UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): July 2, 1999
Commission file number 001-12055
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
(Address of principal executive offices)
77067 (281) 774-5100
(Zip Code) (Registrant's telephone number,
including area code)
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Paracelsus Healthcare Corporation ("the Company")entered into two asset
purchase agreements, dated March 15, 1999 and as amended April 14, 1999, for
the sale of substantially all of the assets of four skilled nursing
facilities (collectively, the "Convalescent Hospitals"), with 232-licensed beds
located in California, to Sunland Associates, Inc. ("Sunland"), a Tennessee
corporation. The transaction, which was effective on June 30, 1999, was
completed on July 2, 1999. The sales price of approximately $6.9 million
resulted from an arms-length negotiation and excluded the sale of net working
capital. The sales price was paid by a combination of $3.0 million in cash and
a $3.9 million second lien promissory note. The note, bearing interest at 9%
per annum, matures on June 30, 2004, and is subject to prepayment discounts.
Additionally, Sunland also assumed an operating lease at one of the
facilities. In connection with the sale, the Company paid $1.0 million to
terminate a lease agreement at one of the facilities and used the remaining
$2.0 million of cash proceeds from the sale to reduce its outstanding
indebtedness under its senior credit agreement. The Company expects to record
a gain of approximately $1.3 million ($774,000 net of tax) on the sale of the
facilities.
On April 15, 1999, the Company completed the sale of the stock of Paracelsus
Bledsoe County General Hospital, Inc.("Bledsoe"), which operated a 32
licensed-bed Facility located in Pikeville, Tennessee, to Associates Capital
Group, LLC ("ACG"), a Georgia limited liability company. The sales price of
approximately $2.2 million resulted from an arms-length negotiation and
included the sale of net working capital. The sales price was paid by a
combination of $100,000 in cash and the issuance by the Buyer of a $494,000
secured promissory note ("Note A"), a $1.0 million secured promissory note
("Note B") and a $642,000 thirty-day promissory note, which was paid in
May 1999. The notes are secured by all outstanding common
stock and assets of Bledsoe. Note A may be adjusted for any increase or
decrease from a final adjustment of net working capital as of the effective
date. The Company recorded no material gain or loss on the sale.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
In addition to reflecting the sales of the Convalescent Hospitals and
Bledsoe, the pro forma financial information required by Item 7(b) also
reflects the Company's sale of Chico Community Hospital and Chico
Community Rehabilitation Hospital (collectively "Chico") on June 30, 1998,
and the Company's acquisition of Dakota Medical Foundation's (the
"Foundation") 50% partnership interest in a general partnership operating as
Dakota Heartland Health System ("DHHS") on July 1, 1998, and the sale of
eight hospitals located in metropolitan Los Angeles ("LA Metro") on September
30, 1998.
(b) Unaudited Pro Forma Financial Information (attached following the
signature page):
Unaudited Pro Forma Condensed Combining Statement of Operations -
For the quarter ended March 31, 1999
Unaudited Pro Forma Condensed Combining Statement of Operations -
For the year ended December 31, 1998
Unaudited Pro Forma Condensed Combining Balance Sheet - March 31, 1999
Notes to Unaudited Pro Forma Condensed Combining Financial Statements
(c) Exhibits
10.20 Asset Purchase Agreement dated March 15, 1999, by and among
Paracelsus Convalescent Hospitals, Inc., Paracelsus Real Estate Corporation and
Sunland Associates, Inc.
10.21 Amendment One to Asset Purchase Agreement, dated April 14, 1999,
by and among Paracelsus Convalescent Hospitals, Inc., Paracelsus Real Estate
Corporation and Sunland Associates, Inc.
3
10.22 Rheem Valley Asset Purchase Agreement, dated March 15, 1999, by
and among Paracelsus Convalescent Hospitals, Inc., Paracelsus Real Estate
Corporation and Sunland Associates, Inc.
10.23 Amendment One to Rheem Valley Asset Purchase Agreement, dated
April 14, 1999, by and among Paracelsus Convalescent Hospitals, Inc.,
Paracelsus Real Estate Corporation and Sunland Associates, Inc.
