on the circumstances
under which the costs of certain computer software should be
capitalized and/or expensed and is effective for financial statements
for fiscal years beginning after December 15, 1998, which will apply
to the Tenet Province Hospitals beginning June 1, 1999.
(Continued)
11
16
TENET PROVINCE HOSPITALS
Notes to Combined Financial Statements
Year ended May 31, 1999
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), which is
effective for financial statements for fiscal years beginning after
June 15, 2000, and which will apply to the Tenet Province Hospitals
beginning June 1, 2002 establishes accounting and reporting standards
for derivative instruments and for hedging activities.
The Tenet Province Hospitals do not expect the adoption of these new
accounting standards and statements of position to have a material
effect on their future results of operations.
(10) SUBSEQUENT EVENT
Effective August 31, 1999, Tenet and certain Tenet subsidiaries
entered into a Receivables Sale Agreement pursuant to which those
Tenet subsidiaries agreed to sell to Tenet, without recourse, patient
related receivables existing on August 31, 1999 as well as receivables
generated thereafter. Concurrently, Tenet entered into a Receivables
Purchase Agreement with a subsidiary indirectly wholly-owned by Tenet,
pursuant to which Tenet agreed to sell to the subsidiary all patient
related receivables acquired by Tenet pursuant to the Receivables Sale
Agreement. Approximately $3.6 million of net receivables were sold by
the Tenet Province Hospitals to Tenet on August 31, 1999.
The patient related receivables sold by the Tenet Province Hospitals
to Tenet on August 31, 1999, were sold at their fair values, which
were less than the balances of such receivables on the respective
Tenet Province Hospitals' balance sheets due to the fact that they
were discounted to primarily reflect the time value of money.
12
17
TENET PROVINCE HOSPITALS
Condensed Combined Balance Sheet
AUGUST 31,
1999
(UNAUDITED)
-------------
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful accounts of $2,476,267 $ 4,082,255
Inventories of supplies 1,183,654
Deferred income taxes 860,000
Other receivables 1,548,749
Prepaid expenses 127,258
-------------
Total current assets 7,801,916
Property and equipment, net 35,129,020
Costs in excess of net assets acquired, less accumulated amortization
of $156,674 90,692
Other intangible assets at cost, less accumulated amortization
of $284,183 1,931,257
Other assets 94,795
-------------
45,047,680
=============
LIABILITIES AND OWNERSHIP EQUITY (DEFICIT)
Current liabilities:
Obligations under capital leases 62,014
Accounts payable 1,492,731
Employee compensation and benefits 1,230,686
Accrued property taxes 495,039
Other current liabilities 150,837
-------------
Total current liabilities 3,431,307
Long-term obligations under capital leases 395,425
Deferred income taxes 3,728,000
Due to affiliate 50,237,153
-------------
Total liabilities 57,791,885
Commitments and contingencies
Ownership equity (deficit) (12,744,205)
-------------
$ 45,047,680
=============
See accompanying notes to condensed combined financial statements.
13
18
TENET PROVINCE HOSPITALS
Condensed Combined Statements of Operations and Changes in Ownership Equity
(Unaudited)
THREE MONTHS ENDED
AUGUST 31,
-------------------------------------
1999 1998
------------- -------------
Net patient service revenues $ 15,023,265 15,245,434
Other revenue 145,205 128,635
------------- -------------
Net operating revenues 15,168,470 15,374,069
Operating expenses:
Salaries and benefits 6,538,459 6,665,438
Supplies 1,705,547 1,711,914
Provision for doubtful accounts 1,713,629 1,302,306
Other operating expenses 3,143,271 3,454,271
Depreciation 637,198 854,585
Amortization 49,476 31,284
Overhead allocated from affiliate 193,190 227,291
------------- -------------
Operating income 1,187,700 1,126,980
Investment earnings 1,398 1,761
Interest expense, primarily to affiliate (1,425,346) (1,423,672)
------------- -------------
Loss before income taxes (236,248) (294,931)
Income tax benefit 87,412 109,124
------------- -------------
Net loss (148,836) (185,807)
Ownership equity (deficit), beginning of period (12,595,369) (11,550,813)
------------- -------------
Ownership equity (deficit), end of period $ (12,744,205) (11,736,620)
============= =============
See accompanying notes to condensed combined financial statements.
