<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) APRIL 13, 1995
COMMISSION FILE NUMBER 0-11851
CHAMPION HEALTHCARE CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-11851 59-2283872
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NUMBER)
14340 TORREY CHASE, SUITE 320, HOUSTON, TEXAS 77014
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE
(713) 583-5491
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
1
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This Form 8K/A Amendment No. 1 updates the Registrant's report on Form 8-K dated
April 13, 1995, reporting the Registrant's acquisition of Salt Lake Regional
Medical Center in Salt Lake City, Utah.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements (attached following the signature page):
Salt Lake Regional Medical Center:
1. Report of Coopers & Lybrand, L.L.P., Independent Accountants
2. Consolidated Balance Sheets dated April 13, 1995 and
May 31, 1994.
3. Consolidated Statements of Income for the period from June 1,
1994 through April 13, 1995, and for the years ended May 31,
1994 and 1993.
4. Consolidated Statements of Equity for the period from June 1,
1994 through April 13, 1995, and for the years ended May 31,
1994 and 1993.
5. Consolidated Statements of Cash Flows for the period from June
1, 1994 through April 13, 1995, and for the years ended May
31, 1994 and 1993.
6. Notes to Consolidated Financial Statements.
(b) Pro Forma financial information:
Champion Combined Group and Salt Lake Regional Medical Center
Pro Forma Combining Income Statement
For the Three Months Ended March 31, 1995
Pro Forma Combining Income Statement
For the Year Ended December 31, 1994
Pro Forma Combining Balance Sheet
March 31, 1995
Notes to Pro Forma Combining Financial Statements
Champion Combined Company and Dakota Hospital (Champion
Combined Group)
Pro Forma Combining Income Statement
For the Year Ended December 31, 1994
Notes to Pro Forma Combining Income Statement
Champion Combined Company (Champion Healthcare Corporation,
AmeriHealth, Inc. and Psychiatric Healthcare
Corporation)
Pro Forma Combining Income Statement
For the Year Ended December 31, 1994
Notes to Pro Forma Combining Income Statement
2
<PAGE> 3
(c) Exhibits
The following exhibits as of the dates and for the periods listed below
have been previously reported in the Registrant's Form 8-K dated April
13, 1995.
10.1 Asset Purchase Agreement, dated January 25, 1995, as amended,
among Medical Services of Salt Lake City, Inc., HealthTrust,
Inc.-The Hospital Company, CHC - Salt Lake City, Inc. and
Champion Healthcare Corporation.
10.2 Utah Provider Agreement, dated April 13, 1995, by and between
Champion Healthcare Corporation and HealthTrust Inc. - The
Hospital Company.
3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 26, 1995 Champion Healthcare Corporation
(Registrant)
By: /s/ James G. VanDevender
------------------------------
James G. VanDevender
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
4
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SALT LAKE REGIONAL MEDICAL CENTER
(FORMERLY KNOWN AS
HOLY CROSS HOSPITAL OF SALT LAKE)
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE PERIOD FROM JUNE 1, 1994 THROUGH APRIL 13, 1995
AND FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED MAY 31, 1994
5
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Salt Lake Regional Medical Center
We have audited the accompanying consolidated balance sheets of Salt Lake
Regional Medical Center (formerly known as Holy Cross Hospital of Salt Lake
City), and subsidiaries (the "Hospital"), as of April 13, 1995 and May 31, 1994,
and the related consolidated statements of income, equity, and cash flows for
the period from June 1, 1994 through April 13, 1995 and for each of the two
years in the period ended May 31, 1994. These financial statements are the
responsibility of the Hospital's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Salt Lake Regional
Medical Center and subsidiaries as of April 13, 1995 and May 31, 1994, and the
consolidated results of their operations and their cash flows for the period
from June 1, 1994 through April 13, 1995 and for each of the two years in the
period ended May 31, 1994 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Houston, Texas
June 11, 1995
6
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SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED BALANCE SHEETS
(in Thousands)
<TABLE>
<CAPTION>
APRIL 13, MAY 31,
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 535 $ 3,277
Investments
Operating 1,839
Held by trustees 418
------- -------
535 5,534
Accounts receivable, less allowance for doubtful
accounts of $2,076 and $3,098, respectively 14,116 13,501
Other accounts receivable 694 1,185
------- -------
14,810 14,686
Supplies inventories 1,123 1,100
Prepaid expenses and other current assets 1,094 89
------- -------
Total current assets 17,562 21,409
Investment assets limited as to use, net of current portion
Held by trustees 902
Board designated 5,902
Donor restricted and other 1,578
-------
8,382
Property and equipment:
Land 737 1,193
Buildings and improvements 32,099 31,213
Equipment 45,017 42,779
Construction in progress 658 619
------- -------
Total property and equipment 78,511 75,804
Less allowances for depreciation and amortization 43,819 40,426
------- -------
Total property and equipment, net 34,692 35,378
Other assets 115 2,398
------- -------
Total assets $52,369 $67,567
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
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SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED BALANCE SHEETS, CONTINUED
(in Thousands)
<TABLE>
<CAPTION>
APRIL 13, MAY 31,
1995 1994
LIABILITIES
<S> <C> <C>
Current liabilities:
Current portion of capitalized lease obligation $ 545 $ 233
Accounts payable 1,946 3,004
Due to third-party payors 438 4,045
Accrued and other liabilities 6,910 5,137
Due to HTI 6,015
------- -------
Total current liabilities 15,854 12,419
Capitalized lease obligation, net of current portion 1,914 16,857
Other long-term liabilities 228 58
Due to HCHSC 2,072
Commitments and contingencies (Note 4)
Fund Balance:
General 34,583
Donor restricted 1,578
Owner's Equity:
Contributed capital 32,663
Retained earnings 1,710
------- -------
Total liabilities and equity $52,369 $67,567
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
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SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1994
THROUGH YEAR ENDED YEAR ENDED
APRIL 13, 1995 MAY 31, 1994 MAY 31, 1993
<S> <C> <C> <C>
Net patient service revenue $ 65,585 $ 86,536 $ 81,358
Other revenue 2,792 4,328 3,565
-------- -------- --------
Net revenue 68,377 90,864 84,923
Operating expenses:
Salaries, wages and benefits 26,875 37,931 36,569
Supplies 12,423 14,917 14,842
Other operating expenses 18,449 28,173 25,929
Provision for bad debts 3,573 3,464 3,623
Interest 653 929 1,171
Depreciation and amortization 4,067 4,529 4,252
-------- -------- --------
Total expenses 66,040 89,943 86,386
-------- -------- --------
Income (loss) before income taxes and
extraordinary item 2,337 921 (1,463)
Provision for income taxes 1,027
-------- -------- --------
Income (loss) before extraordinary item 1,310 921 (1,463)
Extraordinary item -- early extinguishment of debt
(no tax benefit recognized) 846
-------- -------- --------
Net income (loss) $ 464 $ 921 $ (1,463)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
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SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED STATEMENTS OF EQUITY
