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