<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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: June 15, 1998
------------------------------
PROVINCE HEALTHCARE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 0-23639 62-1710772
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification
Number)
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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<PAGE> 2
Province Healthcare Company (the "Company"), a Delaware corporation,
hereby amends its Report on Form 8-K, dated May 14, 1998, relating to the
acquisition of Havasu Samaritan Regional Hospital in Lake Havasu City, Arizona
on May 1, 1998 (the "Acquisition"). The Company is filing this amendment for the
purpose of including the required financial statements and pro forma financial
information with respect to the Acquisition in accordance with the requirements
of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
The required audited consolidated financial statements of
Havasu Samaritan Regional Hospital at December 31, 1996 and
1997 and for the years ended December 31, 1995, 1996 and 1997
are filed herewith.
(b) Pro Forma Financial Information.
The required pro forma financial statements of the Company and
its subsidiaries, giving effect to the Acquisition as if it
had occurred on March 31, 1998, as to the balance sheet, and
on January 1, 1997, as to the income statements, are filed
herewith.
(c) Exhibits:
2.1 Asset Purchase Agreement, dated April
29, 1998, between the Company, PHC-Lake Havasu, Inc. and
Samaritan Health System, incorporated herein by reference to
the Company's Current Report on Form 8-K, filed May 14, 1998,
Commission File No. 0-23639.
20.1 Copy of the press release, dated April
29, 1998, relating to the completion of the Havasu Samaritan
Regional Hospital acquisition, incorporated herein by
reference to the Company's Current Report on Form 8-K, filed
May 14, 1998, Commission File No. 0-23639.
<PAGE> 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: June 15, 1998
2
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HAVASU SAMARITAN REGIONAL HOSPITAL
Report of Independent Auditors.............................. 4
Balance Sheets at December 31, 1996 and 1997................ 5
Statements of Operations and Changes in Net Assets for the
Years Ended December 31, 1995, 1996 and 1997.............. 6
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997....................................... 7
Notes to Financial Statements............................... 8
Condensed Balance Sheet at March 31, 1998 (Unaudited)....... 15
Condensed Statements of Operations and Changes in Net Assets
for the Three Months Ended March 31, 1997 and 1998
(Unaudited)............................................... 16
Condensed Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1998 (Unaudited)................. 17
Notes to Condensed Financial Statements (Unaudited)......... 18
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
Pro Forma Condensed Consolidated Financial Statements....... 19
Pro Forma Condensed Consolidated Balance Sheet at March 31,
1998 (Unaudited).......................................... 20
Pro Forma Condensed Consolidated Statement of Income for the
Year Ended December 31, 1997 (Unaudited).................. 21
Pro Forma Condensed Consolidated Statement of Income for the
Three Months Ended March 31, 1998 (Unaudited)............. 22
Notes to Pro Forma Condensed Consolidated Financial
Statements (Unaudited).................................... 23
</TABLE>
3
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Samaritan Health System
dba Havasu Samaritan Regional Hospital
We have audited the accompanying balance sheets of Havasu Samaritan
Regional Hospital (an operating unit of Samaritan Health System) as of December
31, 1996 and 1997, and the related statements of operations and changes in net
assets, and cash flows for the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Havasu Samaritan Regional
Hospital at December 31, 1996 and 1997, and the results of its operations and
its cash flows for the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Phoenix, Arizona
May 5, 1998
4
<PAGE> 6
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 5,500 $ 5,750
Accounts receivable, less allowance for doubtful accounts
of $618,000 in 1996 and in $1,159,000 in 1997.......... 1,834,095 3,049,331
Inventories............................................... 847,185 1,094,129
Other..................................................... 132,301 146,652
----------- -----------
Total current assets.............................. 2,819,081 4,295,862
Assets limited as to use.................................... 1,973,798 1,970,060
Property and equipment, net................................. 17,943,464 17,790,545
Other....................................................... 3,590,201 4,433,580
----------- -----------
Total assets...................................... $26,326,544 $28,490,047
=========== ===========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable.......................................... $ 840,712 $ 978,708
Accrued expenses.......................................... 3,326,066 943,729
Current portion of long-term debt......................... 597,700 636,620
----------- -----------
Total current liabilities......................... 4,764,478 2,559,057
Long-term debt, less current portion........................ 21,374,542 20,996,743
Net assets.................................................. 187,524 4,934,247
----------- -----------
Total liabilities and net assets.................. $26,326,544 $28,490,047
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 7
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Net health services............................... $36,987,398 $43,119,350 $55,101,188
----------- ----------- -----------
Total revenue............................. 36,987,398 43,119,350 55,101,188
Expenses:
Salaries, wages and benefits...................... 14,236,405 14,344,613 16,626,159
