<PAGE>
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):
June 30, 1994
RAMSAY HEALTH CARE, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-13849 63-0857352
----------------- ----------- ------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
</TABLE>
One Poydras Plaza
639 Loyola Avenue, Suite 1700
New Orleans, Louisiana 70113
---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (504) 525-2505
(Not Applicable)
--------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The assets of Human Dynamics Institute ("HDI"), a former managed
mental health care services division of Phoenix South Community Mental Health
Services, Inc. ("Phoenix South"), were acquired by Ramsay Managed Care, Inc.
("RMCI"), a subsidiary of the registrant, on June 30, 1994. HDI is to serve as
the registrant's regional office in Arizona and provide managed mental health
care services through its contract provider networks in Arizona, Nevada, New
Mexico, Oregon, Idaho, Texas, Utah and Washington. HDI's managed care customers
are primarily health maintenance organizations and insurance companies. The
consideration for the acquisition was a combination of $1,000,000 in cash, a
$1,000,000 promissory note (the "HDI Note"), 86,425 shares of common stock, par
value $0.01 per share ("RMCI Common Stock") of RMCI and a contingent earn-out
payment based upon the attainment of certain revenue levels over the ensuing two
years. The aggregate earn-out payment is an amount (in no event to exceed
$750,000 in the aggregate) equal to the sum of (i) the positive excess (in no
event to exceed $400,000), if any, of the average gross revenues of HDI for the
fiscal years ending June 30, 1995 and June 30, 1996 over the gross revenues of
HDI for the fiscal year ended June 30, 1994 less $400,000 and (ii) an amount (in
no event to exceed $350,000) equal to the product of (a) 2.5% multiplied by (b)
the positive excess, if any, of the average gross revenues of HDI for the fiscal
years ending June 30, 1995 and June 30, 1996 over the gross revenues of HDI for
the fiscal year ended June 30, 1994.
Interest accrues on the HDI Note at a fixed rate of 8.25% per annum
and is payable monthly in arrears, together with equal installments of
principal, until the HDI Note matures on June 30, 1997. The HDI Note is secured
pursuant to a Stock Pledge Agreement pursuant to which Phoenix South has a first
priority lien on all of the common stock of FPMBH of Arizona, Inc., a wholly-
owned subsidiary of RMCI and the purchaser of certain assets of HDI ("Ramsay
HDI"). Upon a default under the HDI Note, the holders thereof have the right to
foreclose upon the common stock of Ramsay HDI.
In connection with the acquisition of HDI, RMCI entered into a
stockholders agreement with Phoenix South. The stockholders agreement provides
for restrictions on sales of the shares of RMCI Common Stock issued to Phoenix
South as partial consideration for the acquisition of HDI. Additionally, the
stockholders agreement grants certain "piggyback" registration rights to Phoenix
South in the event that RMCI registers securities for the purpose of sale or
other transfer of such securities by RMCI pursuant to a registration statement
(other than (i) pursuant to an initial public offering by RMCI which does not
include selling stockholders, (ii) in connection with a distribution by the
registrant of its shares of RMCI Common Stock to its stockholders, and (iii)
pursuant to a registration statement on Forms S-4 or S-8 or any successor to
such Forms). The stockholders agreement also provides that certain first offer
rights
2
<PAGE>
of the registrant with respect to permitted transfers of RMCI Common Stock by
Phoenix South and certain "put" and "call" rights of Phoenix South and RMCI,
respectively, contained therein terminate upon the declaration of a dividend by
the registrant of some or all of its shares of RMCI Common Stock or the filing
of a registration statement covering a public offering of RMCI's Common Stock.
The consideration paid for the HDI assets was determined in arms-
length negotiations between the registrant and Phoenix South.
The cash portion of the purchase price for the HDI assets was funded
out of the registrant's cash generated from operations.
All information in this report is given as of June 30, 1994 and does
not reflect any events or circumstances arising after June 30, 1994.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
A. FINANCIAL STATEMENTS
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma statement of operations is based on
the historical consolidated statement of operations of Ramsay Health Care, Inc.
