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SECURITIES AND EXCHANGE COMMISSION
FORM 8-K/A
Amended Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 10, 2004 (June 1, 2004)
Psychiatric Solutions, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 0-20488 | 23-2491707 | ||
| (State or Other | (Commission File | (I.R.S. Employer | ||
| Jurisdiction of | Number) | Identification | ||
| Incorporation) | Number) |
840 Crescent Centre Drive, Suite 460, Franklin, Tennessee 37067
(Address of Principal Executive Offices)
(615) 312-5700
(Registrant’s Telephone Number, including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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Item 7. Financial Statements and Exhibits.
On June 1, 2004, Psychiatric Solutions, Inc. (the “Company”) completed the acquisition of four freestanding psychiatric facilities from Heartland Healthcare (“Heartland”). The Company filed a Current Report on Form 8-K on June 2, 2004 in connection with the above referenced transaction. Item 7 of that Current Report is hereby amended and restated in its entirety as set forth below to include the financial statements and pro forma information required by Item 7 of Form 8-K:
| (a) | The Combined Financial Statements of Northern Healthcare Associates and Subsidiaries. | |||
| (b) | Unaudited Pro Forma Condensed Combined Financial Statements for Psychiatric Solutions, Inc., Brentwood Health Management, LLC and Northern Healthcare Associates and Subsidiaries. | |||
| (c) | Exhibits. | |||
| 2.1 | Asset Purchase Agreement, dated April 23, 2004, by and among Psychiatric Solutions, Inc., Fort Lauderdale Hospital, Inc., Millwood Hospital, L.P., PSI Pride Institute, Inc., PSI Summit Hospital, Inc., Fort Lauderdale Hospital Management, LLC, Millwood Health, LLC, Pride Institute, LLC and Summit Health, LLC (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed June 2, 2004). | |||
| 23.1 | * | Consent of Selznick & Company, LLP | ||
| 99.1 | Press Release of Psychiatric Solutions, Inc., dated June 1, 2004 (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed June 2, 2004). | |||
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| PSYCHIATRIC SOLUTIONS, INC. |
||||
| