0000899243-95-000627.txt : 19950925 0000899243-95-000627.hdr.sgml : 19950925 ACCESSION NUMBER: 0000899243-95-000627 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19931029 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950921 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAMSAY HEALTH CARE INC CENTRAL INDEX KEY: 0000773136 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 630857352 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13849 FILM NUMBER: 95575111 BUSINESS ADDRESS: STREET 1: 639 LOYOLA AVE STE 1400 STREET 2: ONE POYDRAS PLZ CITY: NEW ORLEANS STATE: LA ZIP: 70113 BUSINESS PHONE: 5045252505 MAIL ADDRESS: STREET 1: ONE POYDRAS PLAZA STREET 2: 639 LOYOLA AVE SUITE 1400 CITY: NEW ORLEANS STATE: LA ZIP: 70113 FORMER COMPANY: FORMER CONFORMED NAME: HEALTHCARE SERVICES OF AMERICA INC DATE OF NAME CHANGE: 19881120 8-K 1 FORM 8-K 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): October 29, 1993 RAMSAY HEALTH CARE, INC. ------------------------------------------------------------- (Exact name of registrant as specified in its charter)
Delaware 0-13849 63-0857352 ----------------- ----------- ------------------ (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification No.) incorporation)
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 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. The registrant, through a wholly-owned subsidiary, acquired all of the capital stock of Florida Psychiatric Management, Inc. ("FPM") on October 29, 1993. This acquisition marked the entry of the registrant into the direct provision of managed mental health care services. FPM is headquartered in Winter Park, Florida. FPM was founded, and is continuing its operation, based on the concept that clinically oriented managed care can control costs and curb reimbursement abuses while assuring that each patient receives the most appropriate level of treatment in a quality manner. The consideration for the acquisition was a combination of $4,000,000 in cash, $2,500,000 of Debentures (described below) issued by FPM and a contingent earn-out payment based on the attainment of certain earnings and revenue levels over the ensuing two years. The aggregate earn-out payment is an amount (in no event to exceed $2,000,000 in the aggregate) equal to the product of (i) 25%, multiplied by (ii) the positive excess, if any, of the average consolidated gross revenues of FPM and its subsidiaries for the fiscal years ending June 30, 1994 and June 30, 1995 over $6,800,000, multiplied by (iii) the change in operating income factor, a formula-based factor which will increase or decrease the aggregate earn-out payment based upon the increase or decrease in the average operating margin (consolidated net income or loss divided by consolidated gross revenues) of FPM and its subsidiaries for the fiscal years ending June 30, 1994 and June 30, 1995 over the 1993 operating margin. The Debentures issued by FPM in connection with the registrant's acquisition of FPM in the aggregate principal amount of $2,500,000 (the "Debentures") were issued to the selling stockholders of FPM, including Martin Lazoritz, Robert W. Pollack and I. Paul Mandelkern. Interest accrues on the Debentures at a fixed rate of 7% per annum and is payable quarterly, in arrears, together with installments of principal, until the Debentures mature on October 31, 1996. The Debentures are secured pursuant to a Stock Pledge Agreement dated October 29, 1993, pursuant to which the Debenture holders have a first priority lien on all of the common stock of FPM. Pursuant to the Stock Pledge Agreement, upon a default under the Debentures, the holders thereof have the right to foreclose upon the common stock of FPM. The consideration paid for the common stock of FPM was determined in arms-length negotiations between the registrant and the former stockholders of FPM. The cash portion of the purchase price for the common stock of FPM was funded out of the registrant's cash generated from operations. 2 All information in this report is given as of October 29, 1993 and does not reflect any events or circumstances arising after October 29, 1993. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. A. FINANCIAL STATEMENTS PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma statements of operations are based on the historical consolidated statements of operations of Ramsay Health Care, Inc. ("RHCI"), adjusted to give effect to the acquisition of Florida Psychiatric Management, Inc. (FPM), assuming this acquisition occurred as of July 1, 1992. The acquisition and the related adjustments are described in the notes thereto. The following unaudited pro forma condensed balance sheet as of September 30, 1993 gives effect to the acquisition of FPM as if the acquisition of FPM occurred on September 30, 1993. The pro forma financial statements should be read in conjunction with RHCI's June 30, 1993 consolidated financial statements included in the Annual Report on Form 10-K and RHCI's September 30, 1993 consolidated financial statements included on Form 10-Q. The pro forma statements of operations are presented for informational purposes only and do not purport to represent what RHCI's results of operations would have been had the acquisition occurred as of July 1, 1992 and do not purport to represent RHCI's results of operations for any future period or date, nor do they give effect to any matters other than those described in the notes thereto. 3 PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED JUNE 30, 1993