(RHCI), adjusted to give effect to the acquisitions of Human Dynamics Institute
(HDI) and Florida Psychiatric Management, Inc. ("FPM"), assuming these
acquisitions occurred as of July 1, 1993. FPM, which was acquired by a wholly-
owned subsidiary of RHCI on October 29, 1993, is a managed mental health care
company based in Winter Park, Florida. The revenues and operating expenses of
FPM are included in the revenues and operating expenses of RHCI from November 1,
1993 through June 30, 1994. The acquisitions and the related adjustments are
described in the notes thereto.
No pro forma condensed balance sheet is presented because the
acquisition of HDI occurred on the last day of RHCI's fiscal year. Accordingly,
the effect of the acquisition of HDI is included in the consolidated balance
sheet of RHCI as of June 30, 1994.
The pro forma financial statements should be read in conjunction with
RHCI's June 30, 1994 consolidated financial statements included in the Annual
Report on Form 10-K. The pro forma statement of operations is presented for
informational purposes only and does not purport to represent what RHCI's
results of operations would have been had the acquisition occurred as of July 1,
1993 and does not purport to represent RHCI's results of operations for any
future period or date, nor does it give effect to any matters other than those
described in the notes thereto.
3
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
Pro Forma
RHCI HDI Subtotal Adjustments Pro Forma
------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $137,002,000 $2,657,000 $139,659,000 $2,548,000(a) $142,207,000
Operating expenses:
Salaries, wages and benefits 64,805,000 466,000 65,271,000 673,000(a) 65,944,000
Other operating expenses 42,907,000 1,919,000 44,826,000 1,928,000(a) 46,754,000
Provision for doubtful accounts 5,846,000 0 5,846,000 0 5,846,000
Depreciation and amortization 6,836,000 17,000 6,853,000 385,000(b) 7,238,000
Interest and other financing charges 8,906,000 0 8,906,000 128,000(c) 9,034,000
Loss on sales and closure of facilities 802,000 0 802,000 0 802,000
------------ ---------- ------------ --------- ------------
TOTAL OPERATING EXPENSES 130,102,000 2,402,000 132,504,000 3,114,000 135,618,000
INCOME BEFORE MINORITY INTERESTS AND
INCOME TAXES 6,900,000 255,000 7,155,000 (566,000) 6,589,000
Minority interests 4,824,000 0 4,824,000 0 4,824,000
------------ ---------- ------------ --------- ------------
INCOME BEFORE INCOME TAXES 2,076,000 255,000 2,331,000 (566,000) 1,765,000
Provision (benefit) for income taxes 599,000 102,000 701,000 (170,000) 531,000
------------ ---------- ------------ --------- ------------
INCOME FROM CONTINUING OPERATIONS $ 1,477,000 $ 153,000 $ 1,630,000 $(396,000) $ 1,234,000
============ ========== ============ ========= ============
Income (loss) per common share:
Primary $0.15 $0.13
Fully diluted $0.15 $0.13
Weighted average number of shares
outstanding:
Primary 9,641,000 9,641,000
Fully diluted 9,679,000 9,679,000
</TABLE>
4
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(a) Includes amounts related to FPM for the four months ended October 31, 1993.
(b) The adjustment to depreciation and amortization relates to the depreciation
and amortization of FPM from 7/1/93 to 10/31/93 as well as the additional
amortization arising from the intangible assets acquired through the
acquisitions of HDI and FPM, as if they were acquired on July 1, 1993. The
calculation of the adjustment to depreciation and amortization is as
follows:
<TABLE>
<CAPTION>
Amortization Amortization
Amortization 7/1/93- 7/1/93-
Amount Period 6/30/94 10/31/93 Total
--------- ------------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
HDI:
----
Cost in excess of net asset value 2,900,000 15 years 193,333 -- $193,333
FPM:
----
Cost in excess of net asset value 3,279,000 15 years -- 72,867 72,867
Other intangible assets 3,190,000 15 years -- 70,889 70,889
Actual depreciation and
amortization -- -- -- 47,432 47,432
--------
$384,521
========
</TABLE>
(c) The adjustment to interest expense reflects the additional interest expense
of FPM from 7/1/93 to 10/31/93 as well as interest on the debt incurred by
RHCI in connection with its acquisitions of HDI and FPM, had this debt been
incurred on July 1, 1993. The $1 million promissory note issued to Phoenix
South bears interest at 8.25% per annum and is payable in 36 equal
installments of $27,778. In addition, $2.5 million of 7% debentures were
issued to the former owners of FPM on the acquisition date.
