<PAGE> 1
TOTAL NUMBER OF PAGES: 35
EXHIBIT INDEX ON SEQUENTIAL PAGE NO.: 33
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 9, 1994
SUMMIT HEALTH LTD.
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
0-11479 95-3154694
(Commission File Number) (IRS Employer Identification No.)
3401 WEST END AVENUE, NASHVILLE, TENNESSEE 37203
(Address of principal executive office) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 383-8599
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 9, 1994 the Registrant, Summit Health Ltd. ("Summit"), acquired
Fountain Valley Regional Hospital and Medical Center ("Fountain Valley"), a
provider of tertiary care hospital services, from an unrelated seller, Fountain
Valley Medical Development Co., a California limited partnership ("FVMDC") with
principal offices at 11180 Warner Avenue, Fountain Valley, California 92708.
Fountain Valley, located on a 38-acre campus in Fountain Valley, California,
contains a 413-bed acute care hospital, a surgery center, an imaging center and
four medical office buildings aggregating approximately 250,000 square feet of
office space. For the fiscal year ended October 31, 1993, Fountain Valley's
total revenues, EBITDA (as defined below) and net income from continuing
operations were approximately $120.8 million, $21.6 million and $8.0 million,
respectively. Summit intends to continue the use of Fountain Valley as a
provider of hospital services. Fountain Valley's "EBITDA" refers to Fountain
Valley's earnings before interest, taxes, depreciation, amortization and
non-recurring items.
Pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement")
dated as of July 20, 1994, on August 9, 1994 FVMDC sold to Summit all of the
outstanding shares and partnership interests of certain corporations and
partnerships relating to Fountain Valley. Pursuant to an Agreement of Sale and
Purchase (the "Real Estate Purchase Agreement") dated as of July 21, 1994, on
August 9, 1994 an unrelated real estate investment trust ("REIT") purchased and
is leasing to a subsidiary of the Registrant certain of Fountain Valley's real
estate, including the four medical office buildings. The aggregate consideration
paid for Fountain Valley was approximately $145 million (the "Purchase Price"),
subject to certain post-closing adjustments. Approximately $104 million of the
Purchase Price was paid in cash by Summit under the Stock Purchase Agreement and
the balance of the Purchase Price, approximately $41 million, was paid in cash
by the REIT pursuant to the Real Estate Purchase Agreement.
The source of the funds utilized by Summit to consummate its acquisition of
Fountain Valley was a borrowing under the $700 million bank credit facility of
Summit and its parent corporation, OrNda HealthCorp ("OrNda") (the Credit,
Security, Guaranty and Pledge Agreement (the "Bank Credit Facility") dated as of
April 19, 1994, among OrNda, Summit and AHM Acquisition Co., Inc., as borrowers,
the lenders named therein and The Bank of Nova Scotia, as administrative agent
for the lenders). OrNda and Summit will refinance this borrowing with some of
the net proceeds of their issuance of $125 million principal amount of their
11 3/8% Senior Subordinated Notes due 2004 (the "Notes"). The Notes were issued
on August 23, 1994 in an underwritten public offering managed by Merrill Lynch &
Co. and co-managed by Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Brothers Inc. and Citicorp Securities, Inc.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
and
(b) PRO FORMA FINANCIAL INFORMATION.
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
Interim (Unaudited)
Consolidated Statements of Income for the Six Months Ended April 30, 1993 and
1994............................................................................. 5
Consolidated Balance Sheets as of October 31, 1993 and April 30, 1994............... 6
Consolidated Statements of Cash Flows for the Six Months Ended April 30, 1993 and
1994............................................................................. 7
Notes to Consolidated Interim Financial Statements.................................. 8
Annual
Independent Auditors' Report........................................................ 9
Consolidated Balance Sheets as of October 31, 1993 and 1992......................... 10
Consolidated Statements of Income for the Years Ended October 31, 1993 and 1992..... 11
Consolidated Statements of Partners' Equity for the Years Ended October 31, 1993 and
1992............................................................................. 12
Consolidated Statements of Cash Flows for the Years Ended October 31, 1993 and
1992............................................................................. 13
Summary of Accounting Policies...................................................... 14
Notes to Consolidated Financial Statements.......................................... 16
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet................................ 21
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet....................... 22
Unaudited Pro Forma Condensed Combined Income Statement for the Nine Months Ended
May 31, 1994..................................................................... 24
Unaudited Pro Forma Condensed Combined Income Statement for the Year Ended August
31, 1993......................................................................... 25
Notes to Unaudited Pro Forma Condensed Combined Income Statement.................... 26
</TABLE>
The following capitalized terms found in the Pro Forma Financial
Information set forth below shall mean as follows:
<TABLE>
<S> <C>
(i) "AHM" means American Healthcare Management, Inc.
(ii) "AHM Merger" means the merger of AHM into OrNda HealthCorp on April
19, 1994.
(iii) "Bank Credit Facility" is as defined in Item 2 above.
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
(iv) "Change of Control Offer" means the offer made by OrNda HealthCorp
during the period May 19, 1994 until July 18, 1994 to purchase the
$100 million aggregate principal amount of the 10 1/4% Notes at a
purchase price of 101% of the principal amount thereof plus accrued
interest which offer was required pursuant to the terms of the
indenture under which the 10 1/4% Notes were issued as a result of
consummation of the AHM Merger on April 19, 1994.
(v) "Company" means OrNda HealthCorp.
(vi) "Fountain Valley" means Fountain Valley Regional Hospital and Medical
Center.
(vii) "Mergers" means the AHM Merger and the Summit Merger.
(viii) "Offering" means the public offering by OrNda HealthCorp and Summit of
$125,000,000 principal amount of their 11 3/8% Senior Subordinated
Notes due 2004, as set forth in the final Prospectus dated August 16,
1994.
(ix) "Real Estate Purchase Agreement" is as defined in Item 2.
(x) "REIT" is as defined in Item 2.
(xi) "7 1/2% Notes" means the 7 1/2% Exchangeable Subordinated Notes due
2003 of Summit, originally issued in March 1993 in $37,440,000
aggregate principal amount.
(xii) "Summit Merger" means the acquisition by OrNda HealthCorp of Summit on
April 19, 1994, such acquisition accomplished through use of a merger.
(xiii) "10 1/4% Notes" means the 10 1/4% Senior Subordinated Notes due 2003
of OrNda HealthCorp.