General and administrative........................ 5,917,715 7,124,119 9,995,088
Supplies.......................................... 5,016,343 5,724,295 7,457,270
Provision for doubtful accounts................... 2,860,514 3,768,725 4,541,100
Corporate allocated expenses...................... 3,596,293 4,411,531 4,411,536
Interest.......................................... 1,582,123 1,659,146 1,628,303
Depreciation and amortization..................... 1,654,855 1,631,557 1,688,330
----------- ----------- -----------
Total expenses............................ 34,864,248 38,663,986 46,347,786
Excess of revenue over expenses..................... 2,123,150 4,455,364 8,753,402
Equity realignments, net............................ (2,607,242) (5,989,351) (4,006,679)
----------- ----------- -----------
(Decrease) increase in net assets................... (484,092) (1,533,987) 4,746,723
Net assets, beginning of year....................... 2,205,603 1,721,511 187,524
----------- ----------- -----------
Net assets, end of year............................. $ 1,721,511 $ 187,524 $ 4,934,247
=========== =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 8
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
(Decrease) increase in net assets.................... $ (484,092) $(1,533,987) $4,746,723
Adjustments to reconcile (decrease) increase in net
assets to net cash (used in) provided by operating
activities:
Depreciation and amortization................... 1,654,855 1,631,557 1,688,330
Provision for doubtful accounts................. 2,860,514 3,768,725 4,541,100
Changes in operating assets and liabilities:
Increase in accounts receivable, net.......... (6,892,256) (1,904,207) (5,756,336)
Increase in inventories and other current
assets..................................... (45,295) (78,979) (261,295)
Increase (decrease) in accounts payable and
accrued expenses........................... 1,206,217 430,957 (2,244,341)
----------- ----------- ----------
Net cash (used in) provided by operating
activities...................................... (1,700,057) 2,314,066 2,714,181
INVESTING ACTIVITIES
Purchases of property and equipment, net........... (720,411) (1,990,210) (1,450,536)
Decrease in assets limited as to use............... 43,454 979 3,738
Decrease (increase) in other assets................ 2,657,570 (14,967) (928,254)
----------- ----------- ----------
Net cash provided by (used in) investing
activities...................................... 1,980,613 (2,004,198) (2,375,052)
FINANCING ACTIVITIES
Repayment of long-term debt........................ (280,356) (309,868) (338,879)
----------- ----------- ----------
Net cash used in financing activities.............. (280,356) (309,868) (338,879)
----------- ----------- ----------
Net increase in cash............................... 200 -- 250
Cash, beginning of year............................ 5,300 5,500 5,500
----------- ----------- ----------
Cash, end of year.................................. $ 5,500 $ 5,500 $ 5,750
=========== =========== ==========
</TABLE>
See accompanying notes.
7
<PAGE> 9
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
ORGANIZATION
Havasu Samaritan Regional Hospital (Havasu) is an operating unit of
Samaritan Health System (Samaritan), a not-for-profit organization. Samaritan is
tax exempt under the provisions of the Internal Revenue Code and the Arizona
Revised Statutes. Havasu, an acute care health care provider, is located in Lake
Havasu, Arizona (see Subsequent Event note).
ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Accounts Receivable
Havasu receives payment for services rendered to patients under payment
arrangements with payors which include (i) Medicare and Arizona's Medicaid
program, Arizona Health Care Cost Containment System (AHCCCS), (ii) other third
party payors including commercial carriers, and health maintenance and preferred
provider organizations, and (iii) others. The following table summarizes the
percent of gross accounts receivable from all payors as of December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Medicare and AHCCCS......................................... 46% 44%
Other Third Party........................................... 13 17
Other....................................................... 41 39
--- ---
100% 100%
=== ===
</TABLE>
Inventories
Inventories, consisting principally of supplies, are stated at the lower of
cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment is stated at cost. Upon sale or retirement, cost and
related accumulated depreciation are eliminated from the respective accounts and
any resulting gain or loss is included in other revenue. Depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets.
Bond Issue Costs
Certain costs incurred in connection with long-term financing programs have
been deferred. Bond issue costs (included in other assets) are amortized using
the interest method over the life of the related bond issue.
8
<PAGE> 10
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill
The excess of the purchase price over the fair value of net assets acquired
(included in other assets) is being amortized on a straight-line basis over 20
years. Havasu periodically assesses the recoverability of goodwill by comparing
the carrying amount of goodwill to the future benefits or undiscounted cash
flows derived from the asset.
Third Party Payor Settlements
The basis for payment to Havasu under its third party government and
private payor agreements include prospectively determined rates per discharge,
discounts from established charges, and prospectively determined daily rates.
Annually, Medicare cost reports are filed with the intermediary and are
subject to audit and adjustment prior to settlement. Estimates of final
settlements for all years through 1997 have been reflected in accrued expenses.
Revenue
Approximately 52 percent in 1995 and 1996 and 49 percent in 1997 of
Havasu's net health services revenue was derived from the Medicare and AHCCCS
programs, the continuation of which are dependent upon governmental policies.