14
19
TENET PROVINCE HOSPITALS
Condensed Combined Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED
AUGUST 31
-------------------------------------
1999 1998
------------- -------------
Cash flows from operating activities:
Net loss $ (148,836) (185,807)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 686,674 885,869
Provision for doubtful accounts 1,713,629 1,302,306
Deferred income tax benefit (142,000) (141,000)
Decrease in cash from changes in operating assets and liabilities:
Accounts receivable (2,926,882) (933,131)
Inventories, prepaid expenses and other receivables (91,536) (301,815)
Accounts payable and accrued expenses (106,053) (201,043)
------------- -------------
Net cash provided by (used in) operating activities (1,015,004) 425,379
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (327,129) (1,464,002)
Net additions to other assets (47,584) --
------------- -------------
Net cash used in investing activities (374,713) (1,464,002)
------------- -------------
Cash flows from financing activities:
Net increase in due to affiliate 1,389,527 1,052,167
Payments on obligations under capital leases (14,682) (13,544)
------------- -------------
Net cash provided by financing activities 1,374,845 1,038,623
------------- -------------
Net decrease in cash (14,872) --
Cash, beginning of period 14,872 --
------------- -------------
Cash, end of period $ -- --
============= =============
Supplemental disclosures:
Interest paid, net of amounts capitalized $ 11,841 10,167
Taxes received (paid) are made at the Parent level
See accompanying notes to condensed combined financial statements.
15
20
TENET PROVINCE HOSPITALS
Notes to Condensed Combined Financial Statements
August 31, 1999 and 1998
(Unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed combined balance sheet as of August 31,
1999 and the related unaudited combined statements of operations and changes in
ownership equity and cash flows for the three months ended August 31, 1999 and
1998 (interim financial statements) of the Tenet Province Hospitals have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the interim results have been included.
The interim unaudited condensed combined financial statements should be read in
conjunction with the audited May 31, 1999 financial statements appearing
herein. The results of the three months ended August 31, 1999 and 1998 may not
be indicative of operating results for the full respective years.
INCOME TAXES
Tenet Healthcare Corporation ("Tenet") files a consolidated federal income tax
return and state income tax returns for the respective states in which it does
business, which include the operating results of the Tenet Province Hospitals
as appropriate. Tenet allocates taxes to each of the Tenet Province Hospitals
on a separate-return basis, whereby current and deferred taxes are allocated to
each of the Tenet Province Hospitals pursuant to the asset and liability method
as if each of the Tenet Province Hospitals were a separate taxpayer.
COMMITMENTS AND CONTINGENCIES
In their normal course of business, the Tenet Province Hospitals are subject to
claims and lawsuits relating to patient treatment. The Tenet Province Hospitals
believe that their liability for damages resulting from such claims and
lawsuits is adequately covered by insurance or is adequately provided for in
the accompanying condensed combined financial statements.
SUBSEQUENT EVENT
Effective October 1, 1999, Tenet and certain of its wholly-owned subsidiaries
completed the sale to Province Healthcare Company of substantially all of the
property, equipment and lease rights related to the operations of the Tenet
Province Hospitals, including certain medical office buildings and other
healthcare businesses related to the operations of these hospitals for a
purchase price of approximately $77 million, subject to certain net working
capital and other adjustments following the closing date.
16
21
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On October 1, 1999, Province Healthcare Company (the "Company")
acquired Trinity Valley Medical Center and Minden Medical Center (the
"Acquisitions").
The following unaudited pro forma condensed consolidated balance sheet
as of September 30, 1999, gives effect to the Acquisitions as if such
transaction had been completed as of September 30, 1999.
The following unaudited pro forma condensed consolidated statements of
income for the year ended December 31, 1998, and the nine months ended September
30, 1999, give effect to the Acquisitions, as if such transaction had been
completed as of January 1, 1998.
The pro forma condensed consolidated financial information presented
herein does not purport to represent what the Company's results of operations or
financial position would have been had such transaction, in fact, 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 take into account certain operational changes instituted by the Company upon
acquisition of its hospitals, are not necessarily indicative of the results that
may be expected from such hospitals. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of Province, included in its Annual Report on
Form 10-K for the year ended December 31, 1998, the unaudited condensed
consolidated financial statements of Province, included in its Quarterly Report
on Form 10-Q for the period ended September 30, 1999, and the financial
statements of the Acquisitions, included elsewhere in this Current Report on
Form 8-K/A. Certain reclassifications have been made in the Acquisitions'
historical financial statements, included in the pro forma financial statements,
to conform to the Province presentation.
17
22
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(IN THOUSANDS)
HISTORICAL ACQUISITION PRO FORMA
-------------------------- PRO FORMA ACQUISITION
PROVINCE ACQUISITIONS ADJUSTMENTS CONSOLIDATED
-------- ------------ ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,064 $ (458) $ 458 (a) $ 5,064
Accounts receivable, net 65,448 4,640 (4,640)(a) 65,448
Inventories 9,111 1,174 10,285
Intercompany receivables -- 1,192 (1,192)(a) --
Prepaid expenses and other 7,209 479 (320)(b)
(352)(a) 7,016
--------- -------- --------- ---------
Total current assets 86,832 7,027 (6,046) 87,813
Property, plant and equipment, net 124,276 35,022 (35,022)(a)
42,890 (b) 167,166
Other assets:
Cost in excess of net assets acquired, net 153,578 17 (17)(a)
34,130 (b) 187,708
Other 108,155 2,088 (1,378)(a)
(77,000)(b) 31,865
--------- -------- --------- ---------
$ 472,841 $ 44,154 $ (42,443) $ 474,552
========= ======== ========= =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,353 $ 1,606 $ (1,217)(a) $ 9,742
Accrued salaries and benefits 11,064 1,266 (698)(a) 11,632
Accrued expenses 6,330 823 (521)(a) 6,632
Current maturities of long-term obligations 2,059 62 2,121
--------- -------- --------- ---------
Total current liabilities 28,806 3,757 (2,436) 30,127
Long-term obligations, less current maturities 251,432 50,055 (49,665)(a) 251,822
Third-party settlements 2,773 -- 2,773
Other liabilities 9,113 2 (2)(a) 9,113
Minority interest 717 -- 717
Due to affiliates, net -- (1,342) 1,342 (a) --
Common stockholders' equity (deficit):
Net assets (8,318) 8,618 (a)
(300)(b) --
Common stock 157 -- 157
Additional paid-in-capital 163,339 -- 163,339
Retained earnings 16,504 -- 16,504
--------- -------- --------- ---------
Total common stockholders' equity (deficit) 180,000 (8,318) 8,318 180,000
--------- -------- --------- ---------
$ 472,841 $ 44,154 $ (42,443) $ 474,552
========= ======== ========= =========
18
23
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
ACQUISITION
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PROVINCE ACQUISITIONS ADJUSTMENTS CONSOLIDATED
-------- ------------ ----------- ------------
Revenue:
Net patient service revenue $217,364 $59,754 $277,118
Management and professional services 11,885 -- 11,885
Reimbursable expenses 6,520 -- 6,520
Other 3,086 788 3,874
-------- ------- --------- --------
Net operating revenue 238,855 60,542 -- 299,397
Expenses:
Salaries, wages and benefits 94,970 25,994 120,964
Reimbursable expenses 6,520 -- 6,520
Purchased services 28,250 7,320 35,570
Supplies 24,252 6,731 30,983
Provision for doubtful accounts 17,839 4,791 22,630
Other operating expenses 19,149 5,358 24,507
Rentals and leases 5,777 664 6,441
Depreciation and amortization 13,409 3,753 (237)(a) 16,925
Interest expense 10,555 3,047 2,790 (b) 16,392
Minority interest 155 -- 155
Loss on sale of assets 45 -- 45
-------- ------- --------- --------
Total expenses 220,921 57,658 2,553 281,132
-------- ------- --------- --------
Income (loss) before income taxes 17,934 2,884 (2,553) 18,265
Income taxes (benefit) 7,927 -- 132 (c) 8,059
-------- ------- --------- --------
Net income (loss) 10,007 2,884 (2,685) 10,206
Preferred stock dividends and accretion (696) -- -- (696)
-------- ------- --------- --------
Net income (loss) to common shareholders $ 9,311 $ 2,884 $ (2,685) $ 9,510
======== ======= ========= ========
Basic earnings (loss) per common share:
Net income $ 0.75 $ 0.76
Preferred stock dividends and accretion (0.05) (0.05)
-------- --------
Net income per common share $ 0.70 $ 0.71
======== ========
Diluted earnings (loss) per common share:
Net income $ 0.73 $0.75
Preferred stock dividends and accretion (0.05) (0.05)
-------- --------
Net income per common share $ 0.68 $ 0.70
======== ========
Weighted-average shares:
Basic earnings per common share 13,344 13,344
Diluted earnings per common share 13,672 13,672
19
24
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
ACQUISITION
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PROVINCE ACQUISITIONS ADJUSTMENTS CONSOLIDATED
-------- ------------ ------------ ------------
Revenue:
Net patient service revenue $222,151 $46,323 $268,474
Management and professional services 10,576 -- 10,576
Reimbursable expenses 5,104 -- 5,104
Other 2,322 438 2,760
-------- ------- -------- --------
Net operating revenue 240,153 46,761 286,914
Expenses:
Salaries, wages and benefits 96,504 19,328 115,832
Reimbursable expenses 5,104 -- 5,104
Purchased services 27,255 5,642 32,897
Supplies 26,944 5,271 32,215
Provision for doubtful accounts 16,806 4,058 20,864
Other operating expenses 21,422 3,939 25,361
Rentals and leases 5,358 434 5,792
Depreciation and amortization 13,581 2,277 360 (a) 16,218
Interest expense 8,675 6,582 (2,695)(b) 12,562
Minority interest 113 -- 113
Gain on sale of assets (10) -- --
-------- ------- -------- --------
Total expenses 221,752 47,531 (2,335) 266,948
-------- ------- -------- --------
Income (loss) before income taxes 18,401 (770) 2,335 19,966
Income taxes (benefit) 8,005 -- 624 (c) 8,629
-------- ------- -------- --------
Net income (loss) to common shareholders $ 10,396 $ (770) $ 1,711 $ 11,337
======== ======= ======== ========
Net income per common share:
Basic $ 0.66 $ 0.72
======== ========
Diluted $ 0.65 $ 0.71
======== ========
Weighted-average shares:
Basic earnings per common share 15,724 15,724
Diluted earnings per common share 16,019 16,019
20
25
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(a) Reflects the elimination of the Acquisitions' assets not purchased and
liabilities not assumed by Province as follows:
Cash $ 458
Accounts receivable (4,640)
Intercompany receivables (1,192)
Prepaid expenses and other (352)
Property, plant and equipment (35,022)
Cost in excess of net assets acquired, net (17)
Other assets (1,378)
Accounts payable 1,217
Accrued salaries and benefits 698
Accrued expenses 521
Long-term obligations, less current maturities 49,665
Other liabilities 2
Intercompany (1,342)
--------
Net assets $ 8,618
========
(b) Reflects the purchase of the Acquisitions and the allocation of the
purchase price to adjust assets purchased and liabilities assumed to fair
value and to record intangibles as follows:
Property, plant and equipment $ 42,890
Cost in excess of net assets acquired 34,130
Net assets 300
--------
Cash paid $ 77,320
========
21
26
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(a) Reflects the elimination of the historical depreciation expense of the
Acquisitions, and the inclusion of the Company's depreciation of
property, plant and equipment and amortization of intangible assets.
(b) Reflects the elimination of the historical interest expense related to
debt of the Acquisitions not assumed in the acquisition, and the
inclusion of the Company's interest expense related to the debt used to
finance the acquisition.
(c) Reflects the inclusion of the income tax expense based on the combined
federal and state statutory rate of 40.0% applied to adjusted pre-tax
income.
22