</TABLE>
4
<PAGE> 5
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-------------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net patient revenue...................................................... $53,031 $58,356
Medical building rent and other revenue.................................. 4,321 2,824
------- -------
Total operating revenue........................................ 57,352 61,180
------- -------
Operating expenses
Payroll and benefits................................................... 28,413 31,103
Supplies............................................................... 8,866 9,609
Purchased services..................................................... 5,607 6,901
Other.................................................................. 3,681 3,347
Depreciation and amortization.......................................... 4,058 4,017
Interest............................................................... 2,463 2,424
Provision for bad debts................................................ 987 891
------- -------
Total operating expenses....................................... 54,075 58,292
------- -------
Net income............................................................... $ 3,277 $ 2,888
======= =======
</TABLE>
See the accompanying notes
5
<PAGE> 6
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1993 1994
----------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................ $ 8,917 $ 5,978
Patient accounts receivable, less estimated allowances and
uncollectibles of $20,314 and $24,128......................... 21,145 21,628
Inventory........................................................ 1,763 1,713
Prepaid expenses................................................. 1,084 1,743
Other current assets............................................. 2,187 2,033
----------- -----------
TOTAL CURRENT ASSETS..................................... 35,096 33,095
Property and equipment:
Land and improvements............................................ 3,298 3,298
Buildings and improvements....................................... 62,537 64,171
Equipment........................................................ 24,125 23,877
Equipment under capital leases................................... 11,840 12,718
Construction in progress......................................... 614 --
----------- -----------
102,414 104,064
Less accumulated depreciation and amortization................... 53,898 57,608
----------- -----------
Net property and equipment....................................... 48,516 46,456
Other assets
Other assets..................................................... 696 981
Deferred charges, net of accumulated amortization of $1,240 and
$1,372........................................................ 1,270 1,052
Excess purchase price and intangibles, net of accumulated
amortization of $512 and $674................................. 892 730
----------- -----------
TOTAL OTHER ASSETS....................................... 2,858 2,763
----------- -----------
TOTAL ASSETS............................................. $ 86,470 $ 82,314
========= ==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Current portion of obligations under capital leases.............. $ 1,673 $ 1,696
Current portion of long-term debt................................ 5,121 3,190
Accounts payable................................................. 4,914 7,491
Reimbursement settlements due to third-party payors.............. 2,140 770
Accrued expenses................................................. 6,807 5,936
Income taxes payable............................................. 589 (4)
Accrued distributions to partners................................ 877 367
Deferred income taxes............................................ 736 625
----------- -----------
TOTAL CURRENT LIABILITIES................................ 22,857 20,071
Reimbursement settlements due to third-party payors.............. 1,623 1,623
Deferred income taxes............................................ 3,148 2,901
Obligations under capital leases, less current portion........... 3,522 3,536
Long-term debt, less current portion............................. 49,290 47,598
Other liabilities................................................ 485 318
----------- -----------
TOTAL LIABILITIES........................................ 80,925 76,047
----------- -----------
Partners' equity................................................. 5,545 6,267
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY................... $ 86,470 $ 82,314
========= ==========
</TABLE>
See the accompanying notes
6
<PAGE> 7
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------
1993 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................ $ 3,277 $2,888
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................... 4,058 4,017
Provision for bad debts................................................. 987 891
Gain on termination of lease............................................ (534) --
Changes in operating assets and liabilities:
Increase in patient accounts receivable.............................. (1,460) (1,374)
(Increase) decrease in supplies...................................... (41) 50
Increase in other current assets..................................... (835) (505)
Increase (decrease) in noncurrent other assets....................... (293) (212)
Increase in accounts payable......................................... 1,011 2,577
Decrease in accrued expenses......................................... (540) (871)
Decrease in health care insurance programs settlements............... 1,605 (1,370)
Decrease in deferred revenues........................................ (1,203) --
Decrease in income taxes payable..................................... (4) (593)
Decrease in deferred intangibles..................................... -- (358)
(Decrease) increase in other liabilities............................. (322) 5
------- ------
Net cash provided by operating activities............................... 5,706 5,145
------- ------
INVESTING ACTIVITY:
Capital expenditures (net of disposals)................................... (598) (91)
------- ------
Net cash used in investing activity..................................... (598) (91)
------- ------
FINANCING ACTIVITIES:
Repayment of long-term debt and capital leases............................ (5,926) (5,317)
Distributions to partners................................................. (3,726) (2,676)
Withdrawals from partnership.............................................. (53) --
------- ------
Net cash used in financing activities................................... (9,705) (7,993)
------- ------
NET DECREASE IN CASH...................................................... (4,597) (2,939)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................ 14,122 8,917
------- ------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................. $ 9,525 $5,978
======= ======
Supplemental disclosure of cash flow information
Cash paid during the period for interest.................................. $ 2,359 $2,522
</TABLE>
See the accompanying notes
7
<PAGE> 8
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1994
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Fountain Valley
Medical Development Company (the "Partnership") have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the fiscal year 1994
interim period presented are not necessarily indicative of the results that may
be expected for the twelve months ended October 31, 1994. The balance sheet at
October 31, 1993, was derived from the audited financial statements of the
Partnership.
2. INCOME TAXES
The Partnership is not subject to federal or state income taxes. The
results of the Partnership's operations are allocated to and included in the tax
returns of the partners. Accordingly, no income tax provision is reflected in
the accompanying financial statements. Net income for financial reporting
purposes differs from taxable income to be reported by the partners due to
differences between tax accounting methods and generally accepted accounting
principles which are used for financial reporting.
3. SUBSEQUENT EVENT
On May 5, 1994, the Partnership entered into a letter of intent to be
acquired by OrNda HealthCorp for $145 million. The transaction is subject to
execution of a definitive agreement, consent of certain of OrNda HealthCorp's
lenders and other customary closing conditions.
8
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
Executive Committee and Partners
Fountain Valley Medical Development Company
and Subsidiaries
Fountain Valley, California
We have audited the accompanying consolidated balance sheets of Fountain Valley
Medical Development Company and Subsidiaries as of October 31, 1993 and 1992,
and the related consolidated statements of income, partners' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company'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 consolidated 1993 and 1992 financial statements referred to
above present fairly, in all material respects, the financial position of
Fountain Valley Medical Development Company and Subsidiaries at October 31, 1993
and 1992, and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
BDO SEIDMAN
January 21, 1994
9
<PAGE> 10
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1993 1992
-------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................................... $ 8,917 $14,122
Restricted cash (Note 7)...................................................... -- 583
Patient accounts receivable, less estimated allowances and uncollectibles of
$20,314 and $19,828 (Note 2)................................................ 21,145 19,822
Inventory (Note 2)............................................................ 1,763 1,877
Prepaid expenses.............................................................. 1,084 1,093
Other current assets.......................................................... 2,187 1,059
-------- -------
Total current assets................................................... 35,096 38,556
-------- -------
Property and equipment (Note 3)
Land and improvements......................................................... 3,298 3,298
Buildings and improvements.................................................... 62,537 59,733
Equipment..................................................................... 24,125 26,785
Equipment under capital leases................................................ 11,840 9,200
Construction in progress...................................................... 614 528
-------- -------
102,414 99,544
Less accumulated depreciation and amortization................................ 53,898 49,849
-------- -------
Net property and equipment............................................. 48,516 49,695
-------- -------
Other assets
Other assets.................................................................. 696 1,101
Deferred charges, (net of accumulated amortization of $1,240 and $835)........ 1,270 1,221
Excess purchase price and intangibles, (net of accumulated amortization of
$512 and $189).............................................................. 892 1,215
-------- -------
Total other assets..................................................... 2,858 3,537
-------- -------
$ 86,470 $91,788
========= ========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Current portion of obligations under capital leases (Note 3).................. $ 1,673 $ 1,734
Current portion of long-term debt (Note 2).................................... 5,121 6,306
Accounts payable.............................................................. 4,914 4,441
Reimbursement settlements due to third-party payors........................... 2,140 3,505
Accrued expenses.............................................................. 6,807 6,048
Income taxes payable (Note 4)................................................. 589 --
Accrued distributions to partners............................................. 877 1,844
Deferred revenue (Note 7)..................................................... -- 1,661
Deferred income taxes (Note 4)................................................ 736 --
-------- -------
Total current liabilities.............................................. 22,857 25,539
Reimbursement settlements due to third-party payors............................. 1,623 1,077
Deferred income taxes (Note 4).................................................. 3,148 3,160
Obligations under capital leases, less current portion (Note 3)................. 3,522 2,112
Long-term debt, less current portion (Note 2)................................... 49,290 54,277