Net health services revenue is reported at estimated net realizable amounts from
patients, third party payors, and others for services rendered. Contractual
adjustments resulting from agreements with various organizations to provide
services for amounts which differ from billed charges, including services under
the Medicare, AHCCCS, and certain managed care programs, are recorded as
deductions from health services revenue. Provision for doubtful accounts is made
when the related revenue is recorded. Accounts, when determined to be
uncollectible, are charged against the allowance for doubtful accounts.
Laws and regulations governing the Medicare and AHCCCS programs are complex
and subject to interpretation. Havasu believes that it is substantially in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing which would have a material impact on Havasu's financial condition or
results of operations. While no such regulatory inquiries have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare and AHCCCS programs.
ACCOUNTS RECEIVABLE SALE
At December 31, 1996, Samaritan had sold certain of its eligible accounts
receivable (including $5,484,143 of Havasu's accounts receivable), as defined,
to Hospital Billing and Collection Service, Ltd. (HBCS), a Delaware
not-for-profit cooperative. Proceeds from the sale were in the form of cash (see
Transactions with Affiliates note) and noninterest bearing subordinated notes.
Samaritan also purchased HBCS capital certificates. As of December 31, 1996,
$1,051,826 of noninterest bearing notes and $822,621 of capital certificates
were allocated to Havasu by Samaritan based on the ratio of Havasu's sold
accounts receivable to the aggregate accounts receivable portfolio sold to HBCS
(included in other assets). In conjunction with the sale, Samaritan was required
to repurchase from HBCS all accounts receivable which became uncollectible after
180 days (the recourse provision). Havasu estimated its liability under the
recourse provision to be $838,106 at December 31, 1996 (included in accrued
expenses). Effective July 1, 1997, Samaritan terminated its agreement with HBCS
and repurchased the sold receivables with proceeds from a short-term note from
First National
9
<PAGE> 11
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Bank of Chicago (FNBC). This short-term note was subsequently repaid on
September 30, 1997, with proceeds from an accounts receivable sale to Preferred
Receivables Funding Corporation (PRFC), as described below.
At December 31, 1996, Samaritan had sold certain of its eligible accounts
receivable (including $2,843,671 of Havasu's accounts receivable), as defined,
to PRFC, with FNBC serving as agent. Proceeds from the sales were in the form of
cash (see Transactions with Affiliates note) and a noninterest bearing retained
collateralization. As of December 31, 1996, $656,223 of noninterest bearing
retained collateralization was allocated to Havasu by Samaritan based on the
ratio of Havasu's sold accounts receivable to the aggregate accounts receivable
portfolio sold to PRFC (included in other assets). In conjunction with the sale,
Samaritan was required to pay PRFC the amount of all accounts receivable which
became uncollectible or remained uncollected after 180 days. Havasu estimated
its liability under this provision to be $223,181 at December 31, 1996 (included
in accrued expenses).
Effective September 30, 1997, Samaritan amended its agreement with PRFC
effectively repurchasing the then sold receivables. Simultaneously, Samaritan
sold its accounts receivable (including approximately $9,782,000 of Havasu's
accounts receivable) to Samaritan Finance Company, LLC (SFC), a special purpose
subsidiary of Samaritan. SFC, in turn, simultaneously sold an undivided
percentage interest in a defined portion of the receivables to PRFC, with FNBC
serving as agent. Under the sale agreement, the receivables are sold without
recourse. Proceeds from the sale to FNBC were in the form of cash (see
Transactions with Affiliates note) and retained collateralization. As of
December 31, 1997, $3,462,839 of retained collateralization was allocated to
Havasu by Samaritan based on the ratio of Samaritan's total retained
collateralization to Samaritan's total accounts receivable portfolio sold to
FNBC, applied to Havasu's sold accounts receivable (included in other assets).
ASSETS LIMITED AS TO USE
Pursuant to the terms of bond indentures, Samaritan is required to maintain
amounts on deposit in separate accounts and with trustees. These funds can be
used only to satisfy obligations permitted by the respective agreements and are
invested primarily in governmental obligations that are stated at market. As of
December 31, 1996 and 1997, $1,992,851 and $2,011,598, respectively, of 1990B
Bond Reserve Funds (see Long-Term Debt note) were allocated to Havasu by
Samaritan based upon the estimated use of debt proceeds.
PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 follows (see Assets Held
for Sale Note):
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Land................................................... $ 2,236,000 $ 2,236,000
Buildings and improvements............................. 8,658,393 9,451,460
Equipment and improvements............................. 18,513,643 20,453,411
------------ ------------
29,408,036 32,140,871
Amortization and accumulated depreciation.............. (12,910,126) (14,367,608)
------------ ------------
16,497,910 17,773,263
Construction in progress............................... 1,445,554 17,282
------------ ------------
$ 17,943,464 $ 17,790,545
============ ============
</TABLE>
10
<PAGE> 12
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OTHER ASSETS
A summary of other assets at December 31, follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Allocated bond issue costs.................................. $1,031,534 $1,031,534
Allocated HBCS subordinated notes and capital
certificates.............................................. 1,874,447 --
Allocated FNBC retained collateralization................... 656,223 3,462,839
Goodwill.................................................... 711,263 711,263
Other....................................................... 30,000 27,000
---------- ----------
4,303,467 5,232,636
Amortization................................................ (713,266) (799,056)
---------- ----------
$3,590,201 $4,433,580
========== ==========
</TABLE>
Bond issue costs were allocated to Havasu by Samaritan based upon the
estimated use of debt proceeds.
ACCRUED EXPENSES
A summary of accrued expenses at December 31, follows:
<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Accrued payroll............................................. $ 559,696 $183,147
Interest payable............................................ 116,922 113,511
Third party payor settlement................................ 1,587,712 643,615
Accounts receivable sale recourse provision................. 1,061,287 --
Other....................................................... 449 3,456
---------- --------
$3,326,066 $943,729
========== ========
</TABLE>
LONG-TERM DEBT
A summary of long-term debt at December 31, follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Allocated Refunding Bonds-Series 1990B................... $22,876,620 $22,278,920
Unamortized discount-Series 1990B........................ (904,378) (645,557)
----------- -----------
21,972,242 21,633,363
Less current portion..................................... 597,700 636,620
----------- -----------
$21,374,542 $20,996,743
=========== ===========
</TABLE>
Refunding Bonds -- Series 1990B
During 1990, Samaritan issued tax-exempt Hospital System Revenue Refunding
Bonds, Series 1990B. $26,353,000 of the Series 1990B issuance was allocated to
Havasu by Samaritan based upon the estimated use of debt proceeds. The Bonds are
comprised of Serial Bonds, Term Bonds and Capital Appreciation Bonds. The Serial
and Term Bonds are due in annual installments through 2001 with additional
payments in 2004, 2005, 2013, 2016 and 2019. Interest is due semiannually at
fixed rates which range from 6.00 percent to 7.15 percent. The Capital
Appreciation Bonds will yield approximately 7.25 percent upon their maturity
during each of the years 2006 to 2009. The Bonds
11
<PAGE> 13
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are guaranteed by MBIA and are collateralized by substantially all of the
Obligated Group's, as defined, real property and fixed equipment.
In addition to the requirement that certain funds be established and held
by a trustee, bond indentures also place other restrictions on Samaritan,
including restrictions on dispositions of assets, maintenance of a minimum debt
service coverage ratio and days cash on hand, among others.
Havasu's allocated portion of the Refunding Bonds-Series 1990B fair market
value as of December 31, 1997 amounts to $25,049,000.
Future Maturities
Future maturities of Havasu's allocated portion of long-term debt, at
December 31, 1997, follow:
<TABLE>
<S> <C>
1998........................................................ $ 636,620
1999........................................................ 681,100
2000........................................................ 728,360
2001........................................................ 778,400
2002........................................................ 834,000
Thereafter.................................................. 17,974,883
-----------
$21,633,363
===========
</TABLE>
SAVINGS PLAN
Havasu participates in Samaritan's defined contribution plan for all
eligible employees. The plan permits each employee to contribute up to 15
percent of salary on a pretax basis subject to certain limitations under the
Internal Revenue Code. Under the plan, Samaritan provided a matching
contribution equal to a range of 60 percent to 100 percent for each participant
depending on length of service as defined under the plan. Effective January 1,
1997, the Plan was amended and renamed the Futura 401(k) Savings Plan (the
Futura Plan). The Futura Plan's participants include the eligible employees of
Samaritan and its affiliates; HealthPartners of Arizona, Inc., and
HealthPartners of Southern Arizona. Samaritan's match of participant
contributions under the Futura Plan was not changed by this amendment to the
Plan. Havasu's contributions to the plan totaled $293,632 in 1995, $489,924 in
1996 and $310,721 in 1997.
RETIREMENT PLAN
The Samaritan sponsored noncontributing defined benefit plan covering all
employees meeting eligibility requirements was frozen effective December 31,
1992. The frozen benefit accruals are based on years of service and employee's
five highest consecutive years of earnings during the last 10 calendar years
preceding retirement or termination. Samaritan's funding policy is to contribute
annually the amount recommended to satisfy the minimum funding requirements. As
of December 31, 1996 and 1997, Plan information has not been determined for
Havasu as an individual participant in the Plan.
