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): September 30, 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 500, 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 a stock
purchase agreement, dated September 14, 1999, for the sale of Paracelsus
Senatobia Community, Inc. ("Senatobia"), which owned and operated a 76 bed
acute care hospital located in Mississippi, to Associates Capital Group, LLC
("ACG"), a Georgia limited liability company. The transaction was completed on
September 30, 1999.
The sales price of approximately $4.7 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, $1.6 million of second lien
promissory notes, and the assumption by ACG of approximately $3.0 million in
capital lease obligations and of certain lease guaranty payments. The notes
included (i) a short-term working capital note of $380,000("Note A"), which
bears no interest and matures on November 29, 1999, and (ii) a working capital
note of $320,000 ("Note B") and a secured promissory note of $855,000 ("Note
C"), both of which bear interest of 8% per annum and mature on September 30,
2002 and 2004, respectively. Notes A and B are subject to final working capital
adjustments. Additionally, Notes B and C are subject to certain discounts
under certain circumstances. Notes B and C are secured by all the outstanding
shares of common stock and assets of Senatobia. The Company expects to record
a gain of approximately $2.3 million ($1.3 million net of tax) on the sale of
Senatobia.
As previously reported, the Company sold substantially all of the assets of
four skilled nursing facilities (collectively, the "Convalescent Hospitals"),
effective June 30, 1999. The sales price of approximately $6.9 million, which
excluded working capital, was paid by a combination of $3.0 million in cash and
a $3.9 million second lien promissory note. Additionally, the buyer 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 recorded a gain of approximately $1.3 million ($774,000 net of tax) on
the sale of the Convalescent Hospitals.
Effective March 31, 1999, the Company completed the sale of the stock of
Paracelsus Bledsoe County General Hospital, Inc.("Bledsoe")to ACG. The sales
price of approximately $2.2 million, which included the sale of net working
capital, was paid by a combination of $100,000 in cash and the issuance by ACG
of $1.5 million in secured promissory notes (the "Bledsoe Notes") and a
$642,000 thirty-day promissory note, which was paid in May 1999. The Bledsoe
Notes are secured by all outstanding common stock and assets of Bledsoe. The
Company recorded no material gain or loss on the sale.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
In addition to reflecting the sale of Senatobia, 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 of eight hospitals located in metropolitan Los Angeles ("LA Metro") on
September 30, 1998, and the Company's acquisition of the remaining 50 %
partnership interest in a general partnership operating as Dakota Heartland
Health System ("DHHS") on July 1, 1998.
(b) Unaudited Pro Forma Financial Information (attached following the
signature page):
Unaudited Pro Forma Condensed Combining Statement of Operations -
For the six months ended June 30, 1999
Unaudited Pro Forma Condensed Combining Statement of Operations -
For the year ended December 31, 1998
Unaudited Pro Forma Condensed Combining Balance Sheet - June 30, 1999
3
Notes to Unaudited Pro Forma Condensed Combining Financial Statements
(c) Exhibits
10.24 Stock Purchase Agreement dated September 14, 1999, by and among
Paracelsus Healthcare Corporation, Paracelsus Senatobia Community Hospital,
Inc. and Associates Capital Group, LLC.
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 Healthcare Corporation
(Registrant)
Dated: October 15, 1999 By:/S/ LAWRENCE A. HUMPHREY
-------------------------------
Lawrence A. Humphrey
Executive Vice President
& Chief Financial Officer
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 six months ended June 30, 1999 and the
year ended December 31, 1998 to illustrate the effect of the sale of Senatobia
effective September 30, 1999, 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 Senatobia occurred
on June 30, 1999.
Effective September 30, 1999, the Company entered into a stock purchase
agreement, dated September 14, 1999, for the sale of Senatobia for
approximately $4.7 million, which included the sale of net working capital.
The sales price was paid by a combination of $100,000 in cash, $1.6 million of
second lien promissory notes, and the assumption by ACG of approximately $3.0
million in capital lease obligations and of certain lease guaranty payments.
The notes included (i) a short-term working capital Note A of $380,000, which
bears no interest and matures on November 29, 1999, and (ii) a working capital
Note B of $320,000 and a secured promissory Note C of $855,000, both of which
bear interest of 8% per annum and mature on September 30, 2002 and 2004,
respectively. Notes A and B are subject to final working capital adjustments.