Deferred revenue (Note 7)....................................................... -- 698
Other liabilities............................................................... 485 976
-------- -------
Total liabilities...................................................... 80,925 87,839
-------- -------
Contingencies (Note 6)
Partners' equity (Note 5)....................................................... 5,545 3,949
-------- -------
$ 86,470 $91,788
========= ========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
10
<PAGE> 11
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net patient service revenue............................................ $112,444 $103,641
Medical building rent and other revenue (Note 7)....................... 7,915 8,734
-------- --------
Total operating revenue...................................... 120,359 112,375
-------- --------
Operating expenses
Payroll and benefits................................................. 58,270 53,807
Supplies............................................................. 18,116 16,733
Purchased services................................................... 11,740 11,062
Other................................................................ 8,351 7,560
Depreciation and amortization........................................ 8,131 7,770
Interest............................................................. 4,980 5,510
Provision for bad debts.............................................. 2,738 2,390
-------- --------
Total operating expenses..................................... 112,326 104,832
-------- --------
Income from operations................................................. 8,033 7,543
Nonoperating income (Note 7)........................................... 698 643
-------- --------
Income before provision for income taxes and cumulative effect of
change in accounting principle....................................... 8,731 8,186
Provision for income taxes (Note 4).................................... 754 113
-------- --------
Income before cumulative effect of change in accounting principle...... 7,977 8,073
Cumulative effect on prior years of change in accounting principle
(Note 4)............................................................. 1,368 --
-------- --------
Net income................................................... $ 6,609 $ 8,073
======== ========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
11
<PAGE> 12
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
1993 AND 1992
(NOTE 2)
--------------
(IN THOUSANDS)
<S> <C>
Partners' equity, at November 1, 1991.......................................... $1,932
Add:
Net income................................................................... 8,073
Less:
Distributions to partners.................................................... 6,056
-------
Partners' equity, at October 31, 1992.......................................... 3,949
Add:
Net income................................................................... 6,609
Less:
Distributions to partners.................................................... 4,957
Withdrawals from partnership................................................. 56
-------
Partners' equity, at October 31, 1993.......................................... $5,545
===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
12
<PAGE> 13
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (NOTE 8)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 6,609 $ 8,073
------- -------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 8,131 7,770
Provision for bad debt......................................................... 2,738 2,390
Income from investment in partnership.......................................... -- (75)
Gain on sale of equipment...................................................... (23) (2)
Gain on termination of lease................................................... (698) (643)
(Increase) decrease in assets:
Patient accounts receivable.................................................... (4,061) (498)
Inventory...................................................................... 114 (73)
Prepaid expenses............................................................... 9 (134)
Other assets................................................................... (1,176) (572)
Increase (decrease) in liabilities:
Accounts payable............................................................... 473 (2,616)
Reimbursement settlements due to third-party payors............................ (819) 3,618
Accrued expenses............................................................... 759 289
Income taxes payable........................................................... 589 (161)
Deferred income taxes.......................................................... 724 (330)
Deferred revenue............................................................... (1,661) 1,661
Other liabilities.............................................................. (491) 443
------- -------
Total adjustments.................................................................. 4,608 11,067
------- -------
Net cash provided by operating activities.......................................... 11,217 19,140
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid on purchase of investment in partnership............................... -- (166)
Proceeds from sale of equipment.................................................. 27 6
Distribution from investment in partnership...................................... -- 500
Capital expenditures............................................................. (3,112) (3,288)
Due from affiliate............................................................... -- 371
Restricted cash.................................................................. 583 (583)
------- -------
Net cash used in investing activities.............................................. (2,502) (3,160)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations............................... (1,767) (1,526)
Principal payments on long-term debt............................................. (6,450) (6,095)
Proceeds from long-term debt..................................................... 278 389
Distributions paid to partners................................................... (5,925) (5,355)
Withdrawals from partnership..................................................... (56) --
------- -------
Net cash used in financing activities.............................................. (13,920) (12,587)
------- -------
Net (decrease) increase in cash and cash equivalents............................... (5,205) 3,393
CASH AND CASH EQUIVALENTS, beginning of year....................................... 14,122 10,729
------- -------
CASH AND CASH EQUIVALENTS, end of year............................................. $ 8,917 $14,122
======== ========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
13
<PAGE> 14
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include the
accounts of the parent, Fountain Valley Medical Development Company (the
"Company"), a California limited partnership and its wholly owned California
corporate subsidiaries, Fountain Valley Regional Hospital and Medical Center
(the "Hospital"), MCS Administrative Services, Inc. ("MCS"), Fountain Valley
Health Care ("FVHC"), and Fountain Valley Imaging Corporation ("FVI Corp."),
Fountain Valley Outpatient Surgery Center ("FVOSC"), a California limited
partnership, and Fountain Valley Imaging Center ("FVIC"), a California limited
partnership. FVHC was formed in January 1992 and FVI Corp. was formed in June
1993. FVOSC was an operating division of the Company and on January 1, 1992
became a separate legal entity and is now included as a subsidiary. The Company
owns a 99% limited partnership interest in FVOSC and FVHC owns the sole 1%
general partnership interest in FVOSC. The Company was a 50% partner in FVIC and
accounted for this joint venture under the equity method of accounting through
March 31, 1992. Effective April 1, 1992, the Company purchased the remaining 50%
ownership in FVIC and includes FVIC in consolidation. The Company owns a 99%
limited partnership interest in FVIC and FVI Corp. owns the sole 1% general
partnership interest in FVIC. All significant intercompany transactions and
stockholdings have been eliminated.
Third-Party Reimbursement Programs. Approximately 47% and 44% of the gross
revenue of the Hospital is derived from patient charges under the Medicare and
Medi-Cal programs for 1993 and 1992. The provisions of these agreements
stipulate that services are to be reimbursed at prospective rates, daily rates
or costs rather than regular rates. The estimated rates or costs are paid to the
Hospital at a tentative rate, and final reimbursement for these services is
determined after submission of annual cost reports by the Hospital and audits by
the program intermediaries. Provision for estimated final reimbursement has been
provided for in the financial statements. The Hospital also provides, as an
adjustment to its provision for contractual allowances, for the results of prior
year audits by agencies administering the programs and agreed upon by the
Hospital in the year of the audit. Cost reports have been filed through the 1992
fiscal year and audited through the 1991 fiscal year.
Allowances and Uncollectibles. The Hospital records its accounts
receivable at their gross amount with an appropriate allowance until collection.
Inventory. Inventory is valued at the lower of cost (first-in, first-out
basis) or market.
Property and Equipment. Property and equipment are stated at cost and are
depreciated using accelerated and straight-line methods over the estimated
useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
CLASSIFICATION USEFUL LIVES
----------------------------------------------------------------------- -------------
<S> <C>
Land improvements...................................................... 5 to 15 years
Buildings and improvements............................................. 3 to 30 years
Equipment.............................................................. 3 to 15 years
Equipment under capital leases......................................... 5 to 10 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Expenditures which
materially increase the value of properties or extend useful lives are
capitalized.
Deferred Charges. Deferred charges consist primarily of deferred loan fees
which are amortized over the life of the related loans. Also included are
capitalized costs incurred for the start-up of additional operating units. These
costs are amortized over five years.
Excess Purchase Price and Intangibles. The excess purchase price of FVIC
which is amortized over two years for medical records portion and forty years
for excess purchase price over book value relates to the purchase of the
remaining 50% ownership purchased in 1992.
14
<PAGE> 15
Net Patient Service Revenue. Net patient service revenue is reported at
the estimated net realizable amounts from patients, third-party payors, and
others for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive adjustments are
accrued on an estimated basis in the period the related services are rendered
and adjusted in future periods as final settlements are determined.
Income Taxes. The Company and its subsidiaries file separate federal and
California income tax returns. Investment and job tax credits are recorded by
the subsidiaries under the flow-through method of accounting as a reduction of
the provision for income taxes when the credits are realized.
Related party receivables/payables relating to rent, which eliminate on a
consolidated basis, are accounted for on a cash basis for income tax purposes.
Employee Savings Plan. Under the Employee Savings Plan (the "Plan"),
eligible participating employees of the Company may elect to contribute up to
10% of their prior calendar year compensation to a trust for investment in
marketable securities. The Company contributes amounts equal to 50% of up to 6%
of their respective participants' contributions, which are also invested in the
trust fund.
The contributions are fully vested to the participants after seven years of
credited service. The Company's contribution to the Plan was $576,000 and
$445,000 for the years ended October 31, 1993 and 1992.
Self-Insurance. The Company provides certain benefits to its employees and
others under health and other insurance programs and is self-insured for certain
benefits under such programs. In the opinion of management, adequate provision
has been made in the financial statements for losses relating to all known and
estimated claims as of October 31, 1993 and 1992. MCS Administrative Services,
Inc. is the administrator of the program.