INSURANCE PROGRAMS
Havasu participates in Samaritan's medical malpractice, general liability,
workers' compensation and discriminatory insurance coverage, provided through a
combination of purchased and self-insurance programs. Under its self-insurance
program, Samaritan self-insured the first $1,000,000 per occurrence for medical
malpractice limited in the aggregate to $12,000,000 annually for claims
12
<PAGE> 14
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
made through May 31, 1993. Effective June 1, 1993, Samaritan began to self
insure the first $5,000,000 per occurrence for medical malpractice with no
aggregate limits. Insurance coverage has been purchased to cover payments in
excess of $5,000,000 per occurrence.
In connection with self-insurance programs, accounts have been established
by Samaritan and Samaritan Insurance Funding Ltd. (SIFL) for the purpose of
accumulating assets based on actuarial recommendations. These assets can be used
only for the payment of medical malpractice, general liability, workers'
compensation and discrimination claims, related expenses and the cost of
administering the accounts. It is Samaritan's policy to record the expense and
related liability for medical malpractice, general liability, workers'
compensation and discriminatory losses based upon actuarial estimates using a
discount rate of 7.0 percent in 1995 and 6.0 percent in 1996 and 1997. No
liabilities related to the self insurance programs are allocated to the
operating units of Samaritan, and no self insurance liabilities were allocated
to Havasu by Samaritan at December 31, 1996 or 1997. Self insurance expense is
allocated to Havasu by Samaritan with other overhead expenses (see Transactions
with Affiliates note).
COMMITMENTS AND CONTINGENCIES
Sale and Leaseback of Equipment Under This Lease
During 1994, Samaritan entered into a sale/leaseback transaction with a
financial institution covering various medical, computer and office equipment
that had been purchased during 1993 and 1994. The lease is for a period of 60
months with monthly lease payments. At December 31, 1996 and 1997 $880,076 of
Havasu's net equipment was leased under the Samaritan sale/leaseback
transaction. Subsequent to December 31, 1997, Samaritan repurchased Havasu's
equipment.
Amounts charged to expense for operating leases totaled $623,206 in 1995,
$660,529 in 1996 and $1,020,320 in 1997.
Year 2000 (Unaudited)
Some of Havasu's information systems and biomedical equipment have
time-sensitive software that will not properly recognize the year 2000. This
could result in a system failure or miscalculations causing disruption of
Havasu's operations. Havasu is currently completing an assessment and developing
a plan to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter.
TRANSACTIONS WITH AFFILIATES
Samaritan allocated corporate expenses of $3,596,293 in 1995, $4,411,531 in
1996 and $4,411,536 in 1997 to Havasu for management services. Corporate
expenses are allocated based on the ratio of Havasu's operating expenses to
Samaritan's consolidated operating expenses for the years ended December 31,
1995 and 1996. Corporate expenses allocated for the year ended December 31, 1997
remained constant with the December 31, 1996 allocated amount.
Havasu participates in Samaritan's centralized cash management function
whereby all of Havasu's cash receipts are deposited into Samaritan's corporate
cash accounts and Samaritan processes Havasu's cash disbursements. The
centralized cash management activity is recorded through the intercompany
balances.
At December 31, 1995, 1996 and 1997, Samaritan made net equity realignments
among its operating units through the elimination of certain intercompany
balances. These realignments were
13
<PAGE> 15
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recorded as decreases of $2,607,242, $5,989,351 and $4,006,679 in Havasu's net
assets at December 31, 1995, 1996 and 1997, respectively.
SUBSEQUENT EVENT
On May 1, 1998, Samaritan sold substantially all of the real and personal
assets of Havasu, excluding cash, accounts receivable, notes receivable, trust
fund assets and certain prepaid expenses, to Province Healthcare for
approximately $105,500,000.
14
<PAGE> 16
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
CONDENSED BALANCE SHEET (UNAUDITED)
MARCH 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 5,750
Accounts receivable, less allowance for doubtful accounts
of $974,000............................................ 3,767,756
Inventories............................................... 1,075,634
Other..................................................... 160,164
-----------
Total current assets.............................. 5,009,304
Assets limited as to use.................................... 1,978,248
Property and equipment, net................................. 18,665,620
Other....................................................... 6,003,846
-----------
Total assets...................................... $31,657,018
===========
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable.......................................... $ 666,690
Accrued expenses.......................................... 510,587
Current portion of long-term debt......................... 636,620
-----------
Total current liabilities......................... 1,813,897
Long-term debt, less current portion........................ 21,061,883
Net assets.................................................. 8,781,238
-----------
Total liabilities and net assets.................. $31,657,018
===========
</TABLE>
See accompanying notes.