Additionally, Notes B and C are subject to certain discounts under certain
circumstances. Notes B and C are secured by all the outstanding shares of
common stock and assets of Senatobia. The Company expects to record a gain of
approximately $2.3 million ($1.3 million net of tax) on the sale of Senatobia.
Effective June 30, 1999, the Company sold substantially all of the assets of
the Convalescent Hospitals. The sales price of approximately $6.9 million,
which excluded working capital, was paid by a combination of $3.0 million in
cash and a $3.9 million second lien promissory note. Additionally, the buyer
also assumed an operating lease at one of the facilities. The note, bearing
interest at 9% per annum, matures on June 30, 2004, and is subject to
prepayment discounts. 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
recorded a gain of approximately $1.3 million ($774,000 net of tax) on the sale
of the Convalescent Hospitals.
Effective March 31, 1999, the Company completed the sale of the stock of
Bledsoe to ACG. The sales price of approximately $2.2 million, which included
the sale of net working capital, was paid by a combination of $100,000 in cash
and the issuance by ACG of $1.5 million in secured promissory notes and a
$642,000 thirty-day promissory note, which was paid in May 1999. The Bledsoe
Notes are secured by all outstanding common stock and assets of Bledsoe.
The Company recorded no material gain or loss on the sale.
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 six months ended June 30, 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 SIX MONTHS ENDED JUNE 30, 1999
(Dollars in thousands, except per share data)
Convalescent
Hospitals/ Pro Forma
Paracelsus Bledsoe Pro Forma and Other Concalescent
Healthcare Pro Forma Bledsoe Pro Forma Hospitals/
Corporation Adjustments Rf Disposition Adjustments Rf Bledsoe
----------- ----------- -- ----------- ----------- -- ----------
(1)
Net revenue $ 294,211 $ (1,964) (2) $ 292,247 $ (4,673) (4) $287,574
Costs and expenses: (3)
Salaries and
benefits 117,100 (1,115) (2) 115,985 (3,196) (4) 112,789
Other operating
expense 115,024 (818) (2) 114,206 (1,397) (4) 112,809
Provision for
bad debts 21,485 (125) (2) 21,360 21,360
Interest 26,183 26,183 (84) (5) 26,099
Depreciation &
amortization 19,785 (48) (2) 19,737 (102) (4) 19,635
Unusual items 7,668 7,668 7,668
Loss on sale of
facilities 2,387 2,387 (2,387) (4)
--------- ------- --------- ------- (11) -------
Total costs &
expenses 309,632 (2,106) 307,526 (7,166) 300,360
--------- ------- --------- ------- -------
Loss before
minority interest
and income taxes (15,421) 142 (15,279) 2,493 (12,786)
Minority interest 121 121 121
--------- ------- --------- -------- -------
Loss before
income taxes (15,300) 142 (15,158) 2,493 (12,665)
Provision for
income taxes (6,105) 58 (6) (6,047) 1,023 (6) (5,024)
--------- ------- --------- -------- -------
Loss from continuing
operations $ (9,195) $ 84 $ (9,111) $ 1,470 $(7,641)
========= ======== ========= ======== ========
Loss per share
- - basic and
assuming
dilution $ (0.17) $ (0.17) $ (0.14)
========= ========= =========
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 SIX MONTHS ENDED JUNE 30, 1999
(Dollars in thousands, except per share data)
Pro Forma
Convalescent Senatobia
Hospitals/ Pro Forma Pro Forma
Bledsoe Adjustments Rf Paracelsus
------------ ----------- -- ----------
(1)
Net revenue $ 287,574 $ (3,731) (7) $ 283,843
Costs and expenses:
Salaries and
benefits 112,789 (1,662) (7) 111,127
Other operating
expense 112,809 (1,775) (7) 111,034
Provision for
bad debts 21,360 (752) (7) 20,608
Interest 26,099 (110) (7) 25,989
Depreciation &
amortization 19,635 (37) (7) 19,598
Unusual items 7,668 7,668
--------- ---------- ---------
Total costs &
expenses 300,360 (4,336) 296,024
--------- ---------- ---------
Loss before
minority interest
and income taxes (12,786) 605 (12,181)
Minority interest 121 121
--------- ---------- ---------
Loss before
income taxes (12,665) 605 (12,060)
Provision for
income taxes (5,024) 248 (6) (4,776)
--------- ---------- ---------
Loss from continuing
operations $(7,641) 357 (7,284)
========= ========== =========
Loss per share
- - basic and
assuming
dilution $ (0.14) $ (0.13)
========= =========
Weighted average
number of common
and common
equivalent
shares 55,118 55,118
========= =========
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)
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) (8) $645,185 $645,185
Costs and expenses:
Salaries and
benefits 276,200 (8,217) (8) 267,983 267,983
Other operating
expense 265,735 (6,475) (8) 259,260 259,260
Provision for
bad debts 42,659 (355) (8) 42,304 42,304
Interest 51,859 (1,257) (5) 50,602 $ 2,983 (5) 53,585
Depreciation &
amortization 38,330 (758) (8) 37,572 486 (9) 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 (8) 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 (10) 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.
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
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) (11) $587,185 $ (9,717) (2)(3)$577,468
Costs and expenses:
Salaries and
benefits 267,983 (25,672) (11) 242,311 (7,465) (2) 234,846
Other operating
expense 259,260 (31,333) (11) 227,927 (3,737) (2) 224,190
Provision for
bad debts 42,304 (1,915) (11) 40,389 (403) (2) 39,986
Interest 53,585 (733) (5)(11) 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) (11) (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) (11)
--------- ------- --------- ------- -------
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.
10
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
Pro Forma Convalescent Hospitals/
Chico/DHHS/ Hospitals Chico/DHHS Senatobia
LA Metro/ Pro Forma LA Metro/ Pro Forma ProForma
Bledsoe Adjustments Rf Bledsoe Adjustments Rf Paracelsus
----------- ------------ ---- ------------ ----------- --- -----------
(1)
Net revenue $577,468 $ (8,914) (4) $568,554 $ (7,209) (7) $561,345
Costs and expenses:
Salaries and
benefits 234,846 (6,025) (4) 228,821 (3,628) (7) 225,193
Other operating
expense 224,190 (2,507) (4) 221,683 (3,235) (7) 218,448
Provision for
bad debts 39,986 70 (4) 40,056 (1,325) (7) 38,731
Interest 52,852 (242) (4)(5) 52,610 (226) (7) 52,384
Depreciation &
amortization 37,783 (191) (4) 37,592 (84) (7) 37,508
Impairment charges 313 313 313
Unusual items (6,870) (6,870) (6,870)
Loss on sale
of facilities 275 275 275
---------- ----------- ---------- -------- --------
Total costs &
expenses 583,375 (8,895) 574,480 (8,498) 565,982
---------- ----------- ---------- -------- -------
Loss before minority
interest and
income taxes (5,907) (19) (5,926) 1,289 (4,637)
Minority interest
---------- ----------- ---------- -------- -------
Loss before
income taxes (5,907) (19) (5,926) 1,289 (4,637)
Provision for
income taxes (966) (8) (6) (974) 529 (6) (445)
---------- ----------- ---------- -------- -------
Loss from continuing
operations $ (4,941) $ (11) $ (4,952) 760 (4,192)
========== =========== ========== ======== ========
Loss per share
- - basic and
assuming
dilution $ (0.09) $ (0.09) $ (0.08)
========== ========== ========
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.
