-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LwxZnAV1xopoJ7FEFf2n+gJrRwnWyM94SBXSs4Pri7wpwKwct8QcVph+Zvh687DY iMaTl/hHnhe+w7dqmwPp/A== 0000950144-99-014140.txt : 19991220 0000950144-99-014140.hdr.sgml : 19991220 ACCESSION NUMBER: 0000950144-99-014140 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991217 ITEM INFORMATION: FILED AS OF DATE: 19991217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVINCE HEALTHCARE CO CENTRAL INDEX KEY: 0001044942 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 621710772 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23639 FILM NUMBER: 99777062 BUSINESS ADDRESS: STREET 1: 105 WESTPARK DR STREET 2: STE 400 CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 6153701377 MAIL ADDRESS: STREET 1: 105 WESTPARK DR SUITE 180 STREET 2: 105 WESTPARK DR SUITE 180 CITY: BRENTWOOD STATE: TN ZIP: 37207 8-K/A 1 PROVINCE HEALTHCARE COMPANY 1 ================================================================================ 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) ================================================================================ 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 EX-23.1 2 CONSENT OF KPMG LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the registration statement on Form S-8 for the 1997 Long-Term Equity Incentive Plan and the Employee Stock Purchase Plan of Province Healthcare Company of our report dated December 5, 1999, with respect to the combined financial statements of the Tenet Province Hospitals and certain affiliate entities included in this Current Report (Form 8-K/A Amendment No. 1) of Province Healthcare Company, dated December 17, 1999. /s/ KPMG LLP Dallas, Texas December 15, 1999 -----END PRIVACY-ENHANCED MESSAGE-----