Pro Forma RHCI FPM Subtotal Adjustments Pro Forma ------------- ---------- ------------- ------------ ------------- Net revenues $136,354,000 $6,893,000 $143,247,000 $ 0 $143,247,000 Operating expenses: Salaries, wages and benefits 63,810,000 2,079,000 65,889,000 0 65,889,000 Other operating expenses 40,454,000 4,358,000 44,812,000 0 44,812,000 Provision for doubtful accounts 8,148,000 0 8,148,000 0 8,148,000 Depreciation and amortization 6,605,000 137,000 6,742,000 431,000(a) 7,173,000 Interest and other financing charges 9,494,000 31,000 9,525,000 165,000(b) 9,690,000 Loss on sales and closure of facilities 7,524,000 0 7,524,000 0 7,524,000 Restructuring and other charges 1,367,000 0 1,367,000 0 1,367,000 ------------ ---------- ------------ --------- ------------ TOTAL OPERATING EXPENSES 137,402,000 6,605,000 144,007,000 596,000 144,603,000 INCOME (LOSS) BEFORE MINORITY INTERESTS AND INCOME TAXES (1,048,000) 288,000 (760,000) (596,000) (1,356,000) Minority interests 1,126,000 0 1,126,000 0 1,126,000 ------------ ---------- ------------ --------- ------------ INCOME (LOSS) BEFORE INCOME TAXES (2,174,000) 288,000 (1,886,000) (596,000) (2,482,000) Provision (benefit) for income taxes 159,000 104,000 263,000 (149,000) 114,000 ------------ ---------- ------------ --------- ------------ INCOME (LOSS) FROM CONTINUING $ (2,333,000) $ 184,000 $ (2,149,000) $(447,000) $ (2,596,000) OPERATIONS ============ ========== ============ ========= ============ Income (loss) from continuing operations per common share: Primary ($0.29) ($0.33) Fully diluted ($0.29) ($0.33) Weighted average number of shares outstanding: Primary 7,932,000 7,932,000 Fully diluted 7,932,000 7,932,000
4 PRO FORMA STATEMENT OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 1993
Pro Forma RHCI FPM(c) Subtotal Adjustments Pro Forma ----------- ----------- ----------- ------------ ----------- Net revenues $31,983,000 $2,548,000 $34,531,000 $ 0 $34,531,000 Operating expenses: Salaries, wages and benefits 15,460,000 673,000 16,133,000 0 16,133,000 Other operating expenses 9,318,000 1,928,000 11,246,000 0 11,246,000 Provisions for doubtful accounts 1,715,000 0 1,715,000 0 1,715,000 Depreciation and amortization 1,580,000 47,000 1,627,000 108,000(a) 1,735,000 Interest and other financing charges 2,276,000 11,000 2,287,000 33,000(a) 2,320,000 ----------- ---------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 30,349,000 2,659,000 33,008,000 141,000 33,149,000 INCOME (LOSS) BEFORE MINORITY INTERESTS AND INCOME TAXES 1,634,000 (111,000) 1,523,000 (141,000) 1,382,000 Minority interests 790,000 0 790,000 0 790,000 ----------- ---------- ----------- --------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 844,000 (111,000) 733,000 (141,000) 592,000 Provision (benefit) for income taxes 236,000 (11,000) 225,000 (44,000) 181,000 ----------- ---------- ----------- --------- ----------- NET INCOME (LOSS) $ 608,000 $ (100,000) $ 508,000 $ (97,000) $ 411,000 =========== ========== =========== ========= =========== Income per common share: Primary $0.06 $0.04 Fully diluted $0.06 $0.04 Weighted average number of shares outstanding: Primary 9,646,000 9,646,000 Fully diluted 9,757,000 9,757,000
5 PRO FORMA CONDENSED BALANCE SHEET SEPTEMBER 30, 1993
Pro Forma RHCI FPM(c) Subtotal Adjustments Pro Forma ------------ ----------- ------------ -------------- ------------ Current assets $ 53,509,000 $1,122,000 $ 54,631,000 ($4,641,000)(d) $ 49,990,000 Cost in excess of net asset value of purchased businesses 4,664,000 28,000 4,692,000 3,279,000(e) 7,971,000 Other intangible assets 0 0 0 3,190,000(e) 3,190,000 Other assets 13,540,000 98,000 13,638,000 0 13,638,000 Property and equipment, net 114,796,000 316,000 115,112,000 0 115,112,000 ------------ ---------- ------------ ---------- ------------ Total assets $186,509,000 $1,564,000 $188,073,000 $1,828,000 $189,901,000 ============ ========== ============ ========== ============ Current liabilities $ 22,714,000 $ 857,000 $ 23,571,000 $ 625,000(f) $ 24,196,000 Liabilities for unpaid self-insurance claims, less current portion 1,631,000 0 1,631,000 0 1,631,000 Long-term debt, less current portion 74,175,000 35,000 74,210,000 1,875,000(f) 76,085,000 Deferred income taxes 6,168,000 0 6,168,000 0 6,168,000 Minority interests 1,413,000 0 1,413,000 0 1,413,000 Stockholders' equity 80,408,000 672,000 81,080,000 (672,000) 80,408,000 ------------ ---------- ------------ ---------- ------------ Total liabilities and stockholders' equity $186,509,000 $1,564,000 $188,073,000 $1,828,000 $189,901,000 ============ ========== ============ ========== ============
6 NOTES TO PRO FORMA FINANCIAL STATEMENTS (a) The adjustment to depreciation and amortization relates to the additional amortization arising from the excess of costs over net asset value of Florida Psychiatric Management, Inc. (FPM) as if FPM was acquired as of July 1, 1992. The calculation of the adjustment to depreciation and amortization is as follows:
Amortization Amortization Amortization 7/1/92- 7/1/93- Amount(1) Period (2) 6/30/93 9/30/93 ---------- ------------ -------- -------- Cost in excess of net asset value $3,279,000 15 years $218,600 $ 54,650 Other intangible assets 3,190,000 15 years 212,667 53,167 ---------- -------- -------- Total 6,469,000 431,267 107,817 ========== ======== ========