Reclassifications. Certain amounts in 1992 have been reclassified to
conform to current year presentation. The reclassifications have no effect upon
net income as previously reported in 1992.
Cash and Cash Equivalents. The Company invests excess cash in treasury
bills, short term commercial paper and a money market account, all of which
mature within 90 days. These are stated at cost, which approximates market.
15
<PAGE> 16
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
The Company owns and operates a 289 bed for profit acute care hospital,
medical office buildings, an outpatient surgery center, a transitional care unit
and a geopsychiatric unit in the Southern California area. Revenues of the
Company are derived from hospital operations and suite rentals within the
medical office buildings.
2. LONG-TERM DEBT
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
First trust deed collateralized by original hospital building, land,
equipment, inventory and accounts receivable and assignment of hospital
stock; interest payable quarterly based on the "alternate base rate III,"
as defined within the Credit Agreement; the rate at October 31, 1993 was
6%.
A) Term Loan: Principal balance due in monthly installments of $291,667 for
year ending October 31, 1994; $416,667 for year ending October 31, 1995;
$633,333 for years ending October 31, 1996 and 1997; $650,000 for nine
months ending July 31, 1998 and last installment due July 31, 1998.
Interest at Alternate Base Rate III plus 1% per annum.................... $33,000 $36,500
B) Revolving Facility: Principal of up to $15,000,000 due November 1, 1995.
Interest at Alternate Base Rate III plus .75% per annum.................. 10,000 10,000
Note payable, payable in quarterly installments of $166,667 plus interest
at 6% due January 1, 1995................................................ 833 1,500
Notes payable, collateralized by equipment, payable $87,000 monthly,
including interest of approximately 10% due at various dates through
1997..................................................................... 2,302 2,955
First trust deeds collateralized by medical office buildings, payable
$91,000 monthly, including interest at 12.125%, due November 1, 1994..... 8,276 9,531
Note payable, collateralized by equipment, payable $16,000 monthly,
principal only, due in 1993.............................................. -- 97
------- -------
54,411 60,583
Less current portion....................................................... 5,121 6,306
------- -------
$49,290 $54,277
======= =======
</TABLE>
On August 20, 1990, the Company obtained a $50,000,000 senior secured
revolving credit facility (the "Revolving Facility"), of which $40,000,000
converted to a term loan (the "Term Loan") upon the execution of a Second
Amendment to the Credit Agreement dated October 31, 1991, with monthly principal
payments commencing November 1, 1991 through July 31, 1998. The Revolving
Commitment increased from $10,000,000 to $15,000,000 and is due November 1,
1995. The Company must pay a commitment fee on any unused portion of the
revolving commitment at a rate of 1/2 of 1% per annum.
As part of the Credit Agreement, the Company is required to maintain
certain financial and other covenants including a restriction on the amount of
distributions made to the partners. As of October 31, 1993 and for the year then
ended, the Company was not in compliance with two of these covenants.
The Company received a bank waiver for the two covenants they were not in
compliance with at October 31, 1993 and for the year then ended.
16
<PAGE> 17
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending October 31, (IN THOUSANDS)
<S> <C>
1994........................................................ $ 5,121
1995........................................................ 14,094
1996........................................................ 18,083
1997........................................................ 7,802
1998........................................................ 9,311
-----------
Total........................................ $ 54,411
===========
</TABLE>
3. CAPITAL LEASES
The Company is currently leasing various pieces of equipment under capital
leases due on various dates through 1998. Approximately $11,840,000 and
$9,200,000 of equipment has been capitalized, and $6,980,000 and $5,690,000 of
amortization has been taken as of October 31, 1993 and 1992.
The following is a schedule by years of future minimum lease payments under
the capital leases, together with the present value of the net minimum lease
payments as of October 31, 1993:
<TABLE>
<CAPTION>
Year ending October 31, (IN THOUSANDS)
<S> <C>
1994........................................................ $2,043
1995........................................................ 1,468
1996........................................................ 954
1997........................................................ 765
1998........................................................ 693
Thereafter.................................................. 30
-------
Total net minimum lease payments............................ 5,953
Less amount representing interest........................... 758
-------
Present value of net minimum lease payments................. 5,195
Less current portion of obligations under capital leases.... 1,673
-------
Obligations under capital leases............................ $3,522
==========
</TABLE>
4. PROVISION FOR INCOME TAXES
Effective November 1, 1992, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." As permitted under the new rule, prior years' financial statements have
not been restated. The adoption of the new standard had no effect on the tax
provision for 1993. (The cumulative effect of this adoption was a $1,368,000
decrease in net income.)
17
<PAGE> 18
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1992
------ -----
(IN THOUSANDS)
<S> <C> <C>
Current
Federal............................................. $1,059 $ 263
State............................................... 339 180
------ -----
1,398 443
------ -----
Deferred
Federal............................................. (543) (280)
State............................................... (101) (50)
------ -----
(644) (330)
------ -----
$ 754 $ 113
====== =====
</TABLE>
The variation in the customary relationship between income tax expense and
pretax accounting income arises because the Company consists of partnerships and
corporations and therefore income taxes are paid by the individual partners and
corporations.
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities at October 31, 1993 are as follows:
<TABLE>
<S> <C>
ASSETS
Provision for doubtful accounts................................ $ 476
Accrued rent................................................... 169
------
Gross deferred tax assets........................................ 645
------
LIABILITIES
Section 481.................................................... 3,753
Medicare settlement............................................ 443
Depreciation................................................... 333
------
Gross deferred tax liabilities................................... 4,529
------
$3,884
======
</TABLE>
5. PARTNERSHIP UNITS HELD FOR RESALE AND NOTES RECEIVABLE FROM PARTNERS FOR SALE
OF UNITS
In February 1985, the Partnership purchased certain partnership units from
existing partners. The Partnership initially paid $4,431,000 in February 1985
for approximately 5% of the units then outstanding. Through October 31, 1993,
the Company purchased a total of approximately $6,131,000 partnership units and
resold a total of approximately $3,545,000 partnership units. All resales have
been at the same per unit price as the Partnership paid in February 1985. The
majority of the units were sold in exchange for notes receivable from the
partners. The notes receivable from partners were approximately $2,162,000 and
$2,361,000 as of October 31, 1993 and 1992 and are recorded as a reduction of
equity.
6. CONTINGENCIES
The Company and Hospital maintain a $500,000 per occurrence medical
malpractice insurance policy. Occurrence basis insurance covers claims that
occur during the policy term regardless of when the claim was reported.
18
<PAGE> 19
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the Company and Hospital have claims-made medical malpractice
insurance policies which cover the Company and Hospital for claims from $500,000
to $20,000,000 with 7-year prepaid discovery. Claims-made insurance covers only
those claims covered by the policy and reported to the insurance carrier during
the policy term.
As of October 31, 1993, the Hospital has no malpractice loss accruals. The
Hospital and the Company have a deductible reserve exposure of up to $247,000
for deductible liability on claims made, but not settled as of October 31, 1993.
During a prior year, the Company was joined by 118 other hospitals, as well
as another organization, in an action which was originally against four workers'
compensation insurance carriers and three other defendants alleging conspiracy
to suppress prices paid by workers' compensation insurance companies.
The action and a subsequent counterclaim between the defendants were
settled in December 1993. The settlement resulted in no liability to the
Company.
7. LEASE REVENUE
The Company's principle leasing activities consist of renting suites in
four medical office buildings. Lease terms for the medical office buildings
range from 1 to 5 years. Rental income for the years ended October 31, 1993 and
1992 was approximately $5,144,000 and $6,048,000. This rental income includes
the rent from the regional care center ("RCC") whose lease was terminated
effective June 1, 1992.
