-----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, Su80DIZuTNxuutaRMuxK2iJVuM3GIQXx6BFhEgrbcoFdA86FbuwTZ0OTrI6ExNyA 2eyutoUr+nis2CCnOHiWsQ== 0000912057-96-015295.txt : 19960725 0000912057-96-015295.hdr.sgml : 19960725 ACCESSION NUMBER: 0000912057-96-015295 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960517 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960724 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: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-67040 FILM NUMBER: 96598204 BUSINESS ADDRESS: STREET 1: 155 N LAKE AVE STE 1100 CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 8187928600 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- AMENDMENT NO. 1 ON FORM 8-K/A TO FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------- May 17, 1996 ------------------------------------------------- (Date of Report; Date of Earliest Event Reported) PARACELSUS HEALTHCARE CORPORATION ----------------------------------------------------------- (Exact Name of Registrant as specified in its Charter) California 33-67040 95-3565943 - -------------------------------------------------------------------------------- (State of Incorporation) (Commission File No.) (IRS Employer Identification No.) 155 North Lake Avenue, Suite 1100, Pasadena, California 91101 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (818) 792-8600 ----------------------------------------------------------- (Registrant's telephone number, including area code) N/A - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) The total number of pages of this Form 8-K/A is 19. At the time of filing the Current Report on Form 8-K to which this Amendment No. 1 relates, the (a) Financial Statements of Businesses Acquired and the (b) Pro Forma Financial Information were not available. This Amendment No. 1 provides this financial information. Item 7. FINANCIAL STATEMENTS PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Businesses Acquired The following historical financial information of Davis Hospital and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center is incorporated by reference: (i) Audited Combined Balance Sheets as of December 31, 1995 and 1994; (ii) Audited Combined Statements of Income and Changes in Retained Earnings for the years ended December 31, 1995 and 1994; (iii) Audited Combined Statements of Cash Flows for the years ended December 31, 1995 and 1994; (iv) Notes to Combined Financial Statements. (b) Pro Forma Financial Information: The Following pro forma financial information for Paracelsus Healthcare Corporation is incorporated herein by reference: (i) Introduction to Unaudited Pro Forma Condensed Combining Financial Statements; (ii) Unaudited Pro Forma Condensed Combining Statement of Income for the Six Months Ended March 31, 1996; (iii) Unaudited Pro Forma Condensed Combining Statement of Income for the fiscal year ended September 30, 1995; (iv) Unaudited Pro Forma Condensed Combining Balance Sheet as of March 31, 1996; (v) Notes to Unaudited Pro Forma Condensed Combining Financial Statements. 2 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 hereunto duly authorized. Dated: July 22, 1996 PARACELSUS HEALTHCARE CORPORATION a California corporation By /s/ James T. Rush ---------------------------------- James T. Rush Vice President, Finance and Chief Financial Officer 3 Report of Independent Auditors Board of Directors Davis Hospital and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center We have audited the accompanying combined balance sheets of Davis Hospital and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center (the "Hospitals") (all of which are wholly owned subsidiaries of Columbia/HCA Healthcare Corporation) as of December 31, 1995 and 1994, and the related statements of income and changes in retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Hospitals' 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 combined financial position of Davis Hospital and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center at December 31, 1995 and 1994, and the combined results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Salt Lake City, Utah May 17, 1996 4 Paracelsus Healthcare Corporation Combined Balance Sheets DECEMBER 31 1995 1994 ------------------ (IN THOUSANDS) ASSETS Current assets: Cash $ 656 $ 456 Accounts receivable, less allowance for doubtful accounts of $6,641 in 1995 and $4,554 in 1994 13,658 14,494 Inventories 2,243 1,933 Prepaid expenses and other 1,088 614 ------------------ Total current assets 17,645 17,497 Property, plant and equipment, less accumulated depreciation 49,215 50,723 Prepaid lease 6,864 5,101 Leasehold value, less accumulated amortization of $2,498 in 1995 and $2,209 in 1994 2,902 3,191 Other assets 4,264 4,206 ------------------ Total assets $80,890 $80,718 ------------------ ------------------ LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable and other current liabilities $ 7,356 $ 7,056 Intercompany liabilities 40,266 44,765 Shareholder's equity: Common stock, Class B, $1 par value - 3,000 shares authorized and issued 3 3 Additional paid in capital 8,259 8,259 Retained earnings 25,006 20,635 ------------------ Total shareholder's equity 33,268 28,897 ------------------ Total liabilities and shareholder's equity $80,890 $80,718 ------------------ ------------------ SEE ACCOMPANYING NOTES. 