(In Thousands)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1994
THROUGH YEAR ENDED YEAR ENDED
APRIL 13, 1995 MAY 31, 1994 MAY 31, 1993
GENERAL
<S> <C> <C> <C>
Balance, beginning of period $ 34,583 $ 36,817 $ 37,503
Net income (loss) prior to the acquisition by HTI (1,246) 921 (1,463)
Fund Transfers 20 174 135
Related Party Transfers (6,339) (3,329) 642
Capital contribution by HCHSC 5,645
Net assets transferred to HTI (32,663)
-------- -------- --------
Balance, end of period -- 34,583 36,817
DONOR RESTRICTED
Balance, beginning of period 1,578 3,152 3,088
Donations, gifts and bequests 7 785 945
Grants 4 42
Fund transfers (20) (174) (135)
Related party transfers (201) (290)
Investment income (112) 235 121
Expenditures for donor restricted purposes (351) (2,223) (619)
Other (37)
Capital distribution to HCHSC (1,065)
-------- -------- --------
Balance, end of period -- 1,578 3,152
OWNER'S EQUITY
Net assets contributed by HTI 32,663
Net income for the period from August 16, 1994
through April 13, 1995 1,710
--------
Balance, end of period 34,373
-------- -------- --------
Total equity, end of period $ 34,373 $ 36,161 $ 39,969
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SALT LAKE REGIONAL MEDICAL CENTER
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1994
THROUGH YEAR ENDED YEAR ENDED
APRIL 13, 1995 MAY 31, 1994 MAY 31, 1993
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 464 $ 921 $ (1,463)
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Extraordinary loss on early extinguishment of debt 846
Depreciation and amortization 4,067 4,529 4,252
Loss on sale of assets 47 24 84
Provision for bad debts 3,573 3,464 3,623
Deferred tax benefit (540)
Deferred revenue and other credits (58) (455) 31
Changes in operating assets and liabilities:
Accounts receivable (14,972) (2,032) (5,273)
Supplies inventories (23) 83
Prepaid expenses and other assets 920 388 (706)
Due to third-party payors 663 631 2,024
Accounts payable, accrued liabilities and other liabilities 3,292 (1,056) 1,221
-------- -------- --------
Cash provided (used) by operating activities (1,721) 6,497 3,793
INVESTING ACTIVITIES
Net increase in current investments 339 127 87
Net increase in investments limited as to use 6,702 1,764 (1,473)
Additions to property and equipment (3,946) (3,427) (7,421)
Proceeds from sale of assets 46 809 21
Other (859) 1,540
-------- -------- --------
Cash provided (used) for investing activities 3,141 (1,586) (7,246)
FINANCING ACTIVITIES
Payments on long-term debt and refinancing (5,853) (215) (204)
Issuance of debt from HCHSC 1,020
Issuance of debt from HTI 6,015
Payment of debt to HCHSC (2,072) (1,523)
Other equity transactions, net (2,252) (4,729) 841
-------- -------- --------
Cash used for financing activities (4,162) (3,924) (886)
-------- -------- --------
Change in cash and cash equivalents (2,742) 987 (4,339)
Cash and cash equivalents at beginning of period 3,277 2,290 6,629
-------- -------- --------
Cash and cash equivalents at end of period $ 535 $ 3,277 $ 2,290
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
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SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
On April 13, 1995, CHC-Salt Lake City, Inc. (the "Company") completed
its acquisition of Salt Lake Regional Medical Center (the "Hospital")
from Healthtrust, Inc. - The Hospital Company ("HTI"). The Hospital is
comprised of a 200 bed tertiary care hospital and five clinics and is
located in Salt Lake City, Utah. The Hospital was formerly a tax-exempt
hospital, Holy Cross Hospital of Salt Lake, which was owned by Holy
Cross Health Systems Corporation ("HCHSC"). The Hospital was acquired
by HTI on August 15, 1994 and was sold pursuant to a consent decree and
settlement agreement between HTI and the Federal Trade Commission.
Consummation of the sale had been subject to approval by the Federal
Trade Commission, which was received on April 7, 1995. These financial
statements are based on HCHSC historical cost because HTI ownership of
the hospital was temporary.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Hospital and its controlled ventures. All material intercompany
transactions and account balances have been eliminated in
consolidation.
CASH EQUIVALENTS
Highly liquid investments, primarily U.S. government backed securities
and certificates of deposits with a maturity of three months or less
when purchased, excluding amounts for which use is limited by board or
donor designation or by trust agreements, have been defined as cash
equivalents. The carrying amounts reported in the balance sheets for
cash equivalents approximate fair value.
ACCOUNTS RECEIVABLE AND NET PATIENT REVENUE
The Hospital has entered into agreements with third-party payors,
including U.S. government programs and managed care health plans, under
which the Hospital is paid based upon established charges, cost of
providing services, predetermined rates by diagnosis, fixed per diem
rates or discounts from established charges.
12
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ACCOUNTS RECEIVABLE AND PATIENT REVENUE, CONTINUED
Net patient service revenues are recorded at estimated amounts due from
patients and third party payors for health care services provided,
including anticipated settlements under reimbursement agreements with
third party payors. Payments for services rendered to patients covered
by the Medicare and Medicaid programs are generally less than billed
charges. Provisions for contractual adjustments are made to reduce the
charges to these patients to estimated receipts based upon the
programs' principles of payment/reimbursement (either prospectively
determined or retrospectively determined costs). Final settlements
under these programs are subject to administrative review and audit,
and provision is currently made for adjustments which may result during
the period in which such adjustments become known. Allowance for
contractual adjustments under these programs is netted in accounts
receivable in the accompanying balance sheet. Management is of the
opinion that adequate allowance has been provided for possible
adjustments that might result from such final settlements.
Accounts receivable consists primarily of amounts due from the Medicare
and Medicaid programs, other government programs, managed care health
plans, commercial insurance companies and individual patients.
Current earnings are charged with an allowance for doubtful accounts
based on experience and other circumstances that may affect the ability
of payors to meet their obligations. Accounts deemed uncollectible are
charged against that allowance. For the period ended April 13, 1995 and
for the years ended May 31, 1994 and May 31, 1993, respectively,
approximately 38%, 40% and 39% of total patient care revenue resulted
from the Medicare program, and approximately 8%, 9% and 10%,
respectively, resulted from Medicaid program.
INVESTMENTS
Investments acquired by purchase are stated at cost, adjusted for
impairments in value that are deemed to be other than temporary. Market
values for investments are based on quoted market prices. Investments
limited as to use, that are required for obligations classified as
current liabilities and Board designated investments and are
immediately available to the Hospital for their stated purpose, are
reported in current assets.
Board designated investments limited as to use represent certain funds
from operations and other sources designated by the Board of Directors
to be used to fund future capital asset replacements, for the
retirement of certain long-term debt or for other purposes.
Certain donations, grants and bequests are restricted by donors and are
recorded at fair market value at the date of receipt. Income from and
expenditures of restricted donations are recorded as revenue and
expenses in the period used, or as general equity transfers if use is
restricted for property or equipment purchases. Bequests receivable are
recorded at a nominal amount until the Hospital receives the bequest.
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
SUPPLIES INVENTORIES
Inventories are stated at cost, determined principally by the last-in,
first-out (LIFO) method, and are not in excess of market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded on the basis of cost, if purchased,
or fair market value at the date of donation. Depreciation of property
and equipment is recognized using the straight-line method over the
expected useful lives of the assets ranging from 5 and 30 years.
Amortization of capital leases is included with depreciation expense.
UNAMORTIZED DEBT ISSUANCE COSTS
Debt issuance costs are amortized using the bonds outstanding method
over the repayment term of the related debt. Amortization is included
in depreciation and amortization expense.
CHARITY CARE
Consistent with its mission prior to the acquisition by HTI, the
Hospital provides medical care to all patients regardless of their
ability to pay. In accordance with the Hospital's policies related to
the provision of charity care, patients who were unable to pay for
services were identified based on patient financial information and
other subsequent analysis. The Hospital did not pursue collection from
these patients and such amounts were excluded from net patient revenue.
Charity care charges foregone were approximately $1,228,000 in 1995,
$1,440,000 in 1994, and $1,014,000 in 1993.
INCOME TAXES
The Hospital utilizes Statement of Financial Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred taxes are
determined based on differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted
marginal tax rates currently in effect when the differences reverse. As
described in Note 1, the Hospital had been a tax-exempt entity prior to
the acquisition by HTI. Earning for the period from August 16, 1994 to
April 13, 1995 were included in HTI consolidated tax return. The
Hospital has recorded current and deferred income tax expense for the
period subsequent to the acquisition by HTI, determined as if it were
filing a separate tax return.
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENTS:
The composition of investment assets limited as to use at May 31, 1994,
was as follows:
<TABLE>
<CAPTION>
MARKET
COST VALUE
(IN THOUSANDS)
<S> <C> <C>
Investments held by trustees under loan agreements:
Cash and short-term investments $ 201 $ 201
Funds invested in direct obligations
of the U.S. Government 1,119 1,119
Less current portion (418) (418)
------- -------
902 902
Board designated investments:
Cash and short-term investments 5,902 5,902
------- -------
5,902 5,902
Donor restricted and other investments:
Cash and short-term investments 925 935
Common trust funds and other 653 653
------- -------
1,578 1,588
------- -------
$ 8,382 $ 8,392
======= =======
</TABLE>
Investment income, which is included in other revenue, net, was
approximately $47,000, $837,000 and $693,000 for 1995, 1994 and 1993,
respectively.
Investments consisted of commercial paper, money market instruments,
U.S. Government obligations, marketable equity securities and high
grade corporate bonds. The market values of investment were determined
based on quoted market rates.
3. ACCRUED AND OTHER LIABILITIES:
Details of accrued and other liabilities at April 13, 1995 and May 31,
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and wages $1,675 $1,834
Accrued vacation 2,074 2,195
Income taxes payable to HTI 1,567
Other 1,594 1,108
------ ------
Total accrued and other liabilities $6,910 $5,137
====== ======
</TABLE>
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<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM DEBT:
Long-term debt, which included capital leases and amounts due to HCHSC,
at April 13, 1995 and May 31, 1994, were as follows:
<TABLE>
<CAPTION>
MATURITY 1995 1994
<S> <C> <C> <C>
Series 1990 Salt Lake City, Utah, Flexible Rate Revenue Bonds, (IN THOUSANDS)
principal payable at various dates through 2009, interest
payable monthly at variable rates ranging from 2.2% to
2.5%, collateralized by a renewable, irrevocable letter of
credit in the amount of $12,296,000 which expires on
February 1, 1997. Various $ -- $ 7,323
Series 1986 Salt Lake City, Utah, Industrial Revenue Bonds,
principal payable annually, interest payable semiannually
at rates from 6.0% to 7.4%. 2018 9,480
Notes payable to owner, principal payable at various dates,
interest payable at 10.5%. 6,015
Capital leases, principal and interest payable monthly, interest
payable monthly at rates ranging from 5.8% to 9% Various 2,459 287
------- -------
8,474 17,090
Less current portion (including $6,015 and $0 for 1995, and
1994, respectively, due to HTI) (6,560) (233)
------- -------
$ 1,914 $16,857
======= =======
</TABLE>
The carrying amounts of the variable rate, long-term debt approximate their fair
values. The fair values of the fixed rate, long-term debt and capital lease
obligations were estimated using discounted cash flow analysis, based on current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the fixed rate, long-term debt and capital lease obligations at
April 13, 1995, approximated their carrying amount.
Generally, mandatory deposits were required to be made to sinking and other
funds held by trustees for payment of principal and interest.
Prior to the acquisition by HTI, the Hospital extinguished the Series 1986
Industrial Revenue Bonds of approximately $9,480,000. The Hospital recognized an
extraordinary loss of approximately $846,000, for which no tax benefit was
recognized because HCHSC was tax-exempt. Additionally, the 1990 Series Flexible
Rate Revenue Bonds were distributed to the HCHSC concurrent with the HTI
acquisition.
OBLIGATED GROUP AND OTHER REQUIREMENTS
Under the Master Trust Indenture, HCHSC and certain of its subsidiaries, which
included the Hospital (the "Obligated Group") could issue obligations to finance
certain activities. Those members of the Obligated Group that elected to obtain
financing under the Master Trust Indenture were guarantors for the repayment of
obligations issued by other members of the Obligated Group up to certain limits,
although each issuer was considered the principal obligor.
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM DEBT, CONTINUED:
OBLIGATED GROUP AND OTHER REQUIREMENTS, CONTINUED
The Series 1990 Utah Pooled Financing Bonds and the Series 1986 Salt
Lake City Industrial Revenue Bonds were collateralized by a Master
Trust Indenture that was collateralized by all accounts, contract
rights and receipts of the Hospital. The obligations referenced above
contained restrictive covenants that included, among others,
restrictions on additional indebtedness, the payment of dividends and
other distributions, the repurchase of common stock and related
securities under certain circumstances, and the requirement to maintain
certain financial ratios. The Hospital was in compliance with all loan
covenants at May 31, 1994. The obligations referenced above were not
acquired by HTI in the sale of the Hospital by HCHSC.
The Master Trust Indenture requires establishment of certain funds, not
available for general purposes, which were held with and controlled by
a trustee for payment of certain construction costs, bond issuance
costs, principal and interest and maintenance of cash reserves. Details
of funds held by the trustee at May 31, 1994 were:
<TABLE>
<CAPTION>
1994
(IN THOUSANDS)
<S> <C>
Debt service reserve fund $ 902
Bond fund 40
Interest fund 378
-------
1,320
Less current portion (418)
-------
$ 902
=======
</TABLE>
INTEREST COSTS
During 1995, 1994 and 1993, interest costs totaled approximately $653,000,
$929,000 and $1,171,000, respectively, of which $81,000 was capitalized during
1994. Interest paid was approximately $579,000, $933,000, and $1,149,000 in
1995, 1994 and 1993, respectively.
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LEASES
The Hospital leases certain land, buildings and equipment under capital
and operating leases that expire at various dates through 2000. Rental
expense, which includes provisions for maintenance in some cases,
amounted to approximately $1,698,000, $2,693,000 and $2,318,000 in
1995, 1994 and 1993, respectively. Future minimum rental commitments at
April 13, 1995, under a capital lease and noncancelable operating
leases with a remaining term of greater than one year were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
1996 $ 801 $ 636
1997 701 570
1998 624 472
1999 624 132
2000 208 46
-------- ------
Total minimum obligations 2,958 $1,856
======
Less amounts representing interest 499
--------
Present value of minimum obligations 2,459
Less current portion 545
--------
Long term obligations at April 13, 1995 $ 1,914
========
</TABLE>
6. INCOME TAXES
For the period from August 16, 1994 to April 13, 1995, the Hospital
earned approximately $2,737,000 in pre-tax income. The provision for
income taxes consisted of the following for the period from August 16,
1994 through April 13, 1995.
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 13, 1995
(IN THOUSANDS)
<S> <C>
Current:
Federal $ 1,440
State 127
-------
Total current provision 1,567
Deferred:
Federal (496)
State (44)
-------
Total deferred benefit (540)
-------
Provision for income taxes $ 1,027
=======
</TABLE>
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES, CONTINUED:
The reconciliation of the statutory federal income tax rate to the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
1994
(IN THOUSANDS)
<S> <C>
Federal income tax benefit at statutory rate of 34% $ 795
Loss for period in which no tax benefit recognized 136
State income taxes, net of federal benefit 83
Other 13
----------
Total provision for income taxes $ 1,027
==========
</TABLE>
The reconciliation of the statutory federal income tax rate to the
provision for income taxes is based on earnings for the period in which
the Hospital was subject to federal income taxes.
The components of the deferred tax assets and (liabilities) at April
13, 1995 were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
APRIL 13, 1995
(IN THOUSANDS)
<S> <C>
Allowance for bad debts $ 768
Excess of tax over book basis in property and equipment (228)
-------
Net deferred tax asset 540
Less current portion (768)
-------
Noncurrent portion $ (228)
=======
</TABLE>
The current deferred tax asset is included in prepaid expenses and
other current assets. The noncurrent deferred tax liability is included
in other long-term liabilities.
7. RELATED PARTY TRANSACTIONS:
The Hospital purchased certain services from Shared Services which is
the administrator of the Holy Cross Employees Benefit Trust (the
"Benefit Trust"). The Benefit Trust provided health, life and long-term
disability benefits to employees of the Hospital. Premiums for these
benefits were approximately $527,000, $2,332,000 and $2,263,000 for
1995, 1994 and 1993, respectively. Havican Insurance Company
("Havican"), a subsidiary of Shared Services, is the captive insurance
company from which the Hospital obtained its primary professional
liability insurance. Premiums paid to Havican were approximately
$240,000, $1,346,000 and $994,000 for 1995, 1994 and 1993,
respectively. Premiums paid to HTI for professional liability insurance
during 1995 were approximately $177,000. In addition, the Hospital has
limited its liability through the purchase of umbrella coverage from
third-party insurers.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. RELATED PARTY TRANSACTIONS, CONTINUED:
Through August 15, 1994, the Hospital provided pension benefits for
substantially all of its full-time employees through a defined benefit
pension plan sponsored by HCHSC. The Hospital withdrew form the plan in
connection with its acquisition by HTI. The liability or asset
associated with the Hospital's withdrawal, if any, was retained by
HCHSC. Pension expense for the period ended April 13, 1995 and the
years ended May 31, 1994 and 1993, were $210,000, $1,050,000 and
$1,065,000, respectively.
HCHSC provided certain management services in the normal course of
business to the Hospital. For 1995, 1994 and 1993, the expenses
allocated to the Hospital were approximately $304,000, $1,486,000 and
$1,356,000, respectively.
8. SALE OF ASSETS TO HTI
As described in Note 1, HCHSC sold the Hospital to HTI in August 1994.
At the time of the sale, HTI assumed Hospital debts in excess of assets
retained of approximately $4,580,000, which has been reflected in the
financial statements as a capital distribution from donor restricted
funds of $1,065,000 and a capital contribution to general funds of
$5,645,000.
20
<PAGE> 21
CHAMPION COMBINED GROUP AND
SALT LAKE REGIONAL MEDICAL CENTER
PRO FORMA COMBINING FINANCIAL STATEMENTS
The following Pro Forma Combining Balance Sheet as of March 31, 1995,
and the Pro Forma Combining Income Statements for the three months ended March
31, 1995, and the year ended December 31, 1994, illustrate the effect of the
Company's acquisition of Salt Lake Regional Medical Center ("SLRMC") on April
13, 1995. The Pro Forma Combining Balance Sheet assumes that the acquisition of
SLRMC occurred on March 31, 1995, and the Pro Forma Combining Income Statements
assume that the acquisition of SLRMC occurred at January 1, 1994.
SLRMC is comprised of a 200 bed tertiary hospital and five associated
clinics in Salt Lake City, Utah. The Company, through a wholly owned subsidiary,
acquired SLRMC from HealthTrust, Inc.-The Hospital Company ("HTI") pursuant to
an Asset Purchase Agreement, as amended, dated January 25, 1995. SLRMC was
formerly a not-for-profit hospital acquired by HTI in August 1994, and was sold
pursuant to a consent decree and settlement agreement between HTI and the
Federal Trade Commission. Consummation of the sale had been subject to approval
by the Federal Trade Commission, which was received on April 7, 1995.
The Company paid total preliminary consideration of approximately
$56,248,000 in cash, which included approximately $11,521,000 for certain
working capital components, reimbursement of certain capital expenditures made
previously by the seller and subject to capital lease arrangements. The purchase
price was arrived at through an arms length negotiation, and the Company funded
the asset purchase from available cash and borrowings under its revolving credit
agreement. The SLRMC acquisition was accounted for as a purchase transaction.
The purchase price is preliminary and subject to final negotiations of the two
parties. Adjustments, if any, are not expected to be material to the overall
purchase accounting.
These Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of SLRMC included herein,
the Company's audited consolidated financial statements for the year ended
December 31, 1994, included in the Company's Annual Report on Form 10-K, as
amended, and the Company's condensed consolidated financial statements for the
quarter ended March 31, 1995, included in the Company's Quarterly Report on Form
10-Q, as amended.
The Pro Forma Combining Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transaction occurred as of the dates indicated above, nor do
they purport to indicate results which may be attained in the future.