The following is a schedule of future minimum lease revenue for the four
medical office building leases:
<TABLE>
<CAPTION>
Year ending October 31, (IN THOUSANDS)
<S> <C>
1994........................................................ $ 3,953
1995........................................................ 3,287
1996........................................................ 2,389
1997........................................................ 1,554
1998........................................................ 621
-----------
Total............................................. $ 11,804
===========
</TABLE>
The Company leased to the RCC under a long-term lease agreement which the
tenant terminated effective June 1, 1992. An agreement was arrived at in which
the tenant agreed to 1) pay thirteen months additional rent and expenses from
the date of termination, 2) leave all the equipment valued at $206,000 to the
Company, and 3) leave all the leasehold improvements valued at $1,135,000 to the
Company. The Company agreed to return to the lessee any rents paid on the RCC
during the thirteen month period if a nonrelated party rented the facility, as
adjusted for various expenses to the Company. Additionally, a restricted cash
account of approximately $583,000 was established with a portion of the cash
paid by the lessee in the settlement in the event the facility was leased during
the thirteen month period. As the RCC was not leased during the thirteen month
period, the restricted cash became unrestricted during the year ended October
31, 1993. The Company recorded deferred revenue and recognized the rent and
value of the leasehold improvements ratably on a monthly basis over the thirteen
month period which expired during the year ended October 31, 1993. Rent is
included in medical building rent and other revenue. The leasehold improvements
and equipment value is included in nonoperating income.
19
<PAGE> 20
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1993 1992
------ ------
(IN THOUSANDS)
<S> <C> <C>
Cash paid during the period for:
Interest (net of interest capitalized of $25 in 1993 and $17 in
1992)......................................................... $5,001 $5,838
Income taxes..................................................... $ 743 $ 480
</TABLE>
Schedule of non-cash investing and financing activities (in thousands):
Capital lease obligations of approximately $2,178 and $1,522 were incurred
when the Company entered into leases for new equipment in 1993 and 1992.
Lease settlement of $1,135,000 in leasehold improvements and $206,000 in
equipment.
Fifty percent interest in FVIC purchased included a note payable of
$1,834,000.
20
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The pro forma condensed combined balance sheet gives effect to the Mergers,
the acquisition of Fountain Valley, the Offering and the use of proceeds
therefrom and assumes the repurchase of 100% of the aggregate outstanding
principal amount of the 10 1/4% Notes pursuant to the Change of Control Offer by
combining (i) the balance sheet of the Company at May 31, 1994; and (ii) the
balance sheet of Fountain Valley at April 30, 1994. The pro forma condensed
combined balance sheet gives effect to the Summit Merger at April 19, 1994 and
all other transactions as if they had been consummated on May 31, 1994. Because
the Company accounted for the AHM Merger as a pooling-of-interests transaction,
the Company's historical financial data include AHM's balance sheet data and
results of operations for all periods presented. The pro forma condensed
combined balance sheet is presented for comparative purposes only and is not
necessarily indicative of what the combined financial position would have been
had the transactions assumed therein in fact occurred at the times assumed. The
pro forma condensed combined balance sheet should be read in conjunction with
the respective historical financial statements of the Company, Summit and
Fountain Valley incorporated by reference or included herein.
<TABLE>
<CAPTION>
ORNDA FOUNTAIN VALLEY FOUNTAIN VALLEY OFFERING
MAY 31, APRIL 30, PRO FORMA PRO FORMA PRO FORMA
1994 1994 ADJUSTMENTS ADJUSTMENTS COMBINED
---------- --------------- --------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............ $ 16,342 $ 5,978 $ 98,022(1) $ -- $ 16,342
(104,000)(2)
Patients accounts receivable net of
allowance for uncollectibles....... 268,922 21,628 -- -- 290,550
Supplies, at cost.................... 26,620 1,713 -- -- 28,333
Other................................ 50,506 3,776 (1,523)(2) -- 52,759
---------- --------------- --------------- ----------- ----------
Total current assets........ 362,390 33,095 (7,501) -- 387,984
Property plant and equipment, net of
accumulated depreciation and
amortization....................... 1,020,946 46,456 49,609(2) -- 1,117,011
Investments in Houston Northwest
Medical Center..................... 80,947 -- -- -- 80,947
Goodwill, net of accumulated
amortization....................... 266,954 -- -- -- 266,954
Other assets......................... 58,467 2,763 3,000(1) (3,500)(4) 61,482
(2,873)(2) 3,625(3)
---------- --------------- --------------- ----------- ----------
TOTAL ASSETS................ $1,789,704 $82,314 $ 42,235 $ 125 $1,914,378
========== ============== ============== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other
liabilities........................ $ 302,698 $15,185 $ 3,500(2) -- $ 321,383
Current maturities of long-term
debt............................... 7,368 4,886 (4,886)(2) -- 7,368
---------- --------------- --------------- ----------- ----------
Total current liabilities... 310,066 20,071 (1,386) -- 328,751
Long-term debt....................... 1,015,000 51,134 101,022(1) 125,000(3) 1,120,647
(51,134)(2) (100,000)(3)
(20,375)(3)
Other liabilities.................... 99,126 4,842 -- -- 103,968
Shareholders' equity(5).............. 365,512 6,267 (6,267)(2) (1,000)(3) 361,012
(3,500)(4)
---------- --------------- --------------- ----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY...... $1,789,704 $82,314 $ 42,235 $ 125 $1,914,378
========== ============== ============== =========== ==========
</TABLE>
See notes to unaudited pro forma condensed combined balance sheet.
21
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
NOTE 1
To record the incremental borrowing related to the Fountain Valley
acquisition as follows (in thousands):
<TABLE>
<S> <C>
Cash for acquisition of assets............................................ $104,000
Cash for transaction costs................................................ 3,000
Less Fountain Valley's cash............................................... (5,978)
--------
Additional debt adjustment.............................................. 101,022
Less cash paid for transaction costs...................................... (3,000)
--------
Net cash adjustment..................................................... $ 98,022
========
</TABLE>
NOTE 2
To record the purchase of Fountain Valley common stock including the
adjustment of Fountain Valley's balance sheet to reflect assets acquired by the
Company (in thousands).
<TABLE>
<S> <C> <C>
Cash used to acquire Fountain Valley............................. $ 104,000
Less adjustments of Fountain Valley's historical balances of
assets and liabilities to fair value:
Prepaids....................................................... 1,523
Property, plant and equipment, net............................. (49,609)
Other assets................................................... 2,873
Accrued expenses and other liabilities......................... 3,500
Current maturities of long-term debt........................... (4,886)
Long-term debt................................................. (51,134)
Partners' capital.............................................. (6,267) (104,000)
------- ---------
To record excess cost of the net assets acquired from Fountain
Valley over fair market value.................................. $ --
=========
</TABLE>
NOTE 3
To record the issuance of the Notes and repayment of existing indebtedness
(in thousands):
<TABLE>
<S> <C>
Issuance of the Notes.................................................... $ 125,000
Repurchase of the 10 1/4% Notes.......................................... (100,000)
Payment on Bank Credit Facility.......................................... (20,375)
---------
Net increase in debt........................................... 4,625
Payment of debt issue costs relating to the Notes........................ (3,625)
Payment of premium upon repurchase of the 10 1/4% Notes.................. (1,000)
---------
Net change in cash............................................. $ --
=========
</TABLE>
The pro forma condensed combined balance sheet assumes the Company's
repurchase of 100% of the aggregate outstanding principal amount of the 10 1/4%
Notes pursuant to the Change of Control Offer. As of July 18, 1994, the
expiration date of the Change of Control Offer, 99.3% of the 10 1/4% Notes have
been tendered and were purchased by the Company on July 19, 1994 pursuant to the
Change of Control Offer. The difference between the amount tendered and the
amount assumed in the pro forma adjustment has an immaterial impact on the pro
forma condensed combined balance sheet.
NOTE 4
To write-off $3.5 million of debt issuance costs related to the 10 1/4%
Notes.
22
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET -- (CONTINUED)
NOTE 5
As of May 31, 1994, the Company had 1.3 million shares of $.01 par value
Payable In Kind Cumulative Redeemable Convertible Preferred Stock (the "PIK
Preferred Stock") outstanding with an aggregate liquidation value of $19.3
million. Although the Company has received a financing commitment to enable the
Company to redeem the PIK Preferred Stock, the Company has not decided whether
to redeem the PIK Preferred Stock. Moreover, the PIK Preferred Stock is
convertible into the Company's Common Stock on a share for share basis.
Accordingly, because the PIK Preferred Stock redemption price is $15 per share,
the Company believes that if the Company's Common Stock price exceeds $15 per
share on the redemption date the holders of PIK Preferred Stock will convert
into the Company's Common Stock rather than accept the redemption price.
If the financing commitment were utilized, pro forma long-term debt would
increase approximately $19.3 million and shareholders' equity would be reduced
$19.3 million. If the holders of PIK Preferred Stock convert to the Company's
Common Stock, the components of shareholders' equity change but total pro forma
shareholders' equity would not change. The redemption of the PIK Preferred Stock
or the conversion of the PIK Preferred Stock into the Company's Common Stock
would not have a material impact on pro forma income.
23
<PAGE> 24
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED MAY 31, 1994
The pro forma condensed combined income statement for the nine months ended
May 31, 1994 gives effect to the acquisition of Fountain Valley, the Mergers,
the Offering and the use of proceeds therefrom and assumes the repurchase of
100% of the aggregate outstanding principal amount of the 10 1/4% Notes pursuant
to the Change of Control Offer as if such transactions had occurred on September
1, 1992 by combining (i) the results of operations of the Company for the nine
months ended May 31, 1994 (which, because the Company accounted for the AHM
Merger as a pooling-of-interests transaction, includes the results of operations
of AHM); (ii) the results of operations of Summit for the nine months ended
March 31, 1994 (as adjusted to exclude the 43 days included in the results of
operations for OrNda), applying the purchase method of accounting; and (iii) the
results of operations of the Company for the nine months ended May 31, 1994 and
the results of operations of Fountain Valley for the nine months ended April 30,
1994, applying the purchase method of accounting. This pro forma condensed
combined income statement is presented for comparative purposes only and is not
necessarily indicative of the combined results of operations in the future or of
what the combined results of operations would have been had the transactions
assumed therein been consummated during the period for which this statement is
presented. Pro forma earnings per common and common equivalent share and pro
forma weighted average shares outstanding give effect to the exchange of AHM and
Summit shares of common stock and common stock equivalents for the Company's
Common Stock and Common Stock equivalents as described by the respective merger
agreements. In addition, the pro forma condensed combined income statement does
not give effect to the cost savings, if any, which may be realized by the
Company after consummation of the Mergers or the acquisition of Fountain Valley.
This pro forma condensed combined income statement should be read in conjunction
with the historical financial statements and notes thereto of the Company and
Summit incorporated by reference herein, and those of Fountain Valley included
herein.
<TABLE>
<CAPTION>
SUMMIT
NINE MONTHS FOUNTAIN
ENDED VALLEY
MARCH 31, ORNDA NINE MONTHS FOUNTAIN
1994 SUMMIT SUMMIT ENDED VALLEY OFFERING PRO
(AS PRO FORMA PRO FORMA APRIL 30, PRO FORMA PRO FORMA FORMA
ORNDA ADJUSTED) ADJUSTMENTS COMBINED 1994 ADJUSTMENTS ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue..... $882,917 $ 353,086 $ (71,725)(6) $1,164,278 $92,062 -- -- $1,256,340
Costs and expenses
Operating
expenses...... 697,537 291,681 (6,739)(5) 922,482 75,975 3,150(7) -- 1,001,607
(59,997)(6)
Provision for
doubtful
accounts...... 57,443 15,041 (640)(6) 71,844 1,718 -- -- 73,562
Depreciation and
amortization... 45,918 13,264 6,721(2) 63,756 6,234 (3,284)(2) 17(2) 66,723
(2,147)(6)
Interest
expense....... 59,331 6,088 13,520(3) 74,748 3,723 2,033(3) 2,140(3) 82,644
(4,191)(6)
Interest
income........ (2,032) (1,228) (428)(6) (3,382) (185) 112(3) -- (3,455)
306(3)
Minority
interest...... 4,230 2,138 (2,138)(6) 4,230 -- -- -- 4,230
Special
executive
compensation... 2,530 -- -- 2,530 -- -- -- 2,530
Loss on sale of
asset......... 9,761 -- -- 9,761 -- -- -- 9,761
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
8,199 26,102 (15,992) 18,309 4,597 (2,011) (2,157) 18,738
Loss from
investment in
Houston
Northwest
Medical
Center.......... (136) -- -- (136) -- -- -- (136)
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Income (loss) from
continuing
operations
before income
tax expense..... 8,063 26,102 (15,992) 18,173 4,597 (2,011) (2,157) 18,602
Income tax
expense......... 1,048 14,759 (7,779)(4) 5,180 -- 517(4) (431)(4) 5,266
(2,848)(6)
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Income from
continuing
operations...... 7,015 11,343 (5,365) 12,993 4,597 (2,528) (1,726) 13,336
Preferred stock
dividend
requirements.... (1,462) -- -- (1,462) -- -- -- (1,462)
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Income from
continuing
operations
applicable to
common and
common
equivalent
shares.......... $ 5,553 $ 11,343 $ (5,365) $ 11,531 $ 4,597 $(2,528) $(1,726) $ 11,874
======== ========= ======== ========= ========= ======== ======== =========
Earnings per
common and
common
equivalent
shares from
continuing
operations...... $ 0.15 $ 0.33 $ 0.26 $ 0.27
======== ========= ========= =========
Shares used in
earnings per
common share and
common
equivalent share
computations (in
thousands)...... 36,047 33,870 44,398 44,398
</TABLE>
See notes to unaudited pro forma condensed combined income statement.
24
<PAGE> 25
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
The pro forma condensed combined income statement for the fiscal year ended
August 31, 1993 gives effect to the acquisition of Fountain Valley, the Mergers,
the Offering and the use of proceeds therefrom and assumes the repurchase of
100% of the aggregate outstanding principal amount of the 10 1/4% Notes pursuant
to the Change of Control Offer as if such transactions had occurred on September
1, 1992 by combining (i) the results of operations of the Company for the fiscal
year ended August 31, 1993 (adjusted on the pro forma basis to include the
acquisition of Florida Medical Center as described below)) (ii) the results of
operations of the Company for the fiscal year ended August 31, 1993 (adjusted as
described below) and the results of operations of Summit for the fiscal year
ended June 30, 1993, applying the purchase method of accounting; and, (iii) the
results of operations of the Company for the fiscal year ended August 31, 1993
(adjusted as described below) and the results of operations of Fountain Valley
for the fiscal year ended October 31, 1993, applying the purchase method of
accounting. Because the Company accounted for the AHM Merger as a pooling-of-
interests transaction, the historical financial data of the Company includes the
results of operations of AHM for all periods presented. This pro forma condensed
combined income statement is presented for comparative purposes only and is not
necessarily indicative of the combined results of operations in the future or of
what the combined results of operations would have been had the transaction
assumed therein been consummated during the period for which this statement is
presented. Pro forma earnings per common and common equivalent share and pro
forma weighted average shares outstanding give effect to the exchange of AHM and
Summit shares of common stock and common stock equivalents for the Company's
Common Stock and Common Stock equivalents as described by the respective merger
agreements. In addition, the pro forma condensed combined income statement does
not give effect to the cost savings, if any, which may be realized by the
Company after consummation of the Mergers or the acquisition of Fountain Valley.
The Company acquired Florida Medical Center on June 30, 1993 in a
transaction accounted for as a purchase. The Company's pro forma condensed
combined income statement for the year ended August 31, 1993 reflects the
operating results of the Company for the fiscal year ended August 31, 1993 as if
the acquisition of Florida Medical Center had occurred on September 1, 1992.
This pro forma condensed combined income statement should be read in
conjunction with the historical financial statements and notes thereto of the
Company and Summit incorporated by reference herein, and those of Fountain
Valley included herein.