5 Paracelsus Healthcare Corporation Combined Statements of Income and Changes in Retained Earnings YEAR ENDED DECEMBER 31 1995 1994 ------------------ (IN THOUSANDS) Total operating revenues $105,307 $99,096 Costs and expenses: Salaries, wages, and benefits 39,088 35,370 Supplies 14,680 13,452 Purchased services 10,158 9,368 Other operating expenses 12,376 11,486 Provision for doubtful accounts 7,515 6,019 Depreciation and amortization 5,570 6,154 Interest expense 3,280 3,835 Management fees 5,400 1,984 ------------------ Total costs and expenses 98,067 87,668 ------------------ Income before income taxes 7,240 11,428 Income taxes 2,869 4,514 ------------------ Net income 4,371 6,914 Retained earnings at beginning of year 20,635 13,721 ------------------ Retained earnings at end of year $ 25,006 $20,635 ------------------ ------------------ SEE ACCOMPANYING NOTES. 6 Paracelsus Healthcare Corporation Combined Statements of Cash Flows YEAR ENDED DECEMBER 31 1995 1994 ------------------ (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 4,371 $ 6,914 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,570 6,154 Changes in operating assets and liabilities: Accounts receivable 836 (388) Prepaid expenses, inventory and other current assets (784) (183) Accounts payable and other liabilities 300 201 ------------------ Net cash provided by operating activities 10,293 12,698 INVESTING ACTIVITIES Purchases of property, plant and equipment (4,171) (5,883) Disposals of property, plant and equipment 109 53 (Increase) decrease in net leasehold value and other long-term assets (1,532) 1,170 ------------------ Net cash used in investing activities (5,594) (4,660) FINANCING ACTIVITIES Net transfers to Columbia (4,499) (7,583) ------------------ Increase in cash 200 455 Cash at beginning of year 456 1 ------------------ Cash at end of year $ 656 $ 456 ------------------ ------------------ Supplemental cash flow information: Cash paid during the year for: Interest payments $ 3,280 $ 3,835 Income tax payments 2,869 4,514 Significant noncash transaction: Prepayment of lease through intercompany balances 2,000 - SEE ACCOMPANYING NOTES. 7 Paracelsus Healthcare Corporation Notes to Combined Financial Statements December 31, 1995 1. ORGANIZATION Davis Hospital and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center (the "Hospitals") are indirect wholly owned subsidiaries of Columbia/HCA Healthcare Corporation ("Columbia"). The Hospitals provide health care services to patients in and around their respective communities in Utah (Davis Hospital and Medical Center and Pioneer Valley Hospital) and Florida (Santa Rosa Medical Center). The Hospitals receive payment for patient services from the federal government primarily under the Medicare program, state programs under their respective Medicaid programs, health maintenance organizations, preferred provider organizations and other private insurers and directly from patients. In connection with a Federal Trade Commission consent order resulting from Columbia's merger with Health Trust, Inc. ("HTI"), Columbia agreed to sell the Hospitals to Paracelsus Healthcare Corporation ("Paracelsus"). The Hospitals and related entities were exchanged for three Paracelsus hospitals and related entities as well as an additional cash payment as defined by the agreement. The transaction closed on May 16, 1996. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PREPARATION OF FINANCIAL STATEMENTS 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. BASIS OF COMBINATION The combined financial statements presented herein will be referred to for the years ended December 31, but will include the financial statements of Davis Hospital and Pioneer Valley Hospital for the years ended December 31, and Santa Rosa Medical Center for the years ended August 31. 