PAGE> 4
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 HealthcareCorporation
(Registrant)
Dated: July 16, 1999 By: /S/ JAMES G. VANDEVENDER
-----------------------------
James G. VanDevender
Chief Executive Officer
& Director
5
ITEM 7(b)
PARACELSUS HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following table presents the Unaudited Pro Forma Condensed Combining
Financial Statements as of and for the quarter ended March 31, 1999 and year
ended December 31, 1998 to illustrate the effect of the sales of the
Convalescent Hospitals effective June 30, 1999, Bledsoe effective on
March 31, 1999, LA Metro on September 30, 1998 and Chico on June 30, 1998 and
the acquisition of DHHS on July 1, 1998. The Unaudited Pro Forma Condensed
Combining Statements of Operations assume the above transactions occurred at
the beginning of each period presented. The Pro Forma Condensed Combining
Balance Sheet assumes the sale of the Convalescent Hospitals and Bledsoe
occurred on March 31, 1999.
On July 2, 1999 the Company completed the sale of substantially all of the
assets, excluding net working capital, of the Convalescent Hospitals for
approximately $6.9 million. The sales price was paid by a combination of $3.0
million in cash and a $3.9 million second lien promissory note. The note,
bearing interest at 9% per annum, matures on June 30, 2004, and is subject to
prepayment discounts. Additionally, Sunland also assumed an operating lease at
one of the facilities. In connection with the sale, the Company paid $1.0
million to terminate a lease agreement at one of the facilities and used the
remaining $2.0 million of cash proceeds from the sale to reduce its outstanding
indebtedness under its senior credit agreement. The Company expects to
record a gain of approximately $1.3 million ($774,000 net of tax) on the sale
of the facilities.
On April 15, 1999, the Company completed the sale of Bledsoe for approximately
$2.2 million, which included the purchase of net working capital and was paid
by a combination of $100,000 in cash and the issuance by ACG of a $494,000
secured promissory note("Note A"), a $1.0 million secured promissory note
("Note B") and a $642,000 thirty-day promissory note, which was paid in
May 1999. The notes are secured by all outstanding common stock and assets
of Bledsoe. Note A may be adjusted for any increase or decrease of net working
capital and certain other adjustments.
These Unaudited Pro Forma Condensed Combining Financial Statements do not
purport to present the financial position or results of operations of the
Company had the above transactions occurred on the dates specified, nor are
they necessarily indicative of results of operations that may be expected in
the future. The Unaudited Pro Forma Condensed Combining Financial Statements
are qualified in their entirety by reference to, and should be read in
conjunction with, the unaudited consolidated financial statements as of and for
the quarter ended March 31, 1999, included in the Company's Quarterly Report on
Form 10-Q and the audited consolidated financial statements for the year ended
December 31, 1998, included in the Company's Annual Report on Form 10-K.
6
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1999
(Dollars in thousands, except per share data)
Convalescent
Paracelsus Bledsoe Pro Forma Hospitals
Healthcare Pro Forma Bledsoe Pro Forma Pro Forma
Corporation Adjustments Rf Disposition Adjustments Rf Paracelsus
----------- ----------- -- ----------- ----------- -- ----------
(1)
Net revenue $ 150,944 $ (1,964) (2) $ 148,980 $ (2,252) (4) $146,728
Costs and expenses: (3)
Salaries and
benefits 58,965 (1,115) (2) 57,850 (1,537) (4) 56,313
Other operating
expense 58,085 (818) (2) 57,267 (702) (4) 56,565
Provision for
bad debts 12,398 (125) (2) 12,273 12,273
Interest 13,104 13,104 (42) (4) 13,062
Depreciation & (5)
amortization 9,815 (48) (2) 9,767 (49) (4) 9,718
Unusual items 1,123 1,123 1,123
--------- ------- --------- ------- -------
Total costs &
expenses 153,490 (2,106) 151,384 (2,330) 149,054
--------- ------- --------- ------- -------
Loss before
minority interest
and income taxes (2,546) 142 (2,404) 78 (2,326)
Minority interest 63 63 63
--------- ------- --------- -------- -------
Loss before
income taxes (2,483) 142 (2,341) 78 (2,263)
Provision for
income taxes (897) 58 (6) (839) 32 (6) (807)
--------- ------- --------- -------- -------
Loss from continuing
operations $ (1,586) $ 84 $ (1,502) $ 46 $(1,456)
========= ======== ========= ======== ========
Loss per share
- - basic and
assuming
dilution $ (0.03) $ (0.03) $ (0.03)
========= ========= =========
Weighted average
number of common
and common
equivalent
shares 55,118 55,118 55,118
========= ========= ==========
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
7
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in thousands, except per share data)
Paracelsus Chico Pro Forma DHHS Pro Forma
Healthcare Pro Forma Chico Pro Forma Chico/
Corporation Adjustments Rf Disposition Adjustments Rf DHHS
----------- ----------- -- ----------- ----------- -- ----------
(1)
Net revenue $ 664,058 $(18,873) (7) $645,185 $645,185
Costs and expenses:
Salaries and
benefits 276,200 (8,217) (7) 267,983 267,983
Other operating
expense 265,735 (6,475) (7) 259,260 259,260
Provision for
bad debts 42,659 (355) (7) 42,304 42,304
Interest 51,859 (1,257) (5) 50,602 $ 2,983 (5) 53,585
Depreciation &
amortization 38,330 (758) (7) 37,572 486 (8) 38,058
Impairment charges 1,417 1,417 1,417
Unusual items (6,637) (6,637) (6,637)
(Gain)loss on sale of
facilities (6,825) 7,100 (7) 275 275
--------- ------- --------- ------- -------
Total costs &
expenses 662,738 (9,962) 652,776 3,469 656,245
--------- ------- --------- ------- -------
Income (loss) before
minority interest
and income taxes 1,320 (8,911) (7,591) (3,469) (11,060)
Minority interest (3,180) (3,180) 4,141 (9) 961
--------- ------- --------- ------- -------
Loss before
income taxes (1,860) (8,911) (10,771) 672 (10,099)
Provision for
income taxes 693 (3,653) (6) (2,960) 275 (6) (2,685)
--------- ------- --------- ------- -------
Loss from continuing
operations $ (2,553) $(5,258) $ (7,811) $ 397 $ (7,414)
========= ======== ========= ======= =========
Loss per share
- - basic and
assuming
dilution $ (0.05) $ (0.14) $ (0.13)
========== ========= =========
Weighted average
number of common
and common
equivalent
shares 55,108 55,108 55,108
========= ========= ==========
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
8
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in thousands, except per share data)
Pro Forma
LA Metro Pro Forma Bledsoe Chico/DHHS/
Pro Froma Pro Forma Chico/DHHS/ Pro Forma LA Metro/
Chico/DHHS Adjustments Rf LA Metro Adjustments Rf Bledsoe
----------- ----------- ---- ----------- ----------- -- ---------
(1)
Net revenue $645,185 $(58,000) (10)(11) $587,185 $ (9,717) (2)(3)$577,468
Costs and expenses:
Salaries and
benefits 267,983 (25,672) (10) 242,311 (7,465) (2) 234,846
Other operating
expense 259,260 (31,333) (10) 227,927 (3,737) (2) 224,190
Provision for
bad debts 42,304 (1,915) (10) 40,389 (403) (2) 39,986
Interest 53,585 (733) (5)(10) 52,852 52,852
Depreciation &
amortization 38,058 38,058 (275) (2) 37,783
Impairment charges 1,417 1,417 (1,104) (2) 313
Unusual items (6,637) (233) (10) (6,870) (6,870)
Loss on sale
of facilities 275 275 275
--------- ------- --------- ------- -------
Total costs &
expenses 656,245 (59,886) 596,359 (12,984) 583,375
--------- ------- --------- ------- -------
Loss before minority
interest and
income taxes (11,060) 1,886 (9,174) 3,267 (5,907)
Minority interest 961 (961) (10)
--------- ------- --------- ------- -------
Loss before
income taxes (10,099) 925 (9,174) 3,267 (5,907)
Provision for
income taxes (2,685) 379 (6) (2,306) 1,340 (6) (966)
-------- ------- --------- ------- -------
Loss from continuing
operations $(7,414) $ 546 $ (6,868) $ 1,927 $ (4,941)
======== ======== ========= ======= =========
Loss per share
- - basic and
assuming
dilution $ (0.13) $ (0.12) $ (0.09)
========= ======== =========
Weighted average
number of common
and common
equivalent
shares 55,108 55,108 55,108
========= ======== =========
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
9
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED
COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in thousands, except per share data)
Pro Forma Convalescent
Chico/DHHS/ Hospitals
LA Metro/ Pro Forma Pro Forma
Bledsoe Adjustments Rf Paracelsus
----------- ------------ ---- ----------
(1)
Net revenue $ 577,468 $ (8,914) (4) $ 568,554
Costs and expenses:
Salaries and
benefits 234,846 (6,025) (4) 228,821
Other operating
expense 224,190 (2,507) (4) 221,683
Provision for
bad debts 39,986 70 (4) 40,056
Interest 52,852 (242) (4)(5) 52,610
Depreciation &
amortization 37,783 (191) (4) 37,592
Impairment charges 313 313
Unusual items (6,870) (6,870)
Loss on sale
of facilities 275 275
---------- ----------- ----------
Total costs &
expenses 583,375 (8,895) 574,480
---------- ----------- ----------
Loss before minority
interest and
income taxes (5,907) (19) (5,926)
Minority interest
---------- ----------- ----------
Loss before
income taxes (5,907) (19) (5,926)
Provision for
income taxes (966) (8) (6) (974)
---------- ----------- ----------
Loss from continuing
operations $ (4,941) $ (11) $ (4,952)
========== =========== ==========
Loss per share
- - basic and
assuming
dilution $ (0.09) $ (0.09)
========== ==========
Weighted average
number of common
and common
equivalent
shares 55,108 55,108
========== ==========
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
10
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING
BALANCE SHEET
MARCH 31, 1999
(Dollars in thousands)
Convalescents
Paracelsus Hospitals
Healthcare Pro Forma Pro Forma
Corporation Adjustments Rf Paracelsus
----------- ------------ -- ----------
ASSETS: (1)
Current assets:
Cash and cash equivalents $ 5,645 $ (55) (12) $ 5,590
Restricted cash 6,736 6,736
Accounts receivable, net 54,561 54,561
Deferred income taxes 9,641 9,641
Other 48,137 48,137
-------- ------ --------
Total current assets 124,720 (55) 124,665
-------- ------ --------
Property and equipment, net 361,223 (3,213) (12) 358,010
Goodwill 135,699 135,699
Other assets 85,193 2,712 (12) 87,905
-------- ------ --------
Total assets $706,835 $ (556) $706,279
======== ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 45,484 $ 45,484
Accrued liabilities
and other 42,824 670 (12) 43,494
Current maturities
of long-term debt 5,451 5,451
-------- ------ --------
Total current liabilities 93,759 670 94,429
-------- ------ --------
Long term debt 541,246 (2,000) (5) 539,246
Other long-term liabilities 39,075 39,075
Stockholders' equity
Common stock 222,977 222,977
Additional paid-in capital 390 390
Accumulated deficit (190,612) 774 (12) (189,838)
-------- ------ --------
Total stockholders'
equity 32,755 774 33,529
-------- ------ -------
Total liabilities
& stockholders' equity $706,835 $ (556) $706,279
======== ====== ========
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
11
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following is a summary of the pro forma adjustments by line item.
Reference to
Notes to
Pro Forma
Financial
Statements Explanations
- ----------- -------------------------------------------------------------------
(1) The statements of operations and balance sheet for Paracelsus
Healthcare Corporation as of and for the quarter ended March 31, 1999 are
summarized from its March 31, 1999 Quarterly Report on Form 10-Q. The statement
of operations for the year ended December 31, 1998 are summarized from its 1998
Annual Report on Form 10-K.
(2) To remove Bledsoe's historical results of operations (including an
impairment charge of $1.1 million relating to the write-down of certain assets
in the fourth quarter of 1998.)
(3) To record pro forma interest income of $30,000 and $120,000 for the
quarter ended March 31, 1999 and the year ended December 31, 1998,
respectively, on $494,000 of Note A and $1.0 million of Note B issued by ACG in
conjunction with the Bledsoe sale. The thirty-day non interest bearing
promissory note of $642,000 was paid in May 1999. The terms of Notes A
and B were discussed in a previously filed current report on Form 8-K dated
April 15, 1999, which is incorporated herein by reference.
(4) To remove the Convalescent Hospitals' historical results of operations and
assets sold (excluding net working capital) in connection with the sale of the
facilities to Sunland. The Company expects to record a gain of $1.3 million
($774,000 net of tax) on the sale of the facilities (see note reference (12)).
(5) To record interest expense on (i) the net pro forma increase in the
Credit Facility resulting from the Company's acquisition of the Foundation's
50% interest in DHHS, less net proceeds from the sale of the Convalescent
hospitals, Chico and LA Metro, and (ii) the pro forma decrease in amounts
outstanding under the Company's credit facility and under the Company's off
balance sheet receivable financing program as a result of the sale of Chico
and LA Metro accounts receivable, certain accounts of which served as
collateral under the program.
With respect to the sale of the Convalescent Hospitals, the Unaudited Pro
Forma Condensed Combining Statements of Operations and Balance Sheet assume
$2.0 million in net sales proceeds were used to reduce amounts outstanding
under the credit facility. The average interest rate in effect under the Credit
Facility was 8.4% for the quarter ended March 31, 1999 and 9.0% for the year
ended December 31, 1998.