15
<PAGE> 17
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
CONDENSED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenue:
Net health services....................................... $13,656,703 $15,168,436
----------- -----------
Total revenue..................................... 13,656,703 15,168,436
Expenses:
Salaries, wages and benefits.............................. 3,855,606 4,786,574
General and administrative................................ 2,218,094 2,380,442
Supplies.................................................. 1,930,190 2,217,844
Provision for doubtful accounts........................... 1,297,699 996,224
Corporate allocated expenses.............................. 1,102,884 1,102,884
Interest.................................................. 377,111 394,689
Depreciation and amortization............................. 404,384 458,840
----------- -----------
Total expenses.................................... 11,185,968 12,337,497
Excess of revenue over expenses............................. 2,470,735 2,830,939
Equity realignments, net.................................... 987,086 1,016,052
----------- -----------
Increase in net assets...................................... 3,457,821 3,846,991
Net assets, beginning of year............................... 187,524 4,934,247
----------- -----------
Net assets, end of year..................................... $ 3,645,345 $ 8,781,238
=========== ===========
</TABLE>
See accompanying notes.
16
<PAGE> 18
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Increase in net assets...................................... $3,457,821 $3,846,991
Adjustments to reconcile increase in net assets to net cash
provided by operating activities:
Depreciation and amortization............................. 404,384 458,840
Provision for doubtful accounts........................... 1,297,699 996,224
Changes in operating assets and liabilities:
Increase in accounts receivable, net................... (4,132,963) (1,714,649)
Decrease (increase) in inventories and other current
assets................................................ 84,376 (3,205)
Decrease in accounts payable and accrued expenses...... (513,395) (680,020)
---------- ----------
Net cash provided by operating activities.............. 597,922 2,904,181
INVESTING ACTIVITIES
Purchases of property and equipment, net.................... (597,586) (1,312,773)
Increase in other assets.................................... (336) (1,591,408)
---------- ----------
Net cash used in investing activities....................... (597,922) (2,904,181)
---------- ----------
Net increase in cash........................................ -- --
Cash, beginning of year..................................... 5,500 5,750
---------- ----------
Cash, end of year........................................... $ 5,500 $ 5,750
========== ==========
</TABLE>
See accompanying notes.
17
<PAGE> 19
HAVASU SAMARITAN REGIONAL HOSPITAL
(AN OPERATING UNIT OF SAMARITAN HEALTH SYSTEM)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Havasu
Samaritan Regional Hospital (Havasu), an operating unit of Samaritan Health
System (Samaritan), 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 have been included. Operating results for the three months
ended March 31, 1998, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. For further information, refer to
the 1997 financial statements and footnotes thereto included herein.
ACCOUNTS RECEIVABLE SALE
Effective September 30, 1997, Samaritan sold its accounts receivable
(including approximately $12,036,000 of Havasu's accounts receivable as of March
31, 1998) to Samaritan Finance Company, LLC (SFC), a special purpose subsidiary
of Samaritan. SFC, in turn, simultaneously sold an undivided percentage interest
in a defined portion of the receivables to Preferred Receivables Funding
Corporation, with First National Bank of Chicago (FNBC) serving as agent. Under
the sale agreement, the receivables are sold without recourse. Proceeds from the
sale to FNBC were in the form of cash (see Transactions with Affiliates note)
and retained collateralization. As of March 31, 1998, $5,055,000 of retained
collateralization was allocated to Havasu by Samaritan based on the ratio of
Samaritan's total retained collateralization to Samaritan's total accounts
receivable portfolio sold to FNBC, applied to Havasu's sold accounts receivable
(included in other assets).
TRANSACTIONS WITH AFFILIATES
Samaritan allocated corporate expenses of $1,102,884 in 1997 and 1998 to
Havasu for management services. Corporate expenses are allocated based on the
ratio of Havasu's operating expenses to Samaritan's consolidated operating
expenses for the three months ended March 31, 1997. Corporate expenses allocated
for the three months ended March 31, 1998 remained constant with the March 31,
1997 allocated amount.
Havasu participates in Samaritan's centralized cash management function
whereby all of Havasu's cash receipts are deposited into Samaritan's corporate
cash accounts and Samaritan processes Havasu's cash disbursements. The
centralized cash management activity is recorded through the intercompany
balances.
At March 31, 1997 and 1998, Samaritan made net equity realignments among
its operating units through the elimination of certain intercompany balances.
These realignments were recorded as increases of $987,086 and $1,016,052 in
Havasu's net assets at March 31, 1997 and 1998, respectively.
SUBSEQUENT EVENT
On May 1, 1998, Samaritan sold substantially all of the real and personal
assets of Havasu, excluding cash, accounts receivable, notes receivable, trust
fund assets and certain prepaid expenses, to Province Healthcare for
approximately $105,500,000.
18
<PAGE> 20
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On February 10, 1998, Province completed its initial public offering of
common stock and its Junior Preferred Stock was converted into Common Stock. On
May 1, 1998, Province acquired Havasu Samaritan Regional Hospital (Havasu).
The following unaudited pro forma condensed consolidated balance sheet
as of March 31, 1998 gives effect to the acquisition of Havasu by Province as if
the transaction had been completed as of March 31, 1998.