8 Paracelsus Healthcare Corporation Notes to Combined Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) OPERATING REVENUES AND RECEIVABLES Operating revenues are based on established billing rates less allowances and discounts for patients covered by Medicare, Medicaid and various other discount arrangements. Payments received under these programs and arrangements, which are based on either predetermined rates or the cost of services, are generally less than the Hospital's customary charges, and the differences are recorded as contractual adjustments or policy discounts at the time service is rendered. These contractual adjustments totaled $56,580,000 and $49,738,000 for 1995 and 1994, respectively. Normal estimation differences between final settlements and amounts recognized in previous years are reported as contractual adjustments in the current year. The administrative procedures for cost-based programs preclude final determination of the payments due or receivable until after the Hospitals' cost reports are audited or otherwise reviewed by and settled with the respective program agencies. The Hospitals' estimate for final settlements of all years through 1995 has been reflected in the combined financial statements. Patient revenues under the Medicare and Medicaid programs amounted to approximately 40% and 43% of total patient revenues in 1995 and 1994, respectively. The Hospitals do not believe that there are any credit risks associated with receivables due from governmental agencies. Concentrations of credit risk from other payors is limited by the number of patients and payors. INTERCOMPANY LIABILITIES Intercompany liabilities represent, in part, the net excess of funds transferred to or paid on behalf of the Hospitals over funds transferred to the centralized cash management account of Columbia. Generally, this balance is increased by automatic cash transfers from the account to reimburse the Hospitals' bank accounts for operating expenses and to pay the Hospitals' debt, completed construction project additions, fees and services provided by Columbia and other operating expenses, such as payroll, interest, insurance, and income taxes. Generally, the balance is decreased through daily cash deposits by the Hospitals to the account. Management fees represent an allocation of home office and regional expenses of Columbia. 9 Paracelsus Healthcare Corporation Notes to Combined Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) At December 31, 1995 and 1994, intercompany balances also include certain long-term debt balances amounting to $29,616,000 and $33,553,000, respectively, which were allocated to the Hospitals by Columbia. All principal and interest payments on the debt allocated from Columbia are made by the Hospitals through Columbia. The Hospitals were charged interest on the allocated debt at rates ranging from 10% to 11.9% during 1995 and 1994. INVENTORIES Inventories consisting of drugs and other supplies are stated at cost (first-in, first-out method) which is not in excess of market. PROPERTY AND EQUIPMENT Depreciation is computed by the straight-line method over the estimated useful life of the assets. Depreciation rates for buildings and improvements are equivalent to useful lives ranging generally from 10 to 20 years. Estimated useful lives of equipment vary generally from 4 to 10 years. INCOME TAXES Columbia files consolidated federal and state income tax returns which include the accounts of the Hospitals. The provision for income taxes is determined utilizing maximum federal and state statutory rates applied to income before income taxes adjusted for certain items which are not deductible. Income tax benefits or liabilities are reflected in the intercompany liabilities. All income tax payments are made by the Hospitals through Columbia. GENERAL AND PROFESSIONAL LIABILITY RISKS Columbia assumes the liability for all general and professional liability claims incurred and maintains the related reserve; accordingly, no reserve for liability risks is recorded on the accompanying combined balance sheets. Prior to April 24, 1995, Columbia maintained self-insurance coverage for general and professional liability risks of the Hospitals. Davis Hospital and Medical Center maintained reserves for general and professional liability risk up to certain deductible limits during 1994. Costs attributable to the Hospitals were allocated based on actuarially determined estimates. Effective April 24, 1995, the cost of general and professional liability coverage were allocated by Columbia's captive insurance company to the Hospitals based on actuarially determined estimates. The cost for 1995 and 1994 was approximately $1,137,000 and $1,046,000, respectively. 10 Paracelsus Healthcare Corporation Notes to Combined Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Hospitals participate in a self-insured program for workers' compensation and health insurance administered by Columbia. The cost, based on the Hospitals' experience, was approximately $2,826,000 and $1,798,000 for 1995 and 1994, respectively. LITIGATION AND OTHER MATTERS The Hospitals are subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material effect on the Hospitals' financial position, results of operations or cash flows. 3. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment is as follows: DECEMBER 31 1995 1994 ----------------- (IN THOUSANDS) Land and improvements $ 1,824 $ 1,831 Buildings and improvements 40,507 39,825 Equipment 45,957 41,938 ----------------- 88,288 83,594 Less accumulated depreciation 39,363 34,493 ----------------- 48,925 49,101 Construction in progress 290 1,622 ----------------- $49,215 $50,723 ----------------- ----------------- 4. RETIREMENT PLANS The Hospitals participate in Columbia's defined contribution retirement plans, which cover substantially all employees. Benefits are determined primarily as a percentage of a participant's earned income. Retirement expense was approximately $1,293,000 in 1995 and $1,676,000 in 1994. 11 Paracelsus Healthcare Corporation Notes to Combined Financial Statements (continued) 5. LEASES Operating lease rental expense relating primarily to the rental of buildings and equipment was approximately $3,367,000 and $2,662,000 in 1995 and 1994, respectively. Future minimum rental commitments under noncancelable operating leases (with an initial or remaining term in excess of one year) at December 31, 1995, are as follows (in thousands): 1996 $ 3,133 1997 3,069 1998 3,048 1999 2,666 2000 1,774 Thereafter 9,098 ------- Total minimum rental commitments $22,788 ------- ------- 6. PREPAID LEASE Santa Rosa Medical Center is party to a prepaid lease agreement with Santa Rosa County to lease certain real property and improvements. Effective September 1, 1994, the initial 20-year lease term, scheduled to terminate in the year 2005, was extended to the year 2025 for $2,000,000. In connection with the lease extension, Santa Rosa Medical Center agreed to make capital improvements through December 31, 2004, aggregating not less than $5,000,000. Leasehold value in the accompanying combined balance sheets represents the difference between market rent and contract rent, discounted to present value over the initial lease term, at the date of acquisition of the Hospital by HTI. Leasehold value is being amortized over the remaining initial lease term on a straight-line basis. 7. AFFILIATED COMPANIES The Hospitals incur expenses for management services provided by Columbia. Due to the related nature of these entities, the amounts paid may not have been the same if similar activities had been undertaken with unrelated parties. 12 PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS The following tables present the Paracelsus Unaudited Pro Forma Condensed Combining Balance Sheet as of March 31, 1996, and the Paracelsus Unaudited Pro Forma Condensed Combining Statements of Income for the six months ended March 31, 1996, and the fiscal year ended September 30, 1995, to illustrate the effect of the acquisition of Pioneer Valley Hospital ("Pioneer"), a 139-bed hospital in West Valley City, Utah, Davis Hospital and Medical Center ("Davis"), a 120-bed hospital in Layton, Utah, and Santa Rosa Medical Center ("Santa Rosa"), a 129-bed hospital in Milton, Florida (Pioneer, Davis and Santa Rosa, collectively, the "Columbia Hospitals"), on May 17, 1996. The Paracelsus Unaudited Pro Forma Condensed Combining Balance Sheet assumes that the acquisition of the Columbia Hospitals occurred on March 31, 1996, and the Paracelsus Unaudited Pro Forma Combining Income Statements assume that the acquisition of the Columbia Hospitals occurred at the beginning of each period. Paracelsus acquired the Columbia Hospitals from Columbia Healthcare Corporation ("Columbia") for consideration consisting of $38,500,000 in cash and the exchange of the Paracelsus' Peninsula Medical Center ("Peninsula"), a 119-bed hospital in Ormond Beach, Florida, the Elmwood Medical Center ("Elmwood"), a 135-bed hospital in Jefferson, Louisiana, and the Halstead Hospital ("Halstead"), a 190-bed hospital in Halstead, Kansas (Peninsula, Elmwood and Halstead collectively, the "Exchanged Hospitals"). The acquisition was accounted for as a purchase transaction. Paracelsus financed the cash portion of the acquisition of the Columbia Hospitals from borrowings under its Credit Facility. Paracelsus also purchased the real property of Elmwood and Halstead from a real estate investment trust ("REIT"), exchanged the Elmwood and Halstead real properties with Columbia for Pioneer's real property, and sold Pioneer's real property to the REIT (the "Real Property Purchase and Sale Transaction"). 13 PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME FOR THE SIX MONTHS ENDED MARCH 31, 1996 (DOLLARS IN THOUSANDS)
Paracelsus Columbia Pro Forma Paracelsus Historical Hospitals Adjustments Pro Forma ------------------------------------------------- Total operating revenues $260,590 $54,999 $(49,963)(1) $265,626 Costs and expenses: Salaries and benefits 113,162 21,096 (22,271)(1) 111,987 Supplies 19,363 7,769 (5,528)(1) 21,604 Purchased services 34,174 5,301 (5,689)(1) 33,786 Provision for bad debts 20,191 3,264 (2,468)(1) 20,987 Other operating expenses 46,906 12,849 (13,362)(2) 46,393 Depreciation and amortization 7,972 3,134 (2,831)(3) 8,275 Interest 7,685 1,377 (199)(4) 8,863 Settlement costs 22,356 - - 22,356 ----------------------------------------------- Total costs and expenses 271,809 54,790 (52,348) 274,251 ----------------------------------------------- Income (loss) before minority interests and income taxes (11,219) 209 2,385 (8,625) Minority interests (1,072) - - (1,072) ----------------------------------------------- Income (loss) before income taxes (12,291) 209 2,385 (9,697) Income taxes (benefit) (5,040) 86 978 (5) (3,976) ----------------------------------------------- Net income (loss) $ (7,251) $123 $1,407 $ (5,721) ----------------------------------------------- -----------------------------------------------
