-----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, ShD/lYaYngoef/SnsDOA+SLLNpk0QzEWtw48IZa4UxJGZYKAnHhak3X2nJkaw1U5 xkyhQ+z1i1oRRvX86hyRYQ== 0000758722-97-000020.txt : 19970813 0000758722-97-000020.hdr.sgml : 19970813 ACCESSION NUMBER: 0000758722-97-000020 CONFORMED SUBMISSION TYPE: 10-QT/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19970812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARACELSUS HEALTHCARE CORP CENTRAL INDEX KEY: 0000758722 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 953565943 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-QT/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12055 FILM NUMBER: 97656547 BUSINESS ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 BUSINESS PHONE: 7138736623 MAIL ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 10-QT/A 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________ FORM 10-QT/A AMENDMENT NO. 1 TO TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1995 Commission file number 1-12055 PARACELSUS HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) California 95-3565943 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 515 W. Greens Road, Suite 800, Houston, Texas 77067 (Address of principal executive offices) (Zip Code) (281) 774-5100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES_X_ NO__ As of December 31, 1995, there were 450 shares of the Registrant's Common Stock, no stated value, outstanding. 2 PARACELSUS HEALTHCARE CORPORATION FORM 10-QT/A For the Quarterly Period Ended December 31, 1995 INDEX Page Reference FORM 10-QT/A ------------ PRELIMINARY STATEMENT 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 1995 and September 30, 1995 4 Consolidated Statements of Operations - Three Months ended December 31, 1995 and 1994 5 Condensed Consolidated Statements of Cash Flows - Three Months ended December 31, 1995 and 1994 6 Notes to Interim Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION 14 SIGNATURE 16 3 PRELIMINARY STATEMENT Paracelsus Healthcare Corporation (the "Company") is filing this report on Form 10-Q/A to amend and restate the Transition Report on Form 10-Q for the quarter ended December 31, 1995, filed with the Securities and Exchange Commission (the "Commission") on November 1, 1996. In October 1996, the Board of Directors appointed a Special Committee consisting of non-management members, to supervise and direct the conduct of an inquiry by outside legal counsel regarding, among other things, the Company's accounting and financial reporting practices and procedures for the periods prior to the quarter ended September 30, 1996. As a result of the inquiry, the Company restated its financial information for periods commencing with January 1, 1992 through the nine months ended September 30, 1996, as reflected in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, filed with the Commission on April 15, 1997. Adjustments and reclassifications were necessary to correct errors and irregularities relating to (i) receivables due from Medicare and other government programs (ii) use of corporate reserves, (iii) provisions for bad debt expense relating principally to two of the Company's psychiatric hospitals in the Los Angeles area and (iv) deferral of facility closure costs which only affected the 1996 quarterly information (collectively, the "restatement entries"). To show the impact of the restatement entries with respect to previously reported amounts for the quarters ended December 31, 1995 and 1994, the Company has provided a description of the restatement entries and a reconciliation of historical results for the quarters ended December 31, 1995 and 1994, as previously reported in the filed transition report on Form 10-Q, to the restated results. Certain statements in this Form 10-Q are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. Factors which may cause the Company's actual results in future periods to differ materially from forecast results include, but are not limited to: general economic and business conditions, both nationally and in the regions in which the Company operates; industry capacity; demographic changes; existing government regulations and changes in, or the failure to comply with government regulations; legislative proposals for healthcare reform; the ability to enter into managed care provider arrangements on acceptable terms; changes in Medicare and Medicaid reimbursement levels; liability and other claims asserted against the Company; competition; the loss of any significant customer; changes in business strategy or development plans; the ability to attract and retain qualified personnel, including physicians; the significant indebtedness of the Company; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) Restatement - See Note 2 ------------------------ December September 31, 30, 1995 1995 --------- --------
ASSETS Current Assets: Cash and cash equivalents $ 4,418 $ 2,949 Marketable securities 12,643 10,387 Accounts receivable, net 53,538 46,247 Other current assets 26,948 27,437 Deferred income taxes 28,825 32,580 ------- ------- Total current assets 126,372 119,600 Property and equipment 273,685 268,412 Less: Accumulated depreciation and amortization (106,306) (102,746) ------- ------- 167,379 165,666 Other assets 39,635 40,533 ------- ------- Total Assets $333,386 $ 325,799 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable and other current liabilities $ 64,211 $ 69,401 Current maturities of long-term debt 5,150 8,658 ------ ------ Total current liabilities 69,361 78,059 Long-term debt 130,352 113,070 Other long-term liabilities 25,230 25,176 Deferred income taxes 21,544 24,619 Minority interests 178 126 Stockholder's equity Common stock 4,500 4,500 Additional paid-in capital 390 390 Unrealized gains on marketable securities 212 137 Retained earnings 81,619 79,722 ------ ------ Total stockholder's equity 86,721 84,749 ------ ------ Total Liabilities and Stockholders' Equity $333,386 $325,799 ======= =======
See accompanying notes. 5 PARACELSUS HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited) Restatement - See Note 2 ------------------------ Three Months Ended December 31, ------------------------ 1995 1994 --------- ---------
Net Revenue $ 130,161 $ 127,131 Costs and expenses: Salaries and benefits 55,545 53,271 Other operating expenses 53,176 56,391 Provision for bad debts 9,612 8,804 Interest 3,851 3,716 Depreciation and amortization 3,988 4,340 ------- ------- Total costs and expenses 126,172 126,522 Income before minority interests and income taxes 3,989 609 Minority interests (569) (693) ------ ------ Income (loss) before income taxes 3,420 (84) Provision (benefit) for income taxes 1,402 (34) ------- ------ Net income (loss) $ 2,018 $ (50) ======= ======
See accompanying notes. 6 PARACELSUS HEALTHCARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Restatement - See Note 2 --------------------------- Three Months Ended December 31, --------------------------- 1995 1994 ------------ ----------
Cash Flows from Operating Activities: Net income (loss) $ 2,018 $ (50) Non-cash expenses and changes in operating assets and liabilities (6,701) (4,270) ------ ------ Net cash used in operating activities (4,683) (4,320) ------ ------ Cash Flows from Investing Activities: Purchase of marketable securities (78) (996) Purchase of property and equipment, net (5,253) (1,670) Decrease in minority interests (517) (700) Increase in other assets (1,653) (924) ----- ----- Net cash used in investing activities (7,501) (4,290) ----- ----- Cash Flows from Financing Activities: Borrowings under Credit Facility 16,500 12,500 Repayments under Credit Facility (2,500) (2,500) Repayments of long-term debt, net (226) (426) Dividends to stockholder (121) (412) ------ ------ Net cash provided by financing activities 13,653 9,162 ------ ------ Increase in cash and cash equivalents 1,469 552 Cash and cash equivalents at beginning of period 2,949 1,452 ----- ------ Cash and cash equivalents at end of period $ 4,418 $ 2,004 ===== ===== Supplementary cash flow information Cash paid during the period for: Income taxes $ 954 $ 172 Interest 5,550 5,351
See accompanying notes. 7 PARACELSUS HEALTHCARE CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) December 31, 1995 NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Organization - ------------ Paracelsus Healthcare Corporation (the "Company") was incorporated in November 1980 for the principal purpose of owning and operating acute care and related healthcare businesses in selected markets. As of December 31, 1995, the Company operated 22 hospitals with 1,986 licensed beds in 8 states (including three psychiatric hospitals with 218 licensed beds), of which 15 were owned and seven were leased. Basis of Presentation - --------------------- The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The Company's business is seasonal in nature and subject to general economic conditions and other factors. Accordingly, operating results for the quarterly period ended December 31, 1995 are not necessarily indicative of the results that may be expected for the annual period. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K for such period, which include restated financial results for calendar years 1992 through 1995 and for the quarterly 1995 and 1996 periods. 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain account balances for the three months ended December 31, 1994 have been reclassified to conform to the Company's current presentation. NOTE 2. RESTATEMENT OF FINANCIAL STATEMENTS In October 1996, the Board of Directors appointed a Special Committee consisting of non-management members, to supervise and direct the conduct of an inquiry by outside legal counsel regarding, among other things, the Company's accounting and financial reporting practices and procedures for the periods prior to the quarter ended September 30, 1996. 8 Such inquiry resulted in the Company restating its financial statements for the periods commencing January 1, 1992 through the nine months ended September 30, 1996. The need for prior period restatements was the result of accounting errors and irregularities in four areas: (i) overstatement of receivables due from Medicare and other government programs; (ii) use of corporate reserves; (iii) provisions for bad debt expense relating principally to two of the Company's psychiatric hospitals in the Los Angeles area; and (iv) deferral of facility closure costs which only affected the 1996 quarterly information. The impact of the restatement entries on the Company's financial results for the three months ended December 31, 1995 and 1994 is summarized in the following tables. A reconciliation has been included to reconcile to the reported amounts as shown in the Consolidated Statements of Operations for each respective period. QUARTER ENDED DECEMBER 31, 1995 As Previously Adjustments As Reported to Restated Quarter Quarter Quarter Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, 1995 1995 1995 ------------- ----------- ---------- (IN 000'S)
Net revenue $ 128,674 $ 1,487 $ 130,161 ------- ----- ------- Costs and expenses: Salaries and benefits 55,545 55,545 Other operating expenses 51,564 1,612 53,176 Provision for bad debts 9,612 9,612 Interest 3,851 3,851 Depreciation and amortization 3,988 3,988 ------- ----- ------- Total costs and expenses 124,560 1,612 126,172 Income before minority interests and income taxes 4,114 (125) 3,989 Minority interests (569) (569) ------- ----- ------- Income before income taxes 3,545 (125) 3,420 Provision for income taxes 1,453 (51) 1,402 ------- ----- ------- Net income $ 2,092 $ (74) $ 2,018 ======= ===== =======
9 QUARTER ENDED DECEMBER 31, 1994 As Previously Adjustments As Reported to Restated Quarter Quarter Quarter Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, 1994 1994 1994 ------------- ----------- ---------- (IN 000'S)
Net revenue $124,123 $ 3,008 $ 127,131 Costs and expenses: Salaries and benefits 53,646 (375) 53,271 Other operating expenses 48,716 7,675 56,391 Provision for bad debts 8,804 8,804 Interest 3,716 3,716 Depreciation and amortization 4,340 4,340 -------- -------- -------- Total costs and expenses 119,222 7,300 126,522 Income before minority interests and income taxes 4,901 (4,292) 609 Minority interests (693) (693) -------- -------- ------- Income (loss) before income taxes 4,208 (4,292) (84) Provision (benefit) for income taxes 1,726 (1,760) (34) -------- -------- ------- Net income (loss) $ 2,482 $ (2,532) $ (50) ======== ======== =======