The following unaudited pro forma condensed consolidated statements of
income for the year ended December 31, 1997 and the three months ended March 31,
1998 give effect to: (i) the conversion of Junior Preferred Stock into Common
Stock and the sale of 5,405,000 shares of Common Stock in the initial public
offering at the price of $16.00 per share, and the application of the net
proceeds thereof to the repurchase of certain shares of Common Stock, the
redemption of Senior Preferred Stock and the repayment of debt, and (ii) the
acquisition of Havasu by Province, as if all such transactions had been
completed as of January 1, 1997.
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 transactions 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 result 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 audited
consolidated financial statements of Province, included in its 1997 Form 10-K,
and the audited financial statements of Havasu, included elsewhere in the
Current Report on Form 8-K.
19
<PAGE> 21
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
PROVINCE HAVASU ADJUSTMENTS CONSOLIDATED
--------- ------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,675 $ 6 $ 106,000 (a)
(6) (b)
(105,567) (c) $ 7,108
Accounts receivable, net 35,705 3,767 (3,767) (b) 35,705
Inventories 3,848 1,076 4,924
Prepaid expenses and other 6,028 160 (154) (b) 6,034
--------- ------- --------- ---------
Total current assets 52,256 5,009 (3,494) 53,771
Property, plant and equipment, net 66,804 18,666 11,094 (c) 96,564
Other assets:
Unallocated purchase price 760 -- 760
Cost in excess of net assets acquired, net 53,146 -- 75,724 (c) 128,870
Other 8,256 7,982 (7,982) (b) 8,256
========= ======= ========= =========
$ 181,222 $31,657 $ 75,342 $ 288,221
========= ======= ========= =========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,029 $ 667 $ (667) (b) $ 5,029
Accrued salaries and benefits 6,968 -- 6,968
Accrued expenses 2,311 510 489 (c) 3,310
Current maturities of long-term obligations 2,255 637 (637) (b) 2,255
--------- ------- --------- ---------
Total current liabilities 16,563 1,814 (815) 17,562
Long-term obligations, less current maturities 52,166 21,062 106,000 (a)
(21,062) (b) 158,166
Third-party settlements 7,255 -- 7,255
Other liabilities 8,506 -- 8,506
Minority interest 888 -- 888
Common stockholders' equity (deficit):
Net assets -- 8,781 10,457 (b)
-- -- (19,238) (c) --
Common stock 130 -- 130
Additional paid-in-capital 97,338 -- 97,338
Retained earnings (deficit) (1,624) -- (1,624)
--------- ------- --------- ---------
Total common stockholders' equity (deficit) 95,844 8,781 (8,781) 95,844
========= ======= ========= =========
$ 181,222 $31,657 $ 75,342 $ 288,221
========= ======= ========= =========
</TABLE>
20
<PAGE> 22
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IPO ACQUISITION
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
PROVINCE ADJUSTMENTS IPO HAVASU ADJUSTMENTS CONSOLIDATED
---------- ----------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Net patient service revenue $149,296 $ $149,296 $55,101 $ $204,397
Management and professional services 9,691 9,691 -- 9,691
Reimbursable expenses 6,674 6,674 -- 6,674
Other 4,866 4,866 -- 4,866
-------- ------ ------- ------ ------ --------
Net operating revenue 170,527 -- 170,527 55,101 -- 225,628
Expenses:
Salaries, wages and benefits 66,172 66,172 16,626 82,798
Reimbursable expenses 6,674 6,674 -- 6,674
Purchased services 23,242 23,242 -- 23,242
Supplies 16,574 16,574 7,457 24,031
Provision for doubtful accounts 12,812 12,812 4,541 17,353
Other operating expenses 16,318 16,318 14,407 30,725
Rentals and leases 4,888 4,888 -- 4,888
Depreciation and amortization 7,557 7,557 1,689 1,560 (g) 10,806
Interest expense 8,121 (3,334)(d) 4,787 1,628 7,170 (h) 13,585
Minority interest 329 329 -- 329
Loss on sale of assets 115 115 -- 115
-------- ------ ------- ------ ------ --------
Total expenses 162,802 (3,334) 159,468 46,348 8,730 214,546
-------- ------ ------- ------ ------ --------
Income before income taxes 7,725 3,334 11,059 8,753 (8,730) 11,082
Income taxes 3,650 1,299 (e) 4,949 -- 9 (e) 4,958
-------- ------ ------- ------ ------ --------
Net income 4,075 2,035 6,110 8,753 (8,739) 6,124
Preferred stock dividends and accretion (5,077) 5,077 (f) -- -- -- --
======== ====== ======= ====== ====== ========
Net income (loss) to common shareholders $ (1,002) $7,112 $ 6,110 $8,753 $(8,739) $ 6,124
======== ====== ======= ====== ====== ========
Basic earnigs (loss) per common share:
Net income $ 0.71 $ 0.49
Preferred stock dividends and accretion $ (0.88) --
======== ========