See notes to Paracelsus unaudited pro forma condensed combining financial statements. 14 PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 (DOLLARS IN THOUSANDS)
Paracelsus Columbia Pro Forma Paracelsus Historical Hospitals Adjustments Pro Forma ------------------------------------------------- Total operating revenues $509,729 $105,307 $(96,694)(1) $518,342 Costs and expenses: Salaries and benefits 209,672 39,088 (40,994)(1) 207,766 Supplies 40,780 14,680 (10,639)(1) 44,821 Purchased services 58,113 10,158 (8,375)(1) 59,896 Provision for bad debts 39,277 7,515 (4,895)(1) 41,897 Other operating expenses 99,777 17,776 (20,252)(2) 97,301 Depreciation and amortization 17,276 5,570 (4,960)(3) 17,886 Interest 15,746 3,280 (379)(4) 18,647 Restructuring and unusual charges 5,150 - - 5,150 ----------------------------------------------- Total costs and expenses 485,791 98,067 (90,494) 493,364 ----------------------------------------------- Income before minority interests and income taxes 23,938 7,240 (6,200) 24,978 Minority interests (1,927) - - (1,927) ----------------------------------------------- Income (loss) before income taxes 22,011 7,240 (6,200) 23,051 Income taxes (benefit) 9,024 2,869 (2,542)(5) 9,351 ----------------------------------------------- Net income (loss) $ 12,987 $ 4,371 $ (3,658) $ 13,700 ----------------------------------------------- -----------------------------------------------
See notes to Paracelsus unaudited pro forma condensed combining financial statements. 15 PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET MARCH 31, 1996 (DOLLARS IN THOUSANDS)
Paracelsus Columbia Pro Forma Paracelsus Historical Hospitals Adjustments Pro Forma ------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,149 $ 206 $ (206)(6) $ 3,149 Marketable securities 10,051 - - 10,051 Accounts receivable, less allowance for uncollectibles 100,121 15,664 (15,770)(6)(7) 100,015 Supplies 10,634 2,019 (3,001)(6)(7) 9,652 Deferred income taxes 26,463 - 26,463 Other current assets 4,798 1,040 (920)(6)(7) 4,918 ------------------------------------------------- Total current assets 155,216 18,929 (19,897) 154,248 Property and equipment, net of accumulated depreciation and amortization 165,729 47,561 (17,481)(8) 195,809 Other assets 47,271 12,781 (2,198)(6)(8) 57,854 ------------------------------------------------- Total assets $368,216 $79,271 $(39,576) $407,911 ------------------------------------------------- ------------------------------------------------- LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable and other current liabilities $ 76,615 $ 8,750 $ (7,954)(6)(7) $ 77,411 Current maturities of long-term debt and capital lease obligations 5,186 - (4,728)(4) 458 ------------------------------------------------- Total current liabilities 81,801 8,750 (12,682) 77,869 Long-term debt and capital lease obligations, less current maturities 139,475 - 43,627 (4) 183,102 Deferred income taxes 24,607 - 24,607 Other long-term liabilities 25,968 36,324 (36,324)(6) 25,968 Shareholder's equity 96,365 34,197 (34,197)(6) 96,365 ------------------------------------------------- Total liabilities and shareholder's equity $368,216 $79,271 $(39,576) $407,911 ------------------------------------------------- -------------------------------------------------
See notes to Paracelsus unaudited pro forma condensed combining financial statements. 16 NOTES TO PARACELSUS UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS (1) To remove the historical operating results of the Exchanged Hospitals. (2) To adjust other operating expenses for the exchange of the Exchanged Hospitals, the acquisition, sale and leaseback of the Pioneer real property, and the net change in allocated corporate overhead. Other operating expenses are estimated to decrease on a pro forma basis as follows (in thousands): SIX MONTHS FISCAL YEAR ENDED ENDED MARCH 31, SEPTEMBER 30, 1996 1995 ----------------------- Operating expenses related to Paracelsus Hospitals $(10,454) $(21,518) Payments under operating lease arrangement to REIT 3,526 7,051 Decrease in Columbia Hospitals allocated corporate overhead (6,434) (5,785) -------------------- Pro forma adjustment $(13,362) $(20,252) -------------------- -------------------- Paracelsus assumed there would be no incremental increase in corporate overhead as a result of