NOTE 3. MARKETABLE SECURITIES In November 1995, in concurrence with the adoption of "A Guide to Implementation of Statement of Financial Accounting Standards No. 115 on Accounting for Certain Investments in Debt and Equity Securities," the Company transferred certain of its held-to-maturity debt securities to the available-for-sale category. The amortized cost of those securities at the time of transfer was $2.0 million and the gross unrealized loss on those securities was immaterial. NOTE 4. EXCHANGE TRANSACTION On November 28, 1995, the Company entered into an Asset Exchange Agreement and a Stock Purchase Agreement to acquire the 139-bed Pioneer Valley Hospital in West Valley City, Utah, the 120-bed Davis Hospital and Medical Center in Layton, Utah and the 129-bed Santa Rosa Medical Center in Milton, Florida from another healthcare company (collectively, the "Acquired Hospitals"). In exchange, the other party will receive the Company's 119-bed Peninsula Medical Center in Ormond Beach, Florida, the 135-bed Elmwood Medical Center in Jefferson, Louisiana, the 190-bed Halstead Hospital in Halstead, Kansas, and $38.5 million in cash, net of a working capital differential. The Company also will purchase the real property of Elmwood and Halstead from a real estate investment trust ("REIT"), 10 exchange the Elmwood and Halstead real property for the Pioneer real property and then sell the Pioneer real property to the REIT. The acquisition of the Acquired Hospitals will be accounted for as a purchase transaction, with no material gain or loss to be recognized therefrom. The Company will finance the acquisition from borrowings under its revolving line of credit. NOTE 5 - LONG-TERM DEBT On December 8, 1995, the Company entered into a Second Amended and Restated Credit Agreement (the "Agreement")(the "Credit Facility") which provides for a revolving line of credit in the amount of $230.0 million. The Credit Facility is available for working capital purposes, to fund acquisitions and for the issuance of letters of credit. Borrowings under the Credit Facility bear interest at a base rate or an offshore dollar rate, as defined in the Agreement, plus a margin ranging from 0.25% to 0.75% or 0.75% to 1.125%, respectively. The Credit Facility requires annual fees ranging from 0.75% to 1.25% of the outstanding amount of the letters of credit. The Company is also required to pay commitment fees ranging from 0.20% to 0.375% of the unused portion of the Credit Facility. The Credit Facility expires on November 1998, at which time, the Company can elect to convert the then outstanding balance into a four-year term loan, payable in 16 equal quarterly installments, commencing in December 1998. NOTE 6. CONTINGENCIES The Company is defending itself against a lawsuit filed by Aetna Life Insurance Company ("Aetna") alleging false diagnosis and billings submitted for treatment of Aetna patients at the Company's psychiatric facilities. Management denies these allegations and believes the ultimate resolution of the lawsuit will not have a material adverse effect on its consolidated financial position. The Company is subject to claims and suits in the ordinary course of business, including those arising from care and treatment afforded at the Company's facilities. It maintains insurance and, where appropriate, reserves with respect to the possible liability arising from such claims. Although the Company believes that its insurance and loss reserves are adequate, there can be no assurance that such insurance and loss reserves will cover all potential claims that may be asserted and that the outcome of such claims will not have a material effect on the Company's financial position, results of operations and cash flows. 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- Following changes in the Company's management which became effective as of the merger with Champion Healthcare Corporation on August 16, 1996 (the "Merger"), management determined that there were financial performance and accounting issues with the pre-merger operating results of the Company. In October 1996, the Company announced that its third quarter results would be substantially lower than expected. At the same time, the Board of Directors formed a Special Committee of non-management members to supervise the conduct of an inquiry by outside legal counsel as to the nature and reasons for the earnings shortfall and investigate the accounting and financial reporting practices and procedures in periods prior to September 30, 1996. As a result of its investigation, the Special Committee recommended to the Board that the Company restate its prior period financial statements. The need for the restatement of prior period financial statements was the result of accounting errors and irregularities at pre-merger Paracelsus as discussed in Item 1 - Note 2. The following table presents a summary of the impact of the restatements on the three months ended December 31, 1995 and 1994.