5
<PAGE>
HUMAN DYNAMICS INSTITUTE
FINANCIAL STATEMENTS
Years ended June 30, 1992, 1993 and 1994
Contents
<TABLE>
<S> <C>
Report of Independent Auditors 1
Audited Financial Statements
Statements of Income 2
Statements of Cash Flows 3
Notes to Financial Statements 4
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Ramsay Managed Care, Inc.
We have audited the accompanying statements of income and cash flows of Human
Dynamics Institute (a division of Phoenix South Community Mental Health Center,
Inc.) for the years ended June 30, 1992, 1993 and 1994. These financial
statements are the responsibility of Human Dynamics Institute'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.
As discussed in Note 1, Human Dynamics Institute was part of Phoenix South
Community Mental Health Center, Inc. and had no separate legal status or
existence for the years ended June 30, 1992, 1993 and 1994. Transactions with
Phoenix South Community Mental Health Center, Inc. are described in Note 3.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Human
Dynamics Institute for the years ended June 30, 1992, 1993 and 1994 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Orlando, Florida
October 25, 1994
1
<PAGE>
Human Dynamics Institute
Statements of Income
For the three years ended June 30, 1994
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Contract revenues $2,786,927 $2,299,431 $2,392,331
Administrative service revenues 331,622 241,726 244,882
Other revenues 9,622 8,252 20,149
---------- ---------- ----------
3,128,171 2,549,409 2,657,362
Expenses:
Contracted provider services
(Note 3) 2,159,441 1,348,930 1,358,645
Salaries, wages and benefits 382,031 369,250 465,544
Allocated expenses
(Notes 3 and 4) 362,210 356,043 393,382
Other operating expenses 144,981 116,462 167,481
Depreciation 15,256 16,582 17,390
---------- ---------- ----------
3,063,919 2,207,267 2,402,442
---------- ---------- ----------
Net income $ 64,252 $ 342,142 $ 254,920
========== ========== ==========
Pro forma net income
(unaudited, Note 5)
Historical net income $ 254,920
----------
Pro forma income tax expense 102,000
----------
Pro forma net income $ 152,920
==========
</TABLE>
See accompanying notes.
2
<PAGE>
Human Dynamics Institute
Statements of Cash Flows
For the three years ended June 30, 1994
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
OPERATING ACTIVITIES 1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 64,252 $ 342,142 $ 254,920
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation expense 15,256 16,582 17,390
(Increase) decrease in accounts
receivables and other assets (20,750) (14,572) 14,411
Increase (decrease) in accounts
payable and other liabilities 71,846 (247,868) 110,927
--------- --------- ---------
Net cash provided by operating
activities 130,604 96,284 397,648
INVESTING ACTIVITIES
Purchases of equipment (3,900) (4,300) (2,800)
Funds provided to Phoenix South (126,704) (91,984) (394,848)
--------- --------- ---------
Net cash used in investing
activities (130,604) (96,284) (397,648)
Net change in cash - - -
Cash at beginning of year - - -
--------- --------- ---------
Cash at end of year $ - $ - $ -
========= ========= =========
See accompanying notes.
</TABLE>
3
<PAGE>
HUMAN DYNAMICS INSTITUTE
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1992, 1993 AND 1994
1. DESCRIPTION OF BUSINESS
Human Dynamics Institute ("HDI") was a division of Phoenix South Community
Mental Health Center, Inc. ("Phoenix South"), a nonprofit community mental
health center located in Phoenix, Arizona. Effective June 30, 1994, Phoenix
South sold certain assets related to HDI and HDI's operations to Ramsay HDI,
Inc. ("Ramsay"), and Ramsay assumed certain liabilities related to HDI.
Ramsay is a wholly owned for profit subsidiary of Ramsay Managed Care, Inc.
which is a subsidiary of Ramsay Health Care, Inc., a publicly traded company.
HDI arranges for the provision of mental health and/or substance abuse
treatment services and provides mental health and/or substance abuse
administrative services, such as utilization review and case management, for
health insurance carriers, health maintenance organizations, and self-insured
employers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENTS OF CASH FLOWS
HDI, as a division of Phoenix South, does not have separate cash balances for
its operations. Accordingly, amounts paid by Phoenix South on behalf of HDI
or amounts allocated to HDI are recognized in the accompanying statements of
cash flows as if such amounts were paid when incurred or allocated to the HDI
division.