(1) Actual amounts recorded as a result of the acquisition of FPM. (2) Fifteen-year amortization period is utilized as a composite average of the lives assigned to the intangible assets purchased. (b) The adjustment to interest expense reflects the additional interest expense that would have been incurred had the consideration paid by RHCI in connection with its acquisition of FPM in the form of debentures been paid on July 1, 1992. The debentures bear interest at 7% per annum, payable in quarterly installments of $208,333, beginning six months after the acquisition date. (c) Pro forma amounts shown as relating to FPM as of and for the quarter ended September 30, 1993 actually represent amounts as of and for the four months ended October 31, 1993. The operating results and changes in financial condition of FPM for the month of October 1993 were not material. (d) Includes cash consideration paid for the acquisition of FPM of $4,000,000 and costs paid in connection with the acquisition. (e) Represents cost in excess of net asset value and other intangible assets of FPM as of the date of the acquisition. 7 (f) Includes three-year debentures issued in connection with the acquisition. The debentures are payable in quarterly installments of $208,333, beginning six months from the acquisition date. 8 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1992 AND 1993 AND FOUR MONTHS ENDED OCTOBER 31, 1993 CONTENTS Report of Independent Auditors..................... 1 Audited Consolidated Financial Statements Consolidated Balance Sheets...................... 2 Consolidated Statements of Operations............ 4 Consolidated Statements of Stockholders' Equity.. 5 Consolidated Statements of Cash Flows............ 6 Notes to Consolidated Financial Statements.... 9
REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Florida Psychiatric Management, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Florida Psychiatric Management, Inc. and subsidiaries ("FPM") as of June 30, 1992 and 1993 and October 31, 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended June 30, 1992 and 1993 and the four months ended October 31, 1993. These financial statements are the responsibility of the FPM's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Florida Psychiatric Management, Inc. and subsidiaries at June 30, 1992 and 1993 and October 31, 1993, and the consolidated results of their operations and their cash flows for the years ended June 30, 1992 and 1993 and the four months ended October 31, 1993 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Orlando, Florida October 6, 1994 F-1 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30 OCTOBER 31 1992 1993 1993 ---------- ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 74,799 $ 370,366 $ 550,606 Accounts receivable, less allowance for doubtful accounts of $6,300 at June 30, 1992, $12,932 at June 30, 1993 and $90,432 at October 31, 1993 305,992 236,803 173,364 Income tax receivable (Note 7) - - 158,218 Other receivables 268,768 21,834 1,320 Prepaid expenses 152,512 112,176 89,052 Deferred income taxes (Note 7) 38,964 84,231 149,467 ---------- ---------- ---------- Total current assets 841,035 825,410 1,122,027 Property, plant, and equipment, net (Note 3) 538,650 465,894 315,756 Deferred income taxes (Note 7) - - 78,421 Goodwill 91,717 29,021 28,278 Notes receivable from stockholders (Note 12) 123,177 39,525 - Notes receivable from related party (Note 12) 128,698 87,021 - Other assets 150,737 21,162 19,038 ---------- ---------- ---------- Total assets $1,874,014 $1,468,033 $1,563,520 ========== ========== ==========
F-2 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES Consolidated Balance Sheets (continued)
JUNE 30 OCTOBER 31 1992 1993 1993 ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt and amounts due under line of credit borrowings (Note 4 and 5) $ 197,454 $ 308,548 $ 38,922 Accounts payable 886,233 420,565 207,932 Reserve for claims of health care providers (Note 8) 125,000 100,000 250,000 Due to related party (Note 12) 67,221 36,750 - Accrued liabilities 152,033 222,724 359,911 ---------- ---------- ---------- Total current liabilities 1,427,941 1,088,587 856,765 Long-term debt, net of current maturities (Notes 4 and 5) 245,976 96,379 35,151 Deferred income taxes (Note 7) 16,994 29,951 - Minority interest in subsidiary 24,384 - - Commitments and contingencies (Note 8) Stockholders' equity (Note 11): Common stock, Class A, $.10 par value: Authorized shares - 200,000 Issued and outstanding shares - 101,850 at June 30, 1992 and 1993 and 105,550 at October 31, 1993 10,185 10,185 10,555 Common stock, Class B, $.10 par value: Authorized shares - 200,000 Issued and outstanding shares - 0 - - - Additional paid-in capital 124,239 48,219 564,818 Retained earnings 24,295 194,712 96,231 ---------- ---------- ---------- Total stockholders' equity 158,719 253,116 671,604 ---------- ---------- ---------- Total liabilities and stockholders' equity $1,874,014 $1,468,033 $1,563,520 ========== ========== ==========
See accompanying notes. F-3 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Four months Year ended June 30 ended October 1992 1993 31, 1993 ---------- ---------- --------------- Revenues: Managed care revenues: From related party (Note 12) $ 422,009 $ 220,137 $ 60,000 Other (Note 13) 5,319,470 6,518,756 2,394,072 Other revenues: From related party (Note 12) - 127,200 - Other (Note 9) 1,798,732 7,018 93,588 Equity in earnings from unconsolidated partnerships (Note 2) - 19,706 - ---------- ---------- ---------- Total revenue 7,540,211 6,892,817 2,547,660 Operating expenses: Contracted provider services: From related party (Note 12) 1,617,000 1,542,000 633,197 Other 2,244,752 1,550,658 410,187 Salaries and wages (Note 10) 3,120,798 2,079,183 673,230 Other operating expenses: From related party (Note 12) 88,694 104,287 37,476 Other 655,236 932,606 843,244 Depreciation and amortization 134,403 136,654 47,432 Equity in losses from unconsolidated partnerships (Note 2) 12,897 228,055 3,458 Interest 42,129 31,119 10,613 ---------- ---------- ---------- Total operating expenses 7,915,909 6,604,562 2,658,837 ---------- ---------- ---------- Income (loss) from continuing operations, before income taxes (375,698) 288,255 (111,177) Income taxes (benefit) (Note 7) (109,436) 104,458 (11,143) ---------- ---------- ---------- Income (loss) from continuing operations (266,262) 183,797 (100,034) Discontinued operations (Note 15): Loss on discontinued operations, net of current income tax benefit of $17,685 and deferred income tax expense of $16,582 (44,742) - - Gain on disposal of discontinued operations, net of current income tax expense of $47,586 151,470 - - ---------- ---------- ---------- Net income (loss) $ (159,534) $ 183,797 $ (100,034) ========== ========== ==========
See accompanying notes. F-4 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Additional Retained Total Stock Paid-In Earnings Capital ------- ----------- ---------- --------- Balance at July 1, 1991 $ 98 $ 19,165 $ 190,656 $ 209,919 Net loss for the year ended June 30, 1992 - - (159,534) (159,534) Stock sale, September 1991 2 17,426 - 17,428 Stock split, 100 for 1, February 1, 1992 9,925 - (9,925) - Stock sale, May 1992 160 87,648 - 87,808 Transfer of retained earnings of terminated partnership - - 3,666 3,666 Minority interest in FPC (Notes 1 and 16) - - (568) (568) ------- -------- --------- --------- Balance at June 30, 1992 $10,185 $124,239 $ 24,295 $ 158,719 Net income for the year ended June 30, 1993 - - 183,797 183,797 Cash dividend (Note 11) - - (10,185) (10,185) Equity of previously related affiliate (FPASF) at date of acquisition by FPM (Note 17) - (76,020) - (76,020) Other - - (3,195) (3,195) ------- -------- --------- --------- Balance at June 30, 1993 $10,185 $ 48,219 $ 194,712 $ 253,116 Net loss for the four months ended October 31, 1993 - - (100,034) (100,034) Issuance of stock for services provided, October 1993 (Note 11) 370 227,484 - 227,854 Net tax benefit resulting from sales transaction (Note 11) - 289,115 - 289,115 Other - - 1,553 1,553 ------- -------- --------- --------- Balance at October 31, 1993 $10,555 $564,818 $ 96,231 $ 671,604 ======= ======== ========= =========
See accompanying notes. F-5 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOUR MONTHS YEAR ENDED JUNE 30 ENDED OCTOBER 1992 1993 31, 1993 --------- --------- -------------- OPERATING ACTIVITIES Net income (loss) $(159,534) $ 183,797 $(100,034) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 134,403 136,654 47,432 Undistributed partnership losses, net of gains 55,775 208,349 - Gain on disposal of discontinued operations (199,057) - - Issuance of stock for services provided (Note 11) - - 227,354 Net tax benefit resulting from sales transaction (Note 11) - - 289,115 Loss on disposal of property 13,308 2,077 42,879 Loss on sale of subsidiary stock - 51,038 - Undistributed gain from subsidiary sold during 1993 - (26,914) - Decrease (increase) in accounts receivable (18,206) 79,531 63,439 Increase in income tax receivable - - (158,218) Decrease (increase) in other receivables (163,385) 194,477 20,514 Decrease (increase) in prepaid expenses and other assets (125,254) 37,175 23,124 Decrease (increase) in deferred income taxes 20,422 (47,490) (143,657) Decrease (increase) in other assets 4,120 (725) 2,124 Increase (decrease) in accounts payable and accrued liabilities 646,739 (535,092) (112,196) Increase (decrease) in deferred income taxes payable (18,218) 12,986 (29,951) Increase (decrease) in reserve for claims of health care providers 80,000 (25,000) 150,000 Other - - (13) --------- --------- --------- Net cash provided by operating activities 271,113 270,863 321,912
F-6 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS-(CONTINUED)
FOUR MONTHS YEAR ENDED JUNE 30 ENDED OCTOBER 1992 1993 31, 1993 --------- --------- -------------- INVESTING ACTIVITIES Purchases of property, plant, and equipment (172,012) (62,684) (20,183) Proceeds from disposal of property, plant, and equipment 36,841 - 82,319 Payments received on note for sale of property 8,895 - - Proceeds from disposal of discontinued operations 237,266 - - Investment in partnerships (152,500) (52,786) - Partnership distribution - 36,215 - Withdrawals from partnerships 36,333 20,000 - Purchase of minority interest in Mainstream, Inc. (73,317) - - Advances on notes receivable, other (331,589) (109,453) - Collections on notes receivable, other 355,342 84,643 87,021 Loans to shareholders (35,166) (35,808) - Payments received on notes receivable from shareholders 17,489 119,461 39,525 Other - (2,515) - -------- -------- ------- Net cash provided by (used in) investing activities (72,418) (2,927) 188,682
F-7 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS-(CONTINUED)
FOUR MONTHS YEAR ENDED JUNE 30 ENDED OCTOBER 1992 1993 31, 1993 --------- --------- -------------- FINANCING ACTIVITIES Withdrawals on line of credit 743,832 695,000 - Payments on line of credit (771,000) (598,032) (269,800) Payments of installment notes (148,727) (85,136) (43,885) Payments on loans from shareholders (38,185) (3,363) - Payments on capital lease obligations (15,211) (24,742) (17,169) Dividends paid (1,690) - - Sale of common stock 61,333 - 500 Collection on note from sale of common stock - 43,904 - --------- --------- --------- Net cash provided by (used in) financing activities (169,648) 27,631 (330,354) Net increase in cash and cash equivalents 29,047 295,567 180,240 Cash and cash equivalents at beginning of period 45,752 74,799 370,366 --------- --------- --------- Cash and cash equivalents at end of period $ 74,799 $ 370,366 $ 550,606 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid during period for: Interest $ 55,372 $ 33,342 $ 12,046 ========= ========= ========= Taxes $ 174,850 $ 24,000 $ - ========= ========= ========= SCHEDULE OF NONCASH INVESTING ACTIVITIES Capital lease obligation incurred for office equipment $ 15,312 $ 31,700 $ - ========= ========= ========= SCHEDULE OF NONCASH FINANCING ACTIVITIES Note receivable for sale of common stock $ 43,904 $ - $ - ========= ========= ========= Notes and accounts receivable exchanged for redemption of stock owned in subsidiary $ - $ 83,986 $ - ========= ========= ========= Current liabilities assumed related to redemption of stock owned in subsidiary $ - $ 13,778 $ - ========= ========= ========= Liability incurred for dividends declared $ - $ 10,185 $ - ========= ========= =========
See accompanying notes. F-8 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1992 AND 1993 AND FOUR MONTHS ENDED OCTOBER 31, 1993 1. ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The consolidated financial statements include the accounts of Florida Psychiatric Management, Inc., a Florida corporation founded in 1990, and its subsidiaries (collectively, "FPM"). FPM manages the delivery of mental health and substance abuse care given by independent providers on behalf of its clients - insurance carriers, health maintenance organizations, and self-insured employers. FPM also provides financial management and other nonclinical administrative services to certain Florida professional service corporations, which operate multi-specialty group psychiatric medical practices. In addition, FPM provides clinical administrative services to mental health facilities. Effective October 31, 1993, FPM's stockholders sold 100% of their shares in FPM to Ramsay Managed Care, Inc. The accompanying consolidated financial statements were prepared on the basis of historical cost. AFFILIATES Mainstream, Inc. ("Mainstream"), a Florida corporation incorporated in 1986, has a 30% partnership interest in American Day Treatment Centers of Florida ("ADTC/Florida"), which operates partial hospitalization programs (day treatment centers). Mainstream is a wholly owned subsidiary of FPM. Mainstream was reorganized in September 1991 and certain of its operations were discontinued as described in Note 15. Florida Psychiatric Consultants, Inc. ("FPC"), a Florida corporation incorporated in 1982, provides non-clinical administrative services to certain psychiatric medical practices. On June 8, 1993, FPM's 80% stock ownership in FPC was redeemed as further described in Note 16. Florida Psychiatric Associates - South Florida, Inc. ("FPASF"), a Florida corporation incorporated in 1991, provides clinical services to patients covered by FPM managed care contracts. All outstanding stock of FPASF was acquired by FPM in June 1993 as further described in Note 17. F-9 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 1. ACCOUNTING POLICIES (CONTINUED) All of FPM's business activities are with customers located within the state of Florida. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of FPM and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. REVENUES Revenues consist primarily of managed care and administrative services revenue. Managed care revenue represents capitated amounts received for behavioral health services provided to patients covered by certain managed care contracts. Managed care revenue is recognized during the period in which enrolled lives are covered for capitated payments received. Administrative services revenue represents amounts received for case management, utilization review and quality assurance oversight on the delivery of behavioral health services given by independent providers on behalf of clients. Administrative services revenue is recognized as services are provided. CONTRACTED PROVIDER SERVICES FPM contracts with various health care providers for the provision of mental health and substance abuse services. The costs of contracted provider services are accrued in the period in which they are incurred. GOODWILL The excess cost of purchased companies over the fair market value of their net assets at the date of acquisition is recorded as goodwill. Goodwill is amortized on the straight-line basis over 40 years. PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment is stated at cost. Depreciation is computed principally by the double declining balance method for financial reporting purposes. Amortization of assets under capital leases is included in depreciation expense. CASH EQUIVALENTS FPM considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. F-10 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 1. ACCOUNTING POLICIES (CONTINUED) INCOME TAXES FPM recognizes deferred income tax on significant temporary differences between financial statement and income tax reporting. 2. INVESTMENTS IN PARTNERSHIPS During the two years ended June 30, 1992 and 1993 and the four months ended October 31, 1993, FPM owned capital interests in two general partnerships. Partnership investments are adjusted for FPM's portion of the undistributed earnings or losses of those partnerships. For the year ended June 30, 1992, undistributed losses from partnerships were $12,897. For the year ended June 30, 1993, undistributed gains from partnerships were $19,706 and undistributed losses from partnerships were $228,055. For the four months ended October 31, 1993, undistributed losses from partnerships were $3,458. 3. PROPERTY, PLANT AND EQUIPMENT Major categories of property, plant and equipment at June 30, 1992 and 1993 and October 31, 1993 are as follows:
June 30 October 31, 1992 1993 1993 -------- -------- ----------- Land $ 4,724 - - Building and improvements 99,090 - - Leasehold improvements 12,702 $ 13,622 $ 13,622 Furniture and fixtures 103,086 132,122 132,158 Vehicles and equipment 585,114 651,767 514,383 Assets under capital lease 90,447 122,147 98,067 -------- -------- -------- 895,163 919,658 758,230 Less accumulated depreciation and amortization 356,513 453,764 442,474 -------- -------- -------- $538,650 $465,894 $315,756 ======== ======== ========
F-11 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 4. CREDIT ARRANGEMENTS During 1992 and 1993, FPM had a line-of-credit arrangement with a bank, under which FPM could borrow up to $200,000 at the lender's prime rate. At June 30, 1992 and 1993, FPM had $80,000 and $200,000, respectively, outstanding on the line-of-credit. The line-of-credit arrangement was cancelled as of October 31, 1993 and no principal or interest remain outstanding. In addition, Mainstream, during 1992 and 1993, had a line of credit arrangement with a bank, under which Mainstream could borrow up to $260,000 at the lender's prime rate plus one-half percent. At June 30, 1992 and 1993, Mainstream had $92,832 and $69,800, respectively, outstanding on this line-of-credit. The line-of-credit arrangement was cancelled as of October 31, 1993 and no principal or interest remain outstanding. Outstanding balances under both lines of credit are included in notes payable under long-term debt. 5. LONG-TERM DEBT Long-term debt at June 30, 1992 and 1993 and October 31, 1993 consists of the following:
June 30 October 31, 1993 1992 1993 -------- ------- ----------- Notes payable and line of credit borrowings $258,733 $311,531 $22,460 Mortgage payable 77,018 - - Unsecured loans 45,828 24,617 - Capital leases payable 61,851 68,779 51,613 -------- -------- ------- 443,430 404,927 74,073 Less current portion 197,454 308,548 38,922 -------- -------- ------- $245,976 $ 96,379 $35,151 ======== ======== =======
Notes payable are secured by the property to which the notes relate. Interest rates on notes range from 7.34% to 11.37%. Maturities of notes payable, line of credit borrowings, unsecured loans payable and capital leases payable are $38,922 for the eight months ended June 30, 1994 and $35,151 for the year ending June 30, 1995. F-12 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 6. OPERATING LEASES FPM leases certain equipment and office space under noncancelable operating leases that expire in various years through 2003. Future minimum payments under noncancelable operating leases with initial terms of one year or more consists of the following at June 30, 1993:
YEAR ENDING JUNE 30 1994 $ 97,718 1995 78,849 1996 62,471 1997 62,471 1998 62,471 Thereafter 322,768 -------- Total minimum lease payments $686,748 ========
FPM has operating lease agreements with a related party for building, office and parking space for which minimum future lease payments total $644,127. These payments are included in the total future minimum lease payments of $686,748 (see Note 12). Total lease and rental expense for operating leases included in operations for the years ended June 30, 1992 and 1993 and the four months ended October 31, 1993 amounted to $112,467, $126,033 and $53,695, respectively. 7. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of FPM's deferred tax assets and liabilities are as follows: F-13 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 7. INCOME TAXES (CONTINUED)
JUNE 30 OCTOBER 31 1992 1993 1993 ---------- -------- ----------- Deferred tax assets: Net operating loss carryforwards - $ 65,034 $ 92,566 Accrued incurred-but-not-reported claims $ 38,038 5,009 88,997 Accrued employee benefits 13,787 23,320 44,351 Allowance for doubtful accounts 1,914 4,862 32,336 Investment in partnership - - 21,537 Other 10,094 - 1,474 --------- -------- --------- Total deferred assets 63,833 98,225 281,261 Deferred tax liabilities: Tax over book amortization 35,296 32,906 35,783 Investments in partnership - 7,541 - Other 6,567 3,498 17,590 --------- -------- --------- Total deferred tax liabilities 41,863 43,945 53,373 --------- -------- --------- Net deferred tax assets $ 21,970 $ 54,280 $ 227,888 ========= ======== =========
Income tax expense (benefit) from continuing operations consists of the following:
FOUR MONTHS ENDED YEAR ENDED JUNE 30 OCTOBER 31 1992 1993 1993 --------- -------- ---------- Income taxes currently payable: Federal $ (87,795) $127,272 $ 130,897 State (7,184) 11,482 - Deferred income taxes: Federal (5,816) (39,855) (108,075) State (8,641) 5,559 (33,965) --------- -------- --------- $(109,436) $104,458 $ (11,143) ========= ======== =========
F-14 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 7. INCOME TAXES (CONTINUED) Income taxes currently payable for the four months ended October 31, 1993 do not include the benefit of $289,115 related to the tax effect of the exercise of certain options (see Note 11), as such benefit was credited to additional paid- in capital. Income tax expense (benefit) is reported in the consolidated statements of operations as follows:
FOUR MONTHS ENDED YEAR ENDED JUNE 30 OCTOBER 31 1992 1993 1993 --------- -------- ----------- Income taxes (benefit) $(109,436) $104,458 $(11,143) Discontinued operations 46,483 - - --------- -------- -------- $ (62,953) $104,458 $(11,143) ========= ======== ========
Income tax expense (benefit) included in the consolidated statements of operations differs from the amounts computed by applying the statutory rate to income (loss) from continuing operations, before income taxes, as follows:
FOUR MONTHS ENDED YEAR ENDED JUNE 30 OCTOBER 31 1992 1993 1993 --------- -------- ----------- Income (loss) from continuing operations before income taxes $(375,698) $288,255 $(111,177) Federal statutory rate 34% 34% 34% --------- -------- --------- (127,737) 98,007 (37,800) Loss on sale of assets to related party - - 16,415 Other, net 18,301 6,451 10,242 --------- -------- --------- $(109,436) $104,458 $ (11,143) ========= ======== =========
At October 31, 1993, net operating loss carryforwards of approximately $203,000 for federal income tax purposes, which expire from 2005 to 2008, and approximately $496,000 for state income tax purposes, which expire from 2005 to 2008, are available to reduce future taxable income. F-15 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 8. COMMITMENTS AND CONTINGENCIES RESERVE FOR CLAIMS OF HEALTH CARE PROVIDERS FPM has established a reserve for the liability from claims of health care providers. This reserve which has been charged to contracted provider services has been estimated to be $125,000 at June 30, 1992, $100,000 at June 30, 1993 and $250,000 at October 31, 1993. RESERVE FOR CLAIMS UNDER SELF-INSURED HEALTH INSURANCE PLAN FPM provides health insurance coverage to its eligible employees through a self funded insurance plan. FPM maintains a stop loss contract with an outside insurance company, which limits FPM's annual liability to $17,500 per each covered dependent, with the aggregate annual total not to exceed $216,265 for the plan year beginning June 1993. Based on FPM's experience, the expected liability for claims for services performed but not yet reported, has been estimated to be $30,589, $35,000 and $48,091 at June 30, 1992 and 1993 and October 31, 1993, respectively, and is included in accounts payable. 9. TERMINATION OF CLINICAL SERVICES AGREEMENT Effective August 7, 1991, FPM terminated its Clinical Services Agreement with West Lake Hospital, a Florida joint venture. As consideration for the termination of this contract, FPM received a lump sum payment of $1,700,000 which is included in fiscal 1992 other revenues (see Note 10). 10. BONUS PAYMENTS At its meeting on August 29, 1991, FPM's Board of Directors approved bonuses to certain related employees in recognition of their substantial services performed on behalf of FPM under the Clinical Services Agreement with West Lake Hospital (see Note 9). These bonuses aggregated $1,310,000, and are included in salaries and benefits for the year ended June 30, 1992. At its meeting on June 30, 1993, FPM's Board of Directors approved bonuses to certain related employees in recognition of their substantial services performed on behalf of FPM during the year ended June 30, 1993. In aggregate, these bonuses amounted to $334,250 and are included in salaries and benefits for the year ended June 30, 1993. F-16 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 11. STOCKHOLDERS' EQUITY TRANSACTIONS WITH STOCKHOLDERS In October 1993, a stockholder exercised an option acquired in connection with professional services provided and acquired 3,700 shares of FPM common stock with a value of $227,854. The $227,854 was charged to operations during the four months ended October 31, 1993. In addition, in October 1993, certain key employees exercised options to acquire shares of FPM common stock from certain stockholders who collectively had previously held a majority of FPM's outstanding common stock. As a result of this sale of shares by FPM's stockholders, a tax benefit of $289,115 accrued to FPM. This tax benefit is included in the consolidated statements of stockholders' equity as an addition to additional paid-in capital. VOTING RIGHTS Class A common stockholders are entitled to one vote per share. On May 18, 1992, the Board of Directors authorized 200,000 shares of Class B common stock. While there are currently no Class B common stockholders, any future holders of Class B common stock would not be entitled to voting rights. DIVIDEND On June 30, 1993, the Board of Directors authorized the payment of a dividend of $.10 per share payable to stockholders of FPM as of June 30, 1993. Dividends payable of $10,185 are included in accrued liabilities at June 30, 1993. 12. RELATED PARTY TRANSACTIONS FPM leases land and building (see Note 6) from Minnesota Properties II, a Florida general partnership, in which certain stockholders of FPM have a 75% ownership interest. Rental expense related to this lease for the years ended June 30, 1992 and 1993 and the four months ended October 31, 1993 was $42,340, $54,330 and $20,824, respectively. FPM also leases office space from Minnesota Properties, a Florida general partnership in which certain stockholders of FPM have a 56% ownership interest, on a month-to-month basis. Rental expense for this office space for the years ended June 30, 1992 and 1993 and the four months ended October 31, 1993, was $17,129, $18,007 and $6,002, respectively. FPM leases a boat from Lazoritz - Dahl Joint Venture, in which certain stockholders of FPM have a 100% ownership interest. Rental expenses related to this lease for the years ended June 30, 1992 and 1993 and F-17 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 12. RELATED PARTY TRANSACTIONS-(CONTINUED) the four months ended October 31, 1993 were $29,225, $31,950 and $10,650, respectively. FPM provides financial management and other nonclinical administrative services to Florida Psychiatric Associates, P.A. ("FPA"), a Florida professional service corporation, which was 86% owned by stockholders of FPM until June 1, 1994. Income included in managed care revenues for the years ended June 30, 1992 and 1993 and the four months ended October 31, 1993 from FPA was $244,675, $220,137 and $60,000, respectively. Additionally FPA is one of the providers FPM contracts with to provide psychiatric services to patients enrolled in health plans managed by FPM. Included in contracted provider services for the years ended June 30, 1992 and 1993 and the four months ended October 31, 1993 is approximately $1,600,000, $1,520,000 and $633,000, respectively, for such services provided by FPA. At June 30, 1992 and 1993 and October 31, 1993, FPM owed FPA $67,221, $36,750 and $0, respectively, for intercompany transactions which is included in accounts payable. At June 30, 1993 and October 31, 1993, FPA owed FPM $83,009 and $0, respectively, in notes and accounts receivable which were assigned to FPM by FPC upon FPC's purchase of FPM's 80% stock ownership in FPC. Prior to the repurchase of its stock held by FPM on June 8, 1993, FPC provided nonclinical administrative services to FPA. For the year ended June 30, 1993, fees for such services were $159,000. FPM's proportionate share of such fees is included in other revenues. For the year ended June 30, 1992, managed care revenues included $177,334 for services performed for FPA. FPASF, one of the providers FPM contracts with to provide psychiatric services to patients enrolled in health plans managed by FPM, became a wholly-owned subsidiary of FPM on June 18, 1993 (see Note 17). Prior to that date, FPASF was 100% owned by certain stockholders of FPM. For the year ended June 30, 1992 and the period July 1, 1992 to June 18, 1993, approximately $17,000 and $22,000 of such expense is included in contracted provider services, respectively. F-18 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 13. MAJOR CUSTOMERS For the year ended June 30, 1992, approximately 74% of revenue was earned from three customers. Walt Disney World Co. comprised approximately $2,303,000 or 41% of revenue. The School Board of Orange County, Florida, Inc. and Metropolitan Life Insurance Co., Inc. comprised approximately $1,003,000 or 18% of revenue, and $550,000 or 15% of revenue, respectively. For the year ended June 30, 1993, approximately 74% of revenue was earned from three customers. Walt Disney World Co. comprised approximately $2,980,000 or 44% of revenue. The School Board of Orange County, Florida, Inc. and Metropolitan Life Insurance Company, Inc. comprised approximately $1,040,000 and $1,030,000, or approximately 15% each of revenue. For the four months ended October 31, 1993, approximately 71% of revenue was earned from three customers. Walt Disney World Co. comprised approximately $1,061,000, or 45% of revenue. The School Board of Orange County, Florida, Inc. and Health Options, Inc. customers comprised approximately $348,000 or 15% of revenue, and $268,000 or approximately 11% of revenue, respectively. 14. PROFIT SHARING PLAN FPM participates in a profit sharing plan which also covers Mainstream, FPC and several other unconsolidated affiliates. Contributions by FPM are discretionary. Plan contributions for the years ended June 30, 1992 and 1993 and the four months ended October 31, 1993 were approximately $29,000, $0 and $7,316, respectively. 15. DISCONTINUED OPERATIONS Mainstream, Inc., a Florida corporation incorporated in 1986, owned and operated a partial hospitalization program (day treatment center) in Winter Park, Florida. FPM owned 81.67% of Mainstream, Inc. prior to September 16, 1991, at which time FPM purchased the stock owned by the minority stockholders. As a result, Mainstream, Inc. became a wholly owned subsidiary of FPM. During the year ended June 30, 1992, FPM made a decision to discontinue operating its day treatment center business segments. Revenue from discontinued operations of Mainstream, Inc. in fiscal year 1992 was $144,199 for the period prior to disposal of the segment and is included in loss from discontinued operations. F-19 FLORIDA PSYCHIATRIC MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 16. SALE OF SUBSIDIARY'S STOCK On June 8, 1993, FPM's 80% stock ownership in FPC was redeemed. FPM recognized its equity in the earnings of FPC during the period July 1, 1992 to June 8, 1993, in the amount of $15,648 after taxes. In exchange for the FPC stock, FPM was assigned accounts and notes receivable of $83,987 and assumed liabilities of $25,045, which resulted in a loss to FPM of $51,038 on the stock sale. The loss is included in other operating expenses in the accompanying consolidated statements of operations. 17. ACQUISITION OF SUBSIDIARY'S STOCK UNDER COMMON CONTROL On June 18, 1993, FPM acquired one hundred percent of the outstanding common stock of Florida Psychiatric Associates - South Florida, P.A. ("FPASF"). The stock was received as a capital contribution from FPM's three major stockholders. The consolidated statement of operations for the year ended June 30, 1993 includes the results of operations of FPASF from the date of acquisition through June 30, 1993. The assets and liabilities transferred from FPASF are accounted for at their historical cost because they represent a transfer of net assets under common control. F-20 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. /s/ Gregory H. Browne By:_______________________ Gregory H. Browne Chief Executive Officer and President B. EXHIBITS 2.1 Agreement dated as of October 12, 1993 among FPM, the stockholders of FPM, the registrant and a subsidiary of the registrant (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-1 of Ramsay Managed Care, Inc., File No. 33-89514). 23.1 Consent of Ernst & Young LLP EX-23.1 2 CONSENT 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 6, 1994, with respect to the consolidated financial statements of Florida Psychiatric Management, Inc., included in Ramsay Health Care, Inc.'s Form 8-K dated October 29, 1993. /s/ Ernst & Young LLP ERNST & YOUNG LLP Orlando, Florida September 13, 1995