With respect to the Chico sale effective June 30, 1998, the Unaudited
Pro Forma Condensed Combining Statement of Operations assumes $24.6 million in
net sales proceeds were used to reduce amounts outstanding under the credit
facility and $3.1 million in net sales proceeds were used to reduce amounts
outstanding under the Company's off balance sheet receivable financing program.
The average interest rate in effect under the Credit Facility was 9.2% for the
six months ended June 30, 1998. The average interest rate in effect under the
commercial paper program was 6.7% for the six months ended June 30, 1998.
12
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following is a summary of the pro forma adjustments by line item.
Reference to
Notes to
Pro Forma
Financial
Statements Explanations
- ----------- -------------------------------------------------------------------
With respect to sale of LA Metro effective September 30, 1998, the
Unaudited Pro Forma Condensed Combining Statement of Operations assumes $4.2
million in net sales proceeds were used to reduce amounts outstanding under the
credit facility and a $9.3 million in net sales proceeds were used to reduce
amounts outstanding under the Company's off balance sheet receivable financing
program. The average interest rate in effect under the Credit Facility was
9.1% for the nine months ended September 30, 1998. The average interest rate
in effect under the commercial paper program was 6.7% for the nine months ended
September 30, 1998.
With respect to DHHS, the Unaudited Pro Forma Condensed Combining
Statement of Operations assumes the Company increased the principal amount
outstanding under the credit facility by $65.0 million. The interest rate in
effect under the credit facility was 9.2% for the six months ended June 30,
1998.
(6) To record the pro forma provision for income taxes after taking into
effect the sale of the Convalescent Hospitals, Bledsoe, LA Metro and Chico and
the consolidation of DHHS pursuant to the Company's acquisition of DHHS. The
income tax provision on the pro forma adjustments was calculated using the
statutory tax rate of 41.0%.
(7) To remove Chico's historical results of operations and the gain on sale
of the Chico facilities.
(8) To adjust depreciation and amortization expense for the step up in basis
for the depreciable assets of DHHS and the increase in goodwill in connection
with the allocated purchase price. The acquired assets have an average
remaining useful life of approximately 20 years based on the Company's
depreciation policy (35 years, 20 years and 10 years for buildings,
improvements and equipment, respectively). Goodwill, which represents cost in
excess of fair market value of net assets acquired, of $24.7 million is
amortized on a straight line basis over a 20-year period.
(9) To remove minority interest in DHHS for the six months ended June 30,
1998.
(10) To remove LA Metro's historical results of operations (including an
unusual charge of $233,000).
(11) To record pro forma interest income of $1.4 million for the year ended
December 31, 1998 on $9.9 million of secured promissory notes and a secured
second lien subordinated note of $3.8 million issued by the purchaser in
conjunction with the LA Metro sale. The principal amounts and terms of the
notes were discussed in a previously filed current report on Form 8-K dated
September 30, 1998, which is incorporated herein by reference.
13
PARACELSUS HEALTHCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following is a summary of the pro forma adjustments by line item.
Reference to
Notes to
Pro Forma
Financial
Statements Explanations
- ----------- -------------------------------------------------------------------
(12) To record estimated gain to the sale of the Convalescent Hospitals as
followed:
Cash Proceeds $3,000,000
Promissory note, net of prepayment
discount of $650,000 3,250,000 (a)
----------
Total Consideration 6,250,000
----------
Transaction costs:
Legal, severances, bonuses
and other closing costs 725,000 (c)
Lease termination 1,000,000
----------
1,725,000
----------
Assets sold:
Property & equipment 3,213,000
----------
Pre-tax gain on sale 1,312,000
Income tax provision 538,000 (b)
----------
Gain on sale, net of tax $ 774,000
==========
(a) The second lien promissory note is secured by the properties of three
of the Convalescent Hospitals. The note bears interest of 9% annually and
matures on June 30, 2004. Payments of interest only are due and payable on the
last day of each month beginning with July 31, 1999. Monthly payments of
principal and interest of $35,000 are payable beginning June 30, 2000, based on
a 20-year amortization period, with all outstanding principal balance payable on
June 30, 2004. The note is subject to prepayment discount of varying
decreasing amounts if paid within 12 to 30 months of issue.
(b) The tax effect of gain on sale is reflected as a reduction of deferred
tax assets in the Unaudited Pro Forma Condensed Combining Balance Sheet as of
March 31, 1999.
(c) Transaction costs include $55,000 of cash paid for miscellaneous
closing costs and $670,000 of severances, bonuses and others reflected as
accrued liabilities in the Unaudited Pro Forma Condensed Combining Balance
Sheet as of March 31, 1999.