<TABLE>
<CAPTION>
FOUNTAIN
SUMMIT ORNDA VALLEY
YEAR ENDED SUMMIT PRO SUMMIT YEAR ENDED FOUNTAIN VALLEY OFFERING
ORNDA JUNE 30, FORMA PRO FORMA OCTOBER 31, PRO FORMA PRO FORMA PRO FORMA
PRO FORMA 1993 ADJUSTMENTS COMBINED 1993 ADJUSTMENTS ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------- ----------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total
revenue..... $1,060,662 $508,504 $ (83,992)(6) $1,485,174 $ 120,777 -- $1,605,951
Costs and
expenses
Operating
expenses... 842,065 425,242 (8,985)(5) 1,186,499 96,477 4,200(7) 1,287,176
(71,823)(6)
Provision
for
doubtful
accounts... 69,729 23,113 (534)(6) 92,308 2,738 -- 95,046
Depreciation
and
amortization...52,093 19,185 8,962(2) 77,932 8,131 (4,379)(2) 23(2) 81,707
(2,308)(6)
Interest
expense... 75,511 7,377 18,027(3) 98,663 4,980 2,710(3) 2,854(3) 109,207
(2,252)(6)
Interest
income.... (3,380) (1,605) (408)(6) (4,984) (280) 149(3) (5,115)
409(3)
Minority
interest... 4,601 2,421 (2,421)(6) 4,601 -- -- 4,601
---------- ---------- ----------- ---------- ----------- ------- ----------- ----------
20,043 32,771 (22,659) 30,155 8,731 (2,680) (2,877) 33,329
Income from
investments
in Houston
Northwest
Medical
Center...... 173 -- -- 173 -- -- -- 173
---------- ---------- ----------- ---------- ----------- ------- ----------- ----------
Income from
continuing
operations
before
income tax
expense..... 20,216 32,771 (22,659 ) 30,328 8,731 (2,680 ) (2,877) 33,502
Income tax
expense..... 1,129 14,201 (7,875)(4) 4,338 754 456(4) (575)(4) 4,973
(3,117)(6)
---------- ---------- ----------- ---------- ----------- ------- ----------- ----------
Income from
continuing
operations... 19,087 18,570 (11,667) 25,990 7,977 (3,136) (2,302) 28,529
Preferred
stock
dividend
requirements... (1,699) -- -- (1,699) -- -- -- (1,699)
---------- ---------- ----------- ---------- ----------- ------- ----------- ----------
Income from
continuing
operations
applicable
to common
and common
equivalent
shares...... $ 17,388 $ 18,570 $ (11,667) $ 24,291 $ 7,977 $(3,136) $(2,302) $ 26,830
========= ======== ======== ========= ======== =========== ======== =========
Earnings per
common and
common
equivalent
share from
continuing
operations... $ 0.50 $ 0.56 $ 0.57 $ 0.63
========= ======== ========= =========
Shares used in
earnings per
common and
common
equivalent
share
computations
(in
thousands)... 34,960 33,201 42,560 42,560
</TABLE>
See notes to unaudited pro forma condensed combined income statement.
25
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT
NOTE 1
The Company will continue to report its financial information on a fiscal
year basis ending on August 31. The Summit and Fountain Valley results of
operations, which are included in the accompanying unaudited pro forma condensed
combined income statement, have been presented on a fiscal year basis ending on
June 30 and October 31, respectively.
The pro forma condensed combined income statement assumes the Company's
repurchase of 100% of the aggregate outstanding principal amount of the 10 1/4%
Notes pursuant to the Change of Control Offer. As of July 18, 1994, the
expiration date of the Change of Control Offer, 99.3% of the 10 1/4% Notes have
been tendered and were purchased by the Company on July 19, 1994 pursuant to the
Change of Control Offer. The difference between the amount tendered and the
amount assumed in the pro forma adjustment has an immaterial impact on the pro
forma condensed combined income statement.
The Company acquired Florida Medical Center on June 30, 1993, for an
aggregate purchase price of $113.1 million. The unaudited pro forma condensed
combined income statement for the year ended August 31, 1993, reflects the pro
forma operations of the Company as if its acquisition of Florida Medical Center
had occurred on September 1, 1992. The historical results of Florida Medical
Center have been adjusted using purchase accounting to give effect to the
acquisition by the Company and to eliminate the effect of significant
nonrecurring transactions.
The following combined unaudited pro forma condensed income statement for
the year ended August 31, 1993 presents the historical operations of the
Company, and the incremental pro forma operations of Florida Medical Center as
if the acquisition of Florida Medical Center by the Company had occurred on
September 1, 1992.
ORNDA HEALTHCORP AND FLORIDA MEDICAL CENTER
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
FLORIDA
ORNDA MEDICAL CENTER ORNDA
HISTORICAL PRO FORMA PRO FORMA
---------- -------------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Total revenue.............................................. $ 961,795 $ 98,867 $1,060,662
Cost and Expenses
Operating expenses....................................... 765,743 76,322 842,065
Provision for doubtful accounts.......................... 63,907 5,822 69,729
Depreciation and amortization............................ 47,669 4,424 52,093
Interest expense......................................... 68,660 6,851 75,511
Interest income.......................................... (3,380) -- (3,380)
Minority interest........................................ 4,601 -- 4,601
---------- -------------- ----------
14,595 5,448 20,043
Income from investments in Houston Northwest Medical
Center................................................... 173 -- 173
---------- -------------- ----------
Income from continuing operations before income tax
expense.................................................. 14,768 5,448 20,216
Income tax expense......................................... 1,129 -- 1,129
---------- -------------- ----------
Income from continuing operations.......................... 13,639 5,448 19,087
Preferred stock dividend requirement....................... (1,699) -- (1,699)
---------- -------------- ----------
Income (loss) from continuing operations applicable to
common and common equivalent shares...................... $ 11,940 $ 5,448 17,388
======== =========== =========
Earnings (loss) per common and common equivalent share from
continuing operations.................................... $ (0.34) $ 0.50
======== =========
Shares used in earnings (loss) per common and common
equivalent share computation (in thousands).............. 34,960 34,960
</TABLE>
26
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT -- (CONTINUED)
NOTE 2
To adjust amortization for the Summit Merger as follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, AUGUST 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To record amortization related to the $190.1 million increase
in excess of costs of net assets acquired over fair value
for Summit assuming a 30 year life......................... $4,752 $6,337
To record amortization on the $6.0 million increase in
deferred financing costs assuming a 6 year life............ 750 1,000
To record depreciation on the $65.0 million of properties
acquired, net of land costs, assuming a 30 year life....... 1,219 1,625
--------- ---------
$6,721 $8,962
========= =========
</TABLE>
The pro forma condensed combined income statement assumes that the net
assets acquired from Summit over fair market value will be amortized over 30
years. The amortization period was determined based upon the estimated economic
life of the property, plant, and equipment acquired. The Company evaluates the
amortization period of intangible assets on an annual basis.