As Previously Reported As Restated Quarter Quarter Ended Ended Dec. 31, Dec. 31, 1995 Adjustments 1995 ------------ ----------- ----------- Net Revenue $128,674 $ 1,487 $130,161 Income(loss) before income taxes 3,545 (125) 3,420 Net income (loss) 2,092 (74) 2,018
As Previously Reported As Restated Quarter Quarter Ended Ended Dec. 31, Dec. 31, 1994 Adjustments 1994 ----------- ----------- ----------- Net Revenue $124,123 $ 3,008 $127,131 Income(loss) before income taxes 4,208 (4,292) (84) Net income (loss) 2,482 (2,532) (50)
12 The 1995 adjustments consisted primarily of (i) a decrease in deductions from revenue of $1.8 million for receivables from Medicare and other government programs, offset by a charge to net revenue of $278,000 for certain bad debt expense that was deferred at two of the psychiatric hospitals, (ii) an increase in operating expenses of $1.6 million from the reversal of corporate reserves and (iii) an increase in operating expenses of $13,000 for certain deferred closure costs. The 1994 adjustments consisted primarily of (i) a decrease in deductions from revenue totaling $3.0 million, consisting of $2.1 million for receivables from Medicare and other government programs and $864,000 for deferral of bad debt expense in prior periods that was recorded as deductions from revenue at two of the psychiatric hospitals and (ii) an increase in operating expenses of $7.3 million from the reversal of corporate reserves. The following discussion analyzes the results, as restated, for quarter ended December 31, 1995, as compared to the quarter ended December 31, 1994. The following information should be read in conjunction with the consolidated financial statements of the Company, and the related notes thereto, included in the Annual Report on Form 10-K for the year ended December 31, 1996, which included restated financial results for periods prior thereto. Results of Operations - Quarter ended December 31, 1995 - ------------------------------------------------------- Compared with Quarter ended December 31, 1994 - --------------------------------------------- Net revenue for the three months ended December 31, 1995 was $130.2 million, an increase of $3.1 million , or 2.4%, over $127.1 million for the same period of 1994. Of the $3.1 million increase, $6.6 million was contributed by hospitals owned throughout both periods ("same hospitals"), offset by a net decrease of $3.5 million, attributable to hospitals and healthcare related businesses that were closed or sold since January 1995. The $6.6 million increase in "same hospitals" net revenue was attributable to an increase of $4.1 million from additional home health business at hospitals located primarily in Tennessee, with the remaining $2.5 million increase resulting primarily from additional services offered and medical staff development efforts. Expressed as a percentage operating revenues, operating expenses (salaries and benefits, other operating expenses, and provision for bad debts) decreased from 93.2% in 1994 to 90.9% in 1995 and operating margin increased from 6.8% to 9.1%. The 2.3% increase in operating margin in 1995 was primarily due to a 3.6% decrease in other operating expenses, as a percentage of net revenue, from incremental charges recorded in 1994 for accrued legal costs relating to outstanding litigation and the write-off of certain assets, offset by an increase in purchased services in 1995 attributable to additional home health business which was profitable but was more labor intensive. The increase in operating margin in 1995 was further offset by a 0.8% increase in salaries and benefits and a 0.5% increase in provision for bad debt, as a percentage of net revenue, with the former primarily due to an increase in home health business and the latter attributable mainly to the psychiatric hospitals. Depreciation and amortization decreased to $4.0 million in 1995 from $4.3 million for the same period of 1994. The $300,000 decrease was primarily attributable to facilities and healthcare related businesses sold or closed since January 1995. Net income for the quarter ended December 31, 1995 was $2.0 million, as compared to a loss of $50,000 for the quarter ended December 31, 1994. The $2.1 13 million increase was due primarily to additional incremental charges recorded in 1994 for accrued legal costs and the write-off of certain assets and an increase in net revenue during 1995. Liquidity and Capital Resources - ------------------------------- Net cash used in operating activities for the quarter ended December 31, 1995 was $4.7 million, compared to $4.3 million for the same period of 1994. Net cash used in investing activities increased $3.2 million to $7.5 million during 1995 from $4.3 million in 1994, primarily from an increase in use of cash to finance capital expenditures. Net cash provided by financing activities increased $4.5 million to $13.7 million during 1995 from $9.2 million for the same 1994 period, due