the acquisition of the Columbia Hospitals because the overall corporate allocation is expected to be the same. 17 (3) To adjust depreciation and amortization based on the revaluation of the acquired depreciable assets to fair value and the increase in Goodwill in connection with the purchase price allocation (see Note 8). The acquired assets are estimated to have an average useful life of approximately 18 years based on an allocation of the appraised values of the assets acquired and the useful lives of such assets in accordance with Paracelsus' depreciation policy (35 years, 20 years and 10 years for buildings, improvements, and equipment, respectively). The Goodwill is estimated to have a useful life of 20 years. Depreciation and amortization are estimated to decrease on a pro forma basis, as follows (in thousands):
SIX MONTHS FISCAL YEAR ENDED ENDED MARCH 31, SEPTEMBER 30, 1996 1995 -------------------------- Depreciation expense related to the Exchanged Hospitals $(1,693) $(3,381) Excess historical depreciation and amortization expense for the Columbia Hospitals acquired over the depreciation and amortization of the fair value of the Columbia Hospitals' assets acquired (1,138) (1,579) -------------------------- Pro forma adjustment $(2,831) $(4,960) -------------------------- --------------------------
The net decrease in historical cost depreciation and amortization for each of the periods presented resulted from the acquisition, sale and leaseback of the Pioneer real property (See Note 2). (4) To record the pro forma increase in the Credit Facility and related interest expense as a result of the acquisition of the Columbia Hospitals. The acquisition of the Columbia Hospitals assumes an increase in the principal amount outstanding under the Credit Facility by $43,627,000. Such amount is comprised of $38,500,000 in cash consideration, $1,626,000 for payment of closing costs, $4,728,000 to refinance current maturities of long-term debt of the Paracelsus Hospitals not assumed by Columbia, offset in part by a payment from Columbia of $1,764,000 for a net working capital deficit assumed by Paracelsus, net of a $537,000 payment for a note receivable acquired (included in Other Assets). The average interest rates in effect under the Credit Facility for the six months ended March 31, 1996, and the fiscal year ended September 30, 1995, were 6.60% and 7.90%, respectively. Interest expense on a pro forma basis decreased, as follows (in thousands):
SIX MONTHS FISCAL YEAR ENDED ENDED MARCH 31, SEPTEMBER 30, 1996 1995 -------------------------- Increase in interest expense to finance the acquisition of the Columbia Hospitals $ 1,440 $ 3,447 Interest expense on the Columbia Hospitals debt not assumed by Paracelsus (1,377) (3,280) Interest expense on the Exchanged Hospitals debt assumed by Columbia (262) (546) -------------------------- Pro forma adjustment $ (199) $ (379) -------------------------- --------------------------
18 (5) To reflect the pro forma provision for income taxes at the statutory rate (41%) giving effect to the Columbia Hospitals acquired and the Exchanged Hospitals divested. (6) To remove the assets not acquired, liabilities not assumed and the shareholder's equity of the Columbia Hospitals acquired. (7) To remove the assets and liabilities of the Exchanged Hospitals as partial consideration for the Columbia Hospitals acquired. (8) To record the acquisition of the Columbia Hospitals using the purchase method of accounting, including adjustment of the balance sheet of the Columbia Hospitals acquired to reflect the estimated fair values of property and equipment acquired in excess of the carrying values. The purchase price allocation reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet is based upon an independent appraisal. The following table summarizes the calculation of the purchase price allocation (in thousands): Total cash consideration, including estimated closings costs $ 40,126 (See Note 4) Fair value of the Exchanged Hospitals transferred to Columbia 31,761 -------- Total estimated purchase price 71,887 Columbia's basis in property and equipment transferred to Paracelsus (47,561) -------- Excess purchase price 24,326 Purchase price allocated to Goodwill (13,069) -------- Purchase price allocated to property and equipment 11,257 Basis of the Exchanged Hospitals transferred to Columbia (28,738) Net pro forma adjustment $(17,481) ------- Purchase price allocated to Goodwill $ 13,069 Less: Basis in Goodwill of the Exchanged Hospitals (3,023) Columbia Hospitals long-term net assets not acquired (12,244) ------- Net pro forma adjustment $ (2,198) ------- ------- The Real Property Purchase and Sale Transaction was accounted for as an exchange of assets between Paracelsus, Columbia and the REIT which had no effect on the Paracelsus Unaudited Pro Forma Condensed Combining Balance Sheet. 19 -----END PRIVACY-ENHANCED MESSAGE-----