To adjust amortization for the acquisition of Fountain Valley as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE NINE ENDED
MONTHS ENDED AUGUST 31,
MAY 31, 1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To record amortization on the $2.0 million increase in
deferred financing costs assuming a 6 year life........... $ 250 $ 333
To adjust depreciation on the $45.8 million of properties to
be acquired assuming lives between 7 and 30 years......... (3,534) (4,712)
--------- ---------
$ (3,284) $ (4,379)
========= =========
</TABLE>
To adjust amortization for the issuance of the Notes:
<TABLE>
<S> <C> <C>
To record amortization on the $3.6 million increase in
deferred financing costs assuming a 10 year life.......... $ 272 $ 363
To eliminate amortization on the 10 1/4% Notes.............. (255) (340)
--------- --------
$ 17 $ 23
========= ========
</TABLE>
27
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT -- (CONTINUED)
NOTE 3
To adjust interest expense for the Summit Merger as follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, AUGUST 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To record interest on borrowings of $269.1 million related to
the Bank Credit Facility (assumes a 6.7% interest rate) for
the Summit merger.......................................... $ 13,520 $ 18,027
========= =========
To eliminate interest income on excess Summit cash........... $ 306 $ 409
========= =========
</TABLE>
To adjust interest expense for the acquisition of Fountain Valley as
follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, AUGUST 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To record interest on borrowings of $101.0 million related to
the Bank Credit Facility (assumes a 6.7% interest rate).... $ 5,076 $ 6,768
To eliminate historical interest expense related to Fountain
Valley debt to be retired in connection with the
acquisition................................................ (3,043) (4,058)
------------ ------------
$ 2,033 $ 2,710
========= =========
To eliminate interest income on excess Fountain Valley
cash....................................................... $ 112 $ 149
========= =========
</TABLE>
To adjust interest expense for the issuance of the Notes:
<TABLE>
<S> <C> <C>
To record interest on the Notes.............................. $ 10,664 $ 14,219
To eliminate historical interest expense related to the
10 1/4%
Notes...................................................... (7,500) (10,000)
To eliminate interest expense related to payment of $20.4
million on Bank Credit Facility (assumes a 6.7% interest
rate)...................................................... (1,024) (1,365)
------------ ------------
$ 2,140 $ 2,854
========= =========
</TABLE>
NOTE 4
To record pro forma provision for income taxes on the pro forma adjustments
at a rate of 20% except for amortization adjustments related to excess costs of
net assets acquired over fair value which will not be deductible for tax
purposes and to adjust Summit tax rate for net operating loss utilization.
28
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT -- (CONTINUED)
NOTE 5
The pro forma financial statements give effect to the Company's acquisition
of approximately $65 million (of a total of $85.4 million) of the Summit
properties currently under lease. The Company entered into an agreement with a
third party purchaser for approximately $20.4 million of the remaining real
estate. The Company will lease such real estate from the third party under an
operating lease agreement.
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, AUGUST 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To eliminate operating lease expense under previous lease
commitments........................................................ $ (8,307) $(11,076)
To record new lease commitments (assumes a 10 1/4% interest rate).... 1,568 2,091
------------ ------------
$ (6,739) $ (8,985)
========= =========
</TABLE>
NOTE 6
To record the effect of accounting for the investment in Summit Care
Corporation as if the 7 1/2% Notes are exchanged for Summit Care common stock as
described below:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1994 JUNE 30,1993
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Total revenues............................................. $(71,725) $ (83,992)
Operating expenses......................................... (59,997) (71,823)
Provision for doubtful accounts............................ (640) (534)
Depreciation and amortization.............................. (2,147) (2,308)
Interest expense........................................... (4,191) (2,252)
Interest income............................................ (428) (408)
Minority interest.......................................... (2,138) (2,421)
Income tax................................................. (2,848) (3,117)
</TABLE>
$37.4 million aggregate principal amount of the 7 1/2% Notes which are
exchangeable into Summit's 38.6% interest in the Summit Care common stock, were
outstanding at May 31, 1994. The pro forma condensed combined income statements
for the fiscal year ended August 31, 1993 and for the nine months ended May 31,
1994 give effect to the investment in Summit Care as if the holders of the
7 1/2% Notes exchanged for the Summit Care common stock on September 1, 1992.
NOTE 7
Pursuant to the Real Estate Purchase Agreement, the REIT acquired certain
real estate from Fountain Valley for approximately $41 million. The Company
leases such real estate from the REIT pursuant to an operating lease agreement.
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE YEAR ENDED
MONTHS ENDED AUGUST 31,
MAY 31, 1994 1993
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
To record $41 million of new lease commitments (assumes a
10.25% interest rate)........................................ $3,150 $4,200
========= ========
</TABLE>
29
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT -- (CONTINUED)
NOTE 8
No provision has been reflected in the unaudited pro forma condensed
combined financial statements for expenses incurred by the Company and AHM in
connection with the AHM Merger. These expenses, consisting primarily of amounts
related to investment advisory and professional fees, expenses for printing and
distributing proxy materials and certain severance and relocation costs have
been estimated at $30 million (of which approximately $16 million is a cash
expense) and were expensed upon completion of the AHM Merger.
30
<PAGE> 31
(c) EXHIBITS
2.1 Stock Purchase Agreement, dated as of July 20, 1994, among Summit,
OrNda and FVMDC (incorporated by reference to Exhibit 2.1 to Summit's
Registration Statement No. 33-54651 as filed with the Securities and Exchange
Commission on August 2, 1994).
2.2 Agreement of Sale and Purchase, dated as of July 21, 1994, by and among
FVMDC, OrNda and Healthcare Realty Trust Incorporated (incorporated by reference
to Exhibit 2.2 to Summit's Registration Statement No. 33-54651 as filed with the
Securities and Exchange Commission on August 2, 1994).
23 Consent of BDO Seidman, independent certified public accountants.
31
<PAGE> 32
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 hereunto duly authorized.
SUMMIT HEALTH LTD.
By: /s/ RONALD P. SOLTMAN
---------------------------
Ronald P. Soltman
Senior Vice President
Date: August 23, 1994
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
NO. SUBJECT MATTER PAGE NO.
--- ---------------------------------------------------------------------------- ----------
<S> <C> <C>
2.1 Stock Purchase Agreement, dated as of July 20, 1994, among Summit, OrNda and
FVMDC (incorporated by reference to Exhibit 2.1 to Summit's Registration
Statement No. 33-54651 as filed with the Securities and Exchange Commission
on August 2, 1994)........................................................... N/A
2.2 Agreement of Sale and Purchase, dated as of July 21, 1994, by and among
FVMDC, OrNda and Healthcare Realty Trust Incorporated (incorporated by
reference to Exhibit 2.2 to Summit's Registration Statement No. 33-54651 as
filed with the Securities and Exchange Commission on August 2, 1994)........ N/A
23 Consent of BDO Seidman, independent certified public accountants............ 35
</TABLE>
33
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following OrNda
HealthCorp Registration Statements:
a. Form S-3 Registration Statement (No. 33-76700) relating to the
registration of 1,376,755 shares of Payable-In-Kind Cumulative Redeemable
Convertible Preferred Stock and 4,321,651 shares of Common Stock, effective
on June 15, 1994;
b. Form S-8 Registration Statement (No. 33-37699) relating to 851,563
shares of Common Stock issuable under the Republic Health Corporation Stock
Accumulation Plan, the Republic Health Corporation 1990 Stock Option Plan
and the Republic Health Corporation 1991 Stock Option Plan, filed on
November 9, 1990;
c. Form S-8 Registration Statement (No. 33-78620) relating to 860,002
shares of Common Stock issuable under the American Healthcare Management,
Inc. 1990 Non-Employee Directors' Stock Plan, the American Healthcare
Management, Inc. 1990 Stock Plan, and the American Healthcare Management,
Inc. 1990 Volla and Dubbs Executive Compensation Agreements filed on May 4,
1994;
d. Form S-8 Registration Statement (No. 33-78618) relating to 245,512
shares of Common Stock issuable under the Summit Health Ltd. Stock Option
Plan, the Summit Health Ltd. 1992 Stock Option Plan, and the Summit Health
Ltd. Stock Option Agreements filed on May 4, 1994;
e. Form S-8 Registration Statement (No. 33-81778) relating to
4,150,000 shares of Common Stock issuable under the OrNda HealthCorp 1994
Management Equity Plan and the OrNda HealthCorp Incentive Bonus Plan, filed
on July 20, 1994;
f. Form S-3 Registration Statement (No. 33-54651) relating to the
registration of $125,000,000 of 11- 3/8% Senior Subordinated Notes due
2004, effective on August 16, 1994;
and in related Prospectuses of our report dated January 21, 1994, with respect
to the consolidated financial statements of Fountain Valley Medical Development
Company and subsidiaries for the years ended October 31, 1993 and 1992 included
in the Current Report on Form 8-K dated August 9, 1994, of Summit Health Ltd.
filed with the Securities and Exchange Commission.
BDO Seidman
Orange, California
August 19, 1994