21
<PAGE> 22
CHAMPION HEALTHCARE CORPORATION AND
SALT LAKE REGIONAL MEDICAL CENTER
PRO FORMA COMBINING INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(Thousands, except per share data)
<TABLE>
<CAPTION>
Champion
Healthcare Pro Forma Pro Forma
Corporation SLRMC Adjustments Reference Combined
----------- ----- ----------- --------- ---------
(1)
<S> <C> <C> <C> <C> <C>
Net revenue $ 28,727 $ 18,850 $(365) (2) $ 47,212
Expenses:
Salaries and benefits 12,762 6,834 19,596
Supplies 3,237 3,410 6,647
Other operating expenses 7,676 4,814 12,490
Provision for bad debts 2,073 1,227 3,300
Interest 2,630 31 675 (3) 3,336
Depreciation and amortization 1,532 1,197 (737) (4) 1,992
Equity in earnings of DHHS (1,478) - - (1,478)
------------ ---------- ----- --------
Total expenses 28,432 17,513 (62) 45,883
------------ ---------- ----- --------
Income from continuing operations 295 1,337 (303) 1,329
Provision (benefit) for income taxes 118 502 (398) (5) 222
------------ ---------- ----- --------
Net income 177 835 95 1,107
Adjustments to arrive at (loss) income from
continuing operations applicable to common
stock (1,489) - - (1,489)
------------ ---------- ----- --------
Net (loss) income from continuing
operations applicable to common stock $ (1,312) $ 835 $ 95 $ (382)
============ ========== ===== ========
Loss from continuing operations per
common and common equivalent share $ (.31) $ (0.09)
============ ========
Shares used in loss from continuing operations
per common and common equivalent share
computation (in thousands): 4,228 4,228
============ ========
</TABLE>
See notes to pro forma combining financial statements (Champion Combined Group
and Salt Lake Regional Medical Center).
22
<PAGE> 23
CHAMPION COMBINED GROUP AND
SALT LAKE REGIONAL MEDICAL CENTER
PRO FORMA COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(Thousands, except per share data)
<TABLE>
<CAPTION>
Champion
Combined Pro Forma Pro Forma
Group SLRMC Adjustments Reference Combined
-------- ----- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue $ 118,344 $ 83,836 $ (881) (2) $ 195,915
(5,384) (6)
Expenses:
Salaries and benefits 51,416 34,206 (3,130) (6) 82,492
Supplies 13,078 14,488 (374) (6) 27,192
Other operating expenses 33,210 24,327 (2,117) (6) 55,420
Provision for bad debts 13,701 3,557 (38) (6) 17,220
Interest 9,396 1,023 2,303 (3)(6) 12,722
Depreciation and amortization 7,742 4,552 (2,849) (4)(6) 9,445
Equity in earnings of DHHS (5,443) -- -- (5,443)
---------- --------- ------------ ---------
Total expenses 123,100 82,153 (6,205) 199,048
---------- --------- ------------ ---------
Income (loss) from continuing operations (4,756) 1,683 (60) (3,133)
(Benefit) provision for income taxes (682) 632 (4) (5) (54)
---------- --------- ------------ ---------
Net (loss) income from continuing operations (4,074) 1,051 (56) (3,079)
Adjustments to arrive at loss from continuing
operations applicable to common stock (4,998) -- -- (4,998)
---------- --------- ------------ ---------
Loss from continuing operations
applicable to common stock $ (9,072) $ 1,051 $ (56) $ (8,077)
========== ========= =========== =========
Loss from continuing operations per
common and common equivalent share $ (2.15) $ (1.91)
========== =========
Shares used in loss from continuing operations
per common and common equivalent share
computation (in thousands): 4,224 4,224
========== =========
</TABLE>
See notes to pro forma combining financial statements (Champion Combined Group
and Salt Lake Regional Medical Center).
23
<PAGE> 24
CHAMPION COMBINED GROUP AND
SALT LAKE REGIONAL MEDICAL CENTER
PRO FORMA COMBINING BALANCE SHEET
MARCH 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Champion
Combined Pro Forma Pro Forma
Group SLRMC Adjustments Reference Combined
-------- ----- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 32,908 $ 535 $ (535) (7) $ 9,660
(23,248) (9)
Restricted cash 5,000 -- 5,000
Accounts receivable, net 17,003 14,810 (3,191) (7) 28,622
Supplies inventory 1,945 1,123 -- 3,068
Other 5,943 1,094 -- 7,037
----------- -------------- -------------- ------------
Total current assets 62,799 17,562 (26,974) 53,387
Property and equipment, net 88,353 34,692 11,949 (8) 134,994
Investment in DHHS 41,653 41,653
(115) (7)
Other assets 20,034 115 (3,000) (9) 17,034
----------- -------------- -------------- ------------
Total assets $ 212,839 $ 52,369 $ (18,140) $ 247,068
=========== ============== ============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of debt and capital
lease obligations $ 4,152 $ 545 $ 4,697
Accounts payable 6,341 1,946 $ (1,946) (7) 6,341
Other current liabilities 11,534 13,363 (11,593) (7) 13,304
----------- -------------- -------------- ------------
Total current liabilities 22,027 15,854 (13,539) 24,342
Debt and capital lease obligations 104,655 1,914 30,000 (9) 136,569
Other long-term liabilities 11,689 228 (228) (7) 11,689
Redeemable preferred stock 77,918 77,918
Common stock 42 -- 42
Additional paid-in capital 14,538 -- 14,538
Retained earnings (deficit) (18,030) 34,373 (34,373) (7) (18,030)
----------- -------------- -------------- ------------
Total liabilities and
shareholders' equity $ 212,839 $ 52,369 $ (18,140) $ 247,068
=========== ============== ============== ============
</TABLE>
See notes to pro forma combining financial statements (Champion Combined Group
and Salt Lake Regional Medical Center).
24
<PAGE> 25
CHAMPION COMBINED GROUP AND SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
The following is a summary of the pro forma adjustments by line item.
<TABLE>
<CAPTION>
1 Reference to Notes to Pro
Forma Financial Statements Explanations
- ----------------------------- ------------------------------------------------
<S> <C>
(1) Summarized from the Company's quarterly report
on Form 10-Q/A Amendment No. 1.
(2) To reflect a decrease in interest earnings for
the pro forma decrease in cash. This adjustment
assumes that approximately $26,248,000 of
acquisition costs were paid from available cash
at January 1, 1994. Interest earnings are
computed at 5.63% and 3.35% for the quarter
ended March 31, 1995, and the year ended
December 31, 1994, respectively. Such
percentages represent the Company's average
investment rate for the respective periods.
(3) To record interest expense on the pro forma
increase of the Company's revolving credit
facility as a result of its acquisition of
SLRMC. The Pro Forma Combining Income Statements
assume the Company increased the principal
amount outstanding under its revolving credit
facility by $30,000,000 as of January 1, 1994.
The average interest rates in effect under the
Company's existing credit facility for the
quarter ended March 31, 1995, and the year ended
December 31, 1994, were 9.12% and 7.81%,
respectively. Interest expense increased
approximately $675,000 and $2,344,000 on a pro
forma basis for the quarter ended March 31,
1995, and the year ended December 31, 1994,
respectively.