CONTRACT AND ADMINISTRATIVE SERVICES REVENUES
Contract revenues represent capitated amounts received for services provided
to patients covered by certain managed care contracts. Administrative
service revenues represent amounts received for the administration of
services, including case
4
<PAGE>
HUMAN DYNAMICS INSTITUTE
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management, utilization review, and claims processing. HDI records revenues
in the month services are provided.
CONTRACTED PROVIDER SERVICES
HDI contracts with three general types of health care service providers -
physicians, hospitals and providers of ancillary services. All provider
contracts are fee for service, except one remaining contract requiring a fixed
monthly capitation payment. HDI is generally at risk to its providers for all
claims under its capitated, managed care contracts.
Provision has been made for claims in process of review and for claims
incurred but not received at year-end. The amount of this liability is
computed using prior claim payment experience along with specific
authorization activity. Estimates are adjusted based on changes in experience
and such adjustments are reflected in contracted provider services.
INCOME TAXES
HDI, as a former division of Phoenix South, was exempt from federal and state
income taxes in 1992, 1993 and 1994 (also see Note 5).
3. RELATED PARTY TRANSACTIONS
Numerous operating activities were allocated to, or provided on behalf of, HDI
by Phoenix South. The following expenses included in the accompanying
statements of income may not represent HDI's cost of obtaining such services
from an unrelated entity.
. Included in contracted provider services are expenses of $14,249 in 1993
and $81,467 in 1994 that were paid to other Phoenix South divisions for
mental health and substance abuse treatment services provided to HDI's
patients.
5
<PAGE>
HUMAN DYNAMICS INSTITUTE
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
. Included in allocated expenses are benefit costs of $52,875 in 1992,
$61,048 in 1993, and $73,083 in 1994 which were allocated to HDI based on
HDI's relative percent of salary and wage expense to Phoenix South's
total salary and wage expense in each respective year.
. Included in allocated expenses are overhead costs of $274,472 in 1992,
$272,885 in 1993, and $292,589 in 1994 which represent certain
accounting, administrative, marketing, and executive expenses that were
incurred at the Phoenix South level and allocated to HDI based on HDI's
relative percent of direct expenses to Phoenix South's total direct
expenses in each respective year.
4. COMMITMENTS
During December 1993, Phoenix South entered into a noncancelable operating
lease agreement for office space expiring in April 1999. In conjunction with
Ramsay's purchase of various assets and the assumption of various liabilities
of HDI, HDI assumed this lease effective June 30, 1994. Rent expense,
included in allocated expenses, was $34,863 in 1992, $22,110 in 1993, and
$27,710 in 1994 and was allocated to HDI by Phoenix South based on HDI's
relative percent of total Phoenix South office space occupied in each
respective year. Future minimum lease payments under this noncancelable
operating lease are as follows at June 30, 1994:
<TABLE>
<S> <C>
Period ended June 30,
1995 $ 42,441
1996 42,441
1997 48,072
1998 50,887
1999 42,406
--------
$226,247
========
</TABLE>
6
<PAGE>
HUMAN DYNAMICS INSTITUTE
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
5. PRO FORMA INCOME TAXES (UNAUDITED)
The unaudited pro forma information presents income taxes as if HDI had been
subject to federal and state taxes at the applicable effective rates for the
year ended June 30, 1994.
7
<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: September 20, 1995
RAMSAY HEALTH CARE, INC.
By: /s/ Gregory H. Browne
-----------------------
Gregory H. Browne
Chief Executive Officer
and President
<PAGE>
B. EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement dated as of June 30, 1994 among
Phoenix South, Ramsay HDI, Inc. and FPM
Behavioral Health, Inc. (incorporated by
reference to Exhibit No. 2.3 to the
Registration Statement on Form S-1 of Ramsay
Managed Care, Inc., File no. 33-89514)
23.1 Consent of Ernst & Young LLP
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-52991, No. 33-47997, No. 33-44697 and No. 33-39260) of Ramsay
Health Care, Inc. of our report dated October 25, 1994, with respect to the
financial statements of Human Dynamics Institute, included in Ramsay Health
Care, Inc.'s Form 8-K dated June 30, 1994.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Orlando, Florida
September 13, 1995