primarily to an incremental borrowing of $4.0 million under the Revolving Credit Facility to finance capital expenditures and purchases of physician clinics during 1995. Net working capital was $57.0 million, an increase of $15.5 million from $41.5 million at September 30, 1995. The increase mainly resulted from an increase in accounts receivable and a decrease in accounts payable and other accrued expenses, in addition to a decrease of $3.5 million in current maturities of long-term debt resulting from the refinancing of an existing mortgage note originally due in January 1996 to long-term debt. The Company's long-term debt as a percentage of total capitalization was 60.0% at December 31, 1995, compared to 57.2% at September 30, 1995. The increase was primarily attributable to net borrowings of $14.0 million under the Credit Facility to finance capital expenditures and fund working capital requirements during the three months ended December 31, 1995 and the refinancing of the mortgage note described above. On December 8, 1995, the Company amended and restated its existing Credit Facility to increase the amount available for borrowings from $125.0 million to $230.0 million. The Credit Facility is available for working capital purposes, to finance capital expenditures, to fund acquisitions and for the issuance of letters of credit. As of December 31, 1995, the Company had $41.5 million of borrowings outstanding under its Credit Facility. The Company anticipates that internally generated cash flows from earnings, proceeds from the sale of hospital accounts receivable under the Company's commercial paper program and borrowings under its Credit Facility will be sufficient to fund future acquisition, capital expenditure and working capital requirements through fiscal year 1996. There can be no assurance that future developments in the hospital industry or general economic trends will not adversely affect the Company's operations or its ability to meet such funding requirements. In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires impairment losses to be recorded on long- lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The statement also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt SFAS No. 121 on October 1, 1996, and, based on current circumstances, does not believe the effect of the adoption will be material. 14 Regulatory Matters - ------------------ Various other legislative proposals for healthcare reform at both federal and state levels have been introduced or have been under consideration. The Company cannot predict the effect that such reforms may have on its business and there can be no assurance that any such reforms will not have a material adverse effect on the Company's future revenues or liquidity. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material change has occurred in the litigation described in Note 6 of the Notes to Interim Condensed Consolidated Financial Statements. ITEM 2. CHANGE IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.7 Third Amended and Restated Guaranty and Pledge Agreement, dated as of December 8, 1995, by and among Dr. Manfred Krukemeyer, Paracelsus, Bank of America and NationsBank (filed as Exhibit 4.1 to Paracelsus' Current Report on Form 8-K dated December 8, 1995, and incorporated herein by reference). 10.26 Stock Purchase Agreement by and between Paracelsus and General Hospitals of Galen, Inc., dated as of November 29, 1995 (filed as Exhibit 10.40 to Paracelsus' Annual Report on Form 10-K for the year ended September 30, 1995, and incorporated herein by reference). 10.27 Asset Exchange Agreement by and between Paracelsus Haltstead Hospital, Inc., Paracelsus Elmwood Medical Center, Inc., Paracelsus Peninsula Medical Center, Inc., and Paracelsus Real Estate Corporation and Pioneer Valley Hospital, Inc. and Medical Center of Santa Rosa, Inc., dated November 28, 1995 (filed as Exhibit 10.41 to Paracelsus' Annual Report on Form 10-K for the year ended September 30, 1995, and incorporated herein by reference). 15 10.31 Second Amended and Restated Credit Agreement, dated as of December 8, 1995, among Paracelsus, Bank of America National Trust and Savings Association as agent, and other lenders named therein (filed as Exhibit 4.1 to Paracelsus' Current Report on Form 8-K dated December 8, 1995, and incorporated herein by reference). (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, dated December 8, 1995, reporting pursuant to Item 5 thereof, that the Company had entered into a Second Amended and Restated Credit Agreement increasing the amount available thereunder to $230.0 million. 16 SIGNATURE 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 thereunto duly authorized. Paracelsus Healthcare Corporation (Registrant) /s/ JAMES G. VANDEVENDER Dated: Augus 11, 1997 By: ____________________________ James G. VanDevender Senior Executive Vice President, Chief Financial Officer & Director -----END PRIVACY-ENHANCED MESSAGE-----