(4) To adjust depreciation expense based on the
revaluation of SLRMC's depreciable assets in
connection with the allocated purchase price.
The acquired assets are estimated to have an
average remaining useful life of approximately
25 years based on a preliminary appraisal that
the hospital's depreciable assets consist of
approximately 81% buildings with a 30 year life
and 19% equipment with a five year life. Based
on this preliminary allocation, depreciation
expense decreased approximately $737,000 and
$2,685,000 on a pro forma basis for the quarter
ended March 31, 1995, and the year ended
December 31, 1994, respectively.
(5) To reflect the pro forma provision for income
taxes due to the inclusion of the acquired
operations. For the purposes of the pro forma
provision for income taxes, loss carryovers of
the Company can be utilized to reduce the
provision for income taxes.
(6) To remove the historical operating results for
the period January 1, 1994, to August 15, 1994,
associated with operations not acquired by HTI
in connection with its acquisition of SLRMC in
August 1994.
(7) To remove SLRMC assets not acquired, liabilities
not assumed and the retained earnings of seller.
</TABLE>
25
<PAGE> 26
CHAMPION COMBINED GROUP AND SALT LAKE REGIONAL MEDICAL CENTER
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Reference to Notes to Pro
Forma Financial
Statements Explanations
- ---------------------------- ------------------------------------------------
<S> <C>
(8) To record the acquisition of SLRMC using the
purchase method of accounting, including the
adjustment of SLRMC's balance sheet to reflect
the estimated fair market value of property and
equipment acquired in excess of predecessor's
cost. The purchase price allocation reflected in
the pro forma financial statements is based upon
the best information currently available without
a final independent appraisal of the SLRMC
facility. For the purpose of allocating net
acquisition costs among the various assets
acquired, the Company has tentatively allocated
excess acquisition cost over the predecessor
entity's carrying value of the acquired assets
to property and equipment. It is management's
intention to more fully evaluate the net
acquired assets and, as a result, the allocation
of acquisition cost among the assets acquired
may change. Management does not expect the final
allocation of acquisition cost to be materially
different from that assumed in the Pro Forma
Combining Financial Statement. The following
table summarizes the calculation of the
preliminary purchase price allocation:
</TABLE>
<TABLE>
<S> <C>
Total cash consideration (see Note 9) $ 56,248
Less working capital acquired (11,521)
Plus the long-term portion of capital
leases assumed 1,914
--------
Total purchase price allocated to property
and equipment 46,641
Less predecessor's net PPE (34,692)
--------
Purchase price allocated to property
and equipment in excess of
predecessor cost $ 11,949
========
(9) The Company funded its acquisition of SLRMC as follows:
Available cash $ 23,248
Earnest money paid previously to HTI 3,000
Draw down of revolving credit facility 30,000
--------
Total cash consideration $ 56,248
========
</TABLE>
26
<PAGE> 27
PRO FORMA COMBINED SELECTED FINANCIAL DATA
CHAMPION COMBINED COMPANY AND DAKOTA HOSPITAL
(COMBINED GROUP)
PRO FORMA COMBINING INCOME STATEMENT
The following Pro Forma Combining Income Statement for the year ended
December 31, 1994, illustrates the effect of the formation of the partnership
(the "Partnership") between the wholly owned subsidiary of the Company that
owned Heartland Medical Center ("HMC"), a 142 bed general acute care hospital in
Fargo, North Dakota, and Dakota Hospital ("Dakota"), a not-for-profit
corporation that owned a 199 bed general acute care hospital also in Fargo,
North Dakota. The Partnership is operated as Dakota Heartland Health System
("DHHS"). The Pro Forma Combining Income Statement assumes the Partnership was
entered into on January 1, 1994.
In connection with the formation of the Partnership, the Company and
Dakota contributed their respective hospitals both debt and lien free (except
capitalized leases), and the Company contributed an additional $20,000,000 in
cash, each in exchange for 50% ownership in the Partnership. In addition, each
partner contributed $2,000,000 in cash to the working capital of the
Partnership. A $20,000,000 special distribution was made to Dakota after
capitalization of the Partnership in accordance with the terms of the
Partnership agreement. The ownership interest acquired by each partner was based
on the value of the assets contributed to the Partnership.
Also on December 21, 1994, the Company entered into an operating
agreement with the Partnership and Dakota to manage the combined operations of
the two hospitals. Under the terms of the Partnership agreement, the Company is
obligated to advance funds to the Partnership to cover any and all operating
deficits of the Partnership. The Company will receive 55% of the net income and
distributable cash flow ("DCF") of the Partnership until such time as it has
recovered on a cumulative basis an additional $10,000,000 of DCF in the form of
an "excess" distribution. The Company accounts for its investment in DHHS under
the equity method. DHHS began operations on December 31, 1994.
The Partnership is administered by a Governing Board comprised of six
members appointed by Dakota, three members appointed by the Company and three
members appointed by mutual consent of the Dakota members and the Company
members. Certain Governing Board actions require the majority approval of each
of the Company members and Dakota members. Because the partners through the
Partnership agreement have delegated management of the Partnership to the
Company through the operating agreement, the authority of the Governing Board is
limited.
From the 19th month after the commencement of the Partnership, Dakota
has the right to require the Company to purchase its Partnership interest free
of debt or liens for a cash purchase price equal to 5.5 times earnings before
depreciation, interest, income taxes and amortization less Dakota's pro-rata
share of the Partnership's long-term debt. On a pro forma basis, the Partnership
had earnings before depreciation, interest, income and amortization of
approximately $13,600,000 for the year ended December 31, 1994. From the 37th
month after the commencement of the Partnership, the purchase price for Dakota's
Partnership interest shall not be less than $50,000,000. After receipt of
written notice of Dakota's intent to sell its Partnership interest, the Company
would have 12 months to complete the purchase. Should the Company not complete
the purchase during this period, Dakota would have the right to, among others,
(i) terminate the operating agreement and engage an outside party to manage the
hospital, (ii) replace the Company's designees to the Governing Board and (iii)
enter into a fair market value transaction to sell substantially all of the
Partnership's assets. The Company would likely finance the purchase through bank
or other borrowings.
The Pro Forma Combining Income Statement should be read in conjunction
with the Company's consolidated financial statements for the year ended December
31, 1994, included in the Company's
27
<PAGE> 28
Annual Report on Form 10K, as amended, and the Company's condensed consolidated
financial statements for the quarter ended March 31, 1995, included in the
Company's Quarterly Report on Form 10-Q, as amended.
The Pro Forma Combining Income Statement is presented for comparative
purposes only and is not intended to be indicative of actual results had the
transaction occurred as of January 1, 1994, nor does the Pro Forma Combining
Income Statement purport to indicate results which may be attained in the
future.