Net income (loss) per common share $ (0.17) $ 0.49
======== ========
Diluted earnings (loss) per common share:
Net income $ 0.71 $ 0.47
Preferred stock dividends and accretion (0.88) --
======== ========
Net income (loss) per common share $ (0.17) $ 0.47
======== ========
Weighted-average shares:
Basic earnings per common share 5,787 12,466
Diluted earnings per common share 6,461 13,140
</TABLE>
21
<PAGE> 23
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IPO ACQUISITION
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
PROVINCE ADJUSTMENTS IPO HAVASU ADJUSTMENTS CONSOLIDATED
---------- ----------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Net patient service revenue $42,750 $ $42,750 $15,168 $ $57,918
Management and professional services 2,930 2,930 -- 2,930
Reimbursable expenses 1,562 1,562 -- 1,562
Other 609 609 -- 609
------- ----- ------- ------- ------- -------
Net operating revenue 47,851 47,851 15,168 -- 63,019
Expenses:
Salaries, wages and benefits 18,606 18,606 4,786 23,392
Reimbursable expenses 1,562 1,562 -- 1,562
Purchased services 6,035 6,035 -- 6,035
Supplies 4,627 4,627 2,218 6,845
Provision for doubtful accounts 3,082 3,082 996 4,078
Other operating expenses 4,257 4,257 3,483 7,740
Rentals and leases 1,474 1,474 -- 1,474
Depreciation and amortization 2,205 2,205 459 353 (g) 3,017
Interest expense 1,855 (474)(d) 1,381 395 1,840 (h) 3,616
Minority interest 68 68 -- 68
Loss on sale of assets 33 33 -- 33
------- ----- ------- ------- ------- -------
Total expenses 43,804 (474) 43,330 12,337 2,193 57,860
------- ----- ------- ------- ------- -------
Income before income taxes 4,047 474 4,521 2,831 (2,193) 5,159
Income taxes 1,772 189 (e) 1,961 249 (e) 2,210
------- ----- ------- ------- ------- -------
Net income 2,275 285 2,560 2,831 (2,442) 2,949
Preferred stock dividends and accretion (696) 696 (f) -- --
======= ===== ======= ======= ======= =======
Net income to common shareholders $ 1,579 $ 981 $ 2,560 $ 2,831 $(2,442) $ 2,949
======= ===== ======= ======= ======= =======
Basic earnigs (loss) per common share:
Net income $ 0.24 $ 0.23
Preferred stock dividends and accretion (0.07) --
======= =======
Net income (loss) per common share $ 0.17 $ 0.23
======= =======
Diluted earnings (loss) per common share:
Net income $ 0.23 $ 0.22
Preferred stock dividends and accretion (0.07) --
======= =======
Net income (loss) per common share $ 0.16 $ 0.22
======= =======
Weighted-average shares:
Basic earnings per common share 9,343 13,010
Diluted earnings per common share 9,615 13,282
</TABLE>
22
<PAGE> 24
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Balance sheet pro forma adjustments:
(a) Reflects the borrowing by Province of $106.0 million to finance the
acquisition of Havasu.
(b) Reflects the elimination of the Havasu assets not purchased and
liabilities not assumed by Province as follows:
<TABLE>
<S> <C>
Cash $ (6)
Accounts receivable, net (3,767)
Prepaid expenses and other (154)
Other (7,982)
Accounts payable 667
Current maturities of long-term obligations 637
Long-term obligations, less current maturities 21,062
========
Net assets $ 10,457
========
</TABLE>
(c) Reflects the purchase of Havasu and the allocation of the $105.5
million purchase price to adjust assets purchased and liabilities
assumed to fair value and to record intangibles as follows:
<TABLE>
<S> <C>
Property, plant and equipment $ 11,094
Cost in excess of net assets acquired 75,724
Accrued expenses (489)
Net assets 19,238
=========
Cash paid $ 105,567
=========
</TABLE>
Income statement pro forma adjustments:
(d) Reflects the elimination of interest expense associated with the $39.6
million of long-term obligations repaid with the net proceeds of the
initial public offering.
(e) Reflects the inclusion of income tax expense (benefit) based on the
combined federal and state statutory rate of 39.0% applied to adjusted
pre-tax income or loss.
23
<PAGE> 25
(f) Reflects the elimination of the dividends and the accretion of issuance
costs on the Senior Preferred Stock redeemed with a portion of the net
proceeds of the initial public offering and the Junior Preferred Stock
converted into Common Stock in connection with the initial public
offering.
(g) Reflects the elimination of the historical depreciation expense of
Havasu, and the inclusion of the Company's depreciation of property,
plant and equipment and amortization of goodwill and other intangible
assets.
(h) Reflects the elimination of the historical interest expense related to
the debt of Havasu not assumed in the acquisition, and the inclusion of
the Company's interest expense related to debt used to finance the
acquisition.
24