11
PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING
BALANCE SHEET
JUNE 30, 1999
(Dollars in thousands)
Paracelsus Senatobia
Healthcare Pro Forma Pro Forma
Corporation Adjustments Rf Paracelsus
----------- ----------- -- ----------
ASSETS: (1)
Current assets:
Cash and cash equivalents $ 12,364 $ (234) (7)(12) $ 12,130
Restricted cash 1,111 1,111
Accounts receivable, net 60,182 (1,803) (7)(12) 58,379
Deferred income taxes 10,757 10,757
Other 39,842 183 (7)(12) 40,025
-------- --------- --------
Total current assets 124,256 (1,854) 122,402
-------- --------- --------
Property and equipment, net 360,291 (324) (7)(12) 359,967
Goodwill 134,751 134,751
Other assets 84,444 (721) (7)(12) 83,723
-------- --------- --------
Total assets $703,742 (2,899) $700,843
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 47,124 (392) (7)(12) $ 46,732
Accrued liabilities
and other 52,392 (739) (7)(12) 51,653
Current maturities
of long-term debt 4,379 (145) (7)(12) 4,234
-------- --------- --------
Total current liabilities 103,895 (1,276) 102,619
-------- --------- --------
Long term debt 537,759 (2,964) (7)(12) 534,795
Other long-term liabilities 36,942 36,942
Stockholders' equity
Common stock 222,977 222,977
Additional paid-in capital 390 390
Accumulated deficit (198,221) 1,341 (12) (196,880)
-------- --------- --------
Total stockholders'
equity 25,146 1,341 26,487
-------- --------- --------
Total liabilities
& stockholders' equity $703,742 $ (2,899) $700,843
======== ========= ========
See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
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
- ----------- -------------------------------------------------------------------
(1) The statements of operations and balance sheet for Paracelsus
Healthcare Corporation as of and for the six months ended June 30, 1999 are
summarized from its June 30, 1999 Quarterly Report on Form 10-Q. The statement
of operations for the year ended December 31, 1998 is summarized from the 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 $60,000 and $240,000 for the six
months ended June 30, 1999 and the year ended December 31, 1998,
respectively, on the Bledsoe Notes.
(4) To remove the Convalescent Hospitals' historical results of operations and
the $1.3 million gain on sale of these facilities. Pro forma adjustments to net
revenue included interest income of $176,000 and $351,000 on the promissory
note received in connection with the sale for the six months ended June 30,
1999 and the year ended December 31, 1998, respectively.
(5) To record interest expense on (i) the net pro forma increase in the
credit facility resulting from the Company's acquisition of the remaining
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 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 six months ended June 30, 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 Senatobia, 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 Senatobia's assets and liabilities as of June 30, 1999 and
historical results of operations for the six months ended June 30, 1999
and the year ended December 31, 1998. Pro forma adjustments to net revenue
included interest income on Notes B and C of $47,000 and $94,000 for the
six months ended June 30, 1999 and the year ended December 31, 1998,
respectively.
(8) To remove Chico's historical results of operations and the gain on sale
of the Chico facilities.
(9) 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.
(10) To remove minority interest in DHHS for the six months ended June 30,
1998.
(11) To remove LA Metro's historical results of operations (including an
unusual charge of $233,000) and to record pro forma interest income of
$1.4 million for the year ended December 31, 1998 on the promissory notes
received in connection with the LA Metro sale. Additionally, other pro forma
adjustments to historical results of operations for the six months ended
June 30, 1999 included the removal of a $3.7 million loss from the final
working capital settlement related to the LA Metro sale.
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 Senatobia as follows:
Cash proceeds $ 100,000
Promissory notes, net of
discount 1,135,000 (a)
Capital lease obligation assumed
by ACG 2,952,000 (b)
----------
Total consideration 4,187,000
----------
Transaction costs:
Legal, severances, bonuses
and other closing costs 723,000 (c)
Assets sold:
Net working capital 323,000
Equipment & other 868,000 (d)
----------
1,914,000
----------
Pre-tax gain on sale 2,273,000
Income tax provision 932,000 (e)
----------
Gain on sale, net of tax $1,341,000
==========
(a) Notes A and B are subject to final working capital adjustments.
Additionally, Notes B and C are subject to discounts ranging from approximately
$100,000 to $420,000 under certain circumstances. Notes B and C are secured by
all the outstanding shares of common stock and assets of Senatobia.
(b) Reflects the hospital lease obligation with the City of Senatobia,
Mississippi assumed by ACG. The lease has first priority lien on all property
and equipment of Senatobia. The Company remains as a guarantor on the lease
obligation until otherwise relieved.
(c) Transaction costs are reflected as reduction of cash and as accrued
liabilities in the Unaudited Pro Forma Condensed Combining Balance Sheet as of
June 30, 1999.
(d) Includes $544,000 of an escrow deposit maintained for the purposes of
the hospital lease obligation.
(e) 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
June 30, 1999.