28
<PAGE> 29
CHAMPION COMBINED COMPANY AND DAKOTA HOSPITAL
PRO FORMA COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(Thousands, except per share data)
<TABLE>
<CAPTION>
Champion Pro forma
Combined Pro Forma Combined
Company Adjustments Reference Group
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 159,339 $ (40,995) (1)(2) $118,344
Expenses:
Salaries and benefits 65,812 (14,396) (2) 51,416
Supplies 18,169 (5,091) (2) 13,078
Other operating expenses 44,518 (11,308) (2) 33,210
Provision for bad debts 14,919 (1,218) (2) 13,701
Interest 9,433 (37) (2) 9,396
Depreciation and amortization 8,470 (728) (2) 7,742
Equity in earnings of DHHS -- (5,443) (3) (5,443)
--------- ---------- --------
Total expenses 161,321 (38,221) 123,100
--------- ---------- --------
Loss from continuing operations (1,982) (2,774) (4,756)
Benefit for income taxes (488) (194) (4) (682)
--------- ---------- --------
Net loss from continuing operations (1,494) (2,580) (4,074)
Adjustments to arrive at loss from continuing
operations applicable to common stock (4,998) -- (4,998)
--------- ---------- --------
Loss from continuing operations
applicable to common stock $ (6,492) $ (2,580) $ (9,072)
========= ========== ========
Loss from continuing operations per
common and common equivalent share $ (1.54) $ (2.15)
========= ========
Shares used in loss from continuing operations
per common and common equivalent share
computation (in thousands): 4,224 4,224
========= ========
</TABLE>
See notes to pro forma combining income statement (Champion Combined Company and
Dakota Hospital).
29
<PAGE> 30
CHAMPION COMBINED COMPANY AND DAKOTA HOSPITAL
NOTES TO PRO FORMA COMBINING INCOME STATEMENT
The following is a summary of the pro forma adjustments by line item.
<TABLE>
<CAPTION>
Reference to Notes to
Pro Forma Financial
Statements Explanations
- ---------------------------- ------------------------------------------------
<S> <C>
(1) To reflect a decrease in interest earnings for
the pro forma decrease in cash. This adjustment
assumes the Company's $20,000,000 capital
contribution to the Partnership and its
$2,000,000 contribution to Partnership working
capital were made from available cash at January
1, 1994. Interest earnings are computed at
3.35%, the Company's average investment rate for
the period.
(2) To remove the historical operating results of
HMC for the year ended December 31, 1994. HMC
was contributed to the Partnership effective
December 31, 1994.
(3) To record the Company's equity in the pro forma
earnings of DHHS for the year ended December 31,
1994, calculated as follows:.
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
------------------------
<S> <C> <C>
Dakota operating loss $ (210)
Pro forma adjustments to Dakota
operating loss (a) 2,627
----------
Dakota pro forma operating income
attributable to the
Partnership 2,417
HMC operating income 7,286
Pro forma adjustments to HMC operating
income - interest associated
with debt not contributed to
Partnership 194
----------
HMC pro forma operating income
attributable to the
Partnership 7,480
------
Pro forma Partnership operating
income 9,897
Company's equity participation in the
pro forma earnings of
DHHS 55%
------
Company's equity in the pro forma
earnings of DHHS $5,443
======
</TABLE>
(a) Pro forma adjustments to Dakota's
pre-tax earnings consist of
approximately $2,481,000 in interest
expense associated with debt not
contributed to the Partnership and a
loss of approximately $146,000 on
investments not contributed to the
Partnership.
<TABLE>
<S> <C>
(4) To reflect the pro forma benefit for income tax
from the allocation of pro forma operating
income to the Dakota partner.
</TABLE>
30
<PAGE> 31
PRO FORMA COMBINED SELECTED FINANCIAL DATA
CHAMPION HEALTHCARE CORPORATION, AMERIHEALTH, INC. AND PSYCHIATRIC HEALTHCARE
CORPORATION
(COMBINED COMPANY)
PRO FORMA COMBINING INCOME STATEMENT
The following Pro Forma Combining Income Statement for the year ended
December 31, 1994, illustrates the effect of the merger ("Merger") of Champion
Healthcare Corporation, a Texas Corporation, ("Old Champion") with AmeriHealth,
Inc. on December 6, 1994, and the acquisition ("Acquisition") by the Company of
Psychiatric Healthcare Corporation ("PHC") on October 21, 1994. The Pro Forma
Combining Income Statement assumes the Merger and Acquisition occurred on
January 1, 1994.
MERGER WITH AMERIHEALTH, INC.
In connection with the consummation of the Merger, holders of the
AmeriHealth ("AHH") Common Stock received one share of Combined Company Common
Stock for each 5.70358 shares of AHH Common Stock and cash in lieu of fractional
shares. Holders of AHH Series B Preferred Stock not converted into AHH Common
Stock received cash equal to the redemption price of such shares plus accrued
dividends. Such shares were then canceled in connection with the Merger. Also,
in connection with the Merger, the Combined Company issued shares of the
Combined Company Common Stock and issued five new series of preferred stock of
the Combined Company to the Old Champion shareholders in exchange for their Old
Champion Common and Preferred Stock.
AHH has also declared dividends on AHH Common Stock and AHH Series B
Preferred Stock as follows: (a) to holders of record of AHH Common Stock at the
close of business on the business day immediately preceding the date of
consummation of the Merger in the amount of 8 1/2 cents ($0.085) per share; and
(b) to holders of record of AHH Series B Preferred Stock immediately prior to
consummation of the Merger in the amount of $21.72 per share. The foregoing
dividend payments were conditioned upon consummation of the Merger.
The Merger was accounted for as a purchase transaction. For accounting
purposes, the Company was deemed to be the surviving entity of the Merger with
the name of the Combined Company changed to Champion Healthcare Corporation, a
Delaware Corporation.
ACQUISITION OF PSYCHIATRIC HEALTHCARE CORPORATION
The Company acquired the two operating and one closed psychiatric
hospitals of PHC by merger of PHC with and into a wholly-owned subsidiary of the
Company. The net purchase price, including a "contingent" consideration feature
of $1,300,000 (up to $2,000,000 in aggregate) and the assumption of
approximately $14,880,000 in long-term debt, was approximately $23,600,000. The
Company paid no cash (other than fractional share amounts) to the PHC
shareholders, instead issuing a combination of Company Series D Preferred Stock
and 11% Senior Subordinated Notes with detachable Warrants. The PHC acquisition
was accounted for as a purchase transaction.
31
<PAGE> 32
The Pro Forma Combining Income Statement should be read in conjunction
with the Company's consolidated financial statements for the year ended December
31, 1994, included in the Company's Annual Report on Form 10K, as amended, and
the historical financial statements of AHH and PHC included in the definitive
Proxy Statement of AmeriHealth, Inc., dated November 11, 1994.
The Pro Forma Combining Income Statement is presented for comparative
purposes only and is not intended to be indicative of actual results had the
transaction occurred as of December 31, 1994, nor does the Pro Forma Combining
Income Statement purport to indicate results which may be attained in the
future.
32
<PAGE> 33
CHAMPION HEALTHCARE CORPORATION, AMERIHEALTH, INC. AND PSYCHIATRIC HEALTHCARE
CORPORATION
PRO FORMA COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(Thousands, except per share data)
<TABLE>
<CAPTION>
Champion Pro Forma
Healthcare Pro Forma Combined
Corporation AmeriHealth Psychiatric Adjustments Ref. Company
----------- ----------- ----------- ----------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ 104,193 $ 36,953 $ 18,442 $ (249) (1) $159,339
Expenses:
Salaries and benefits 41,042 16,558 8,212 65,812
Supplies 12,744 5,425 -- 18,169
Other operating expenses 29,467 11,025 5,377 (1,351) (2) 44,518
Provision for bad debts 7,812 4,163 2,944 14,919
Interest 6,375 1,909 1,205 (56) (3) 9,433
Depreciation and amortization 4,310 1,666 869 1,625 (4) 8,470
------------- ----------- ---------- ------------- --------
Total expenses 101,750 40,746 18,607 218 161,321
------------- ----------- ---------- ------------- --------
Income (loss) from continuing operations 2,443 (3,793) (165) (467) (1,982)
Provision (benefit) for income taxes 200 (948) ( 78) 338 (5) (488)
------------- ----------- ---------- ------------- --------
Net income (loss) from continuing
operations 2,243 (2,845) (87) (805) (1,494)
Adjustments to arrive at loss from continuing
operations applicable to common stock (4,710) (4) (286) 2 (6) (4,998)
------------- ----------- ---------- ------------- --------
Loss from continuing operations
applicable to common stock $ (2,467) $ (2,849) $ (373) $ (803) $ (6,492)
============= ============ ========== ============= ========
Loss per common and common equivalent
share $ (1.69) $ (0.20) $ (1.54)
============= ============ ========
Shares used in loss from continuing operations
per common and common equivalent share
computation (in thousands): 1,457 14,449 (11,682) (7) 4,224
============= ============ ============= ========
</TABLE>
See notes to pro forma combining income statement (Champion Healthcare
Corporation, AmeriHealth, Inc. and Psychiatric Healthcare Corporation).
33
<PAGE> 34
CHAMPION HEALTHCARE CORPORATION, AMERIHEALTH, INC. AND PSYCHIATRIC HEALTHCARE
CORPORATION
NOTES TO PRO FORMA COMBINING INCOME STATEMENT
The following is a summary of the pro forma adjustments by line item.
<TABLE>
<CAPTION>
Reference to Notes to
Pro Forma Financial
Statements Explanations
- ---------------------------- ------------------------------------------------
<S> <C>
(1) To reflect a decrease in interest earnings for
the pro forma decrease in cash. This adjustment
assumes a $8,516,000 loan held by the Resolution
Trust Corporation (the "RTC Loan") was retired
from available cash at January 1, 1994, net of a
discount of approximately $384,000 obtained by
the Company concurrent with the Merger. Interest
earnings are computed at 3.35%, the Company's
average investment rate for the period.
(2) Reduce other operating expenses for expenses
incurred by AHH as a result of the merger.
(3) To reduce interest expense by approximately
$650,000 relating to the assumed retirement of
debt as discussed in the following paragraph,
net of approximately $594,000 of additional
interest expense on the 11% Senior Subordinated
Notes issued in the acquisition of PHC.
In connection with the Company's merger with
AHH, the Pro Forma Combining Income Statement
for the year ended December 31, 1994, assumes
the Company retired the RTC Loan ($8,516,000
principle amount net of a discount of
approximately $384,000) from available funds and
assumed approximately $10,000,000 principal
amount of a Loan held by Wilmington Savings Fund
Society, F.S.B. at an interest rate of prime
plus 1.5% through September 1994 and prime plus
2.0% thereafter, or an average of approximately
8.8% for the year ended December 31, 1994. Funds
to retire the debt were available as a result of
the Company's December 31, 1993, issuance of
Series D Preferred Stock and related 11% Senior
Subordinated Notes.
(4) To adjust depreciation expense based upon the
step up in basis for the depreciable assets of
AHH and PHC. The allocation with respect to PHC
was based on an independent appraisal obtained
by the Company which resulted in the allocation
of approximately $5,900,000 of excess purchase
price to goodwill. The acquired assets of AHH
are estimated to have an average remaining
useful life of approximately 17 years based on
management's assumption that an acute care
hospital's assets consist of 50% buildings and
50% equipment with a 30 year life and a 5 year
life, respectively.
(5) To reflect the pro forma provision for income
taxes due to the inclusion of the acquired
operations. For the purposes of the pro forma
provision for income taxes, loss carryovers of
the Company can be utilized to reduce the
provision for income taxes.
</TABLE>
<TABLE>
<CAPTION>
(6) December 31,
------------
1994
----
<S> <C>
Dividend requirements of the Company
Series D Preferred stock issued as
acquisition consideration $ (288)
Reversal of dividend requirements on
AHH's Series B Preferred Stock 4
Reversal of dividend requirements on
PHC's Series A and Series B
redeemable convertible Preferred
Stock 286
----------
$ 2
==========
</TABLE>
34
<PAGE> 35
CHAMPION HEALTHCARE CORPORATION AND AMERIHEALTH, INC.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Reference to Notes to
Pro Forma Financial
Statements Explanations
- --------------------------- ------------------------------------------------
<S> <C>
(7) To adjust common and common equivalent shares
used to calculate income (loss) from continuing
operations per share. The pro forma adjustment
reflects the following events:
(a) The exchange of each 5.70358 shares of AHH
common and common equivalent shares into
one share of the Combined Company Common
Stock. At December 6, 1994, AHH's common
and common equivalent shares would have
decreased from 14,449,000 shares to
2,533,000 common and common equivalent
shares of the Combined Company Common
Stock.
(b) The Company purchased 880,000 shares of
the AHH's Common Stock in a private
transaction. In connection with the
Merger, these shares were retired,
resulting in a reduction of 154,000 shares
of Combined Company Common Stock that
would have otherwise been issued.
The common shareholders of Old Champion received
one share of Combined Company Common Stock for
each share of Old Champion Common Stock
outstanding prior to the merger. The preferred
shareholders of Old Champion received one share
of Combined Company Preferred Stock for each
share of Old Champion Preferred Stock
outstanding prior to the merger. Therefore, the
Company's common equivalent shares at December
31, 1994, are not adjusted as a result of the
Merger.
The following table summarizes the adjustments
to shares used in the calculation of loss from
continuing operations per common and common
equivalent share:
</TABLE>
<TABLE>
<CAPTION>
December 31,
1994
------------
<S> <C>
Adjustment to AHH's common and common
equivalent shares for the exchange ratio (a) 11,916
AHH common shares canceled (b) (726)
Dilutive effect of shares of (i) AHH Common
Stock issued in exchange for shares of AHH
Series B Preferred Stock during the period
and (ii) Combined Company common stock
issued in connection with the Merger. 492
------
11,682
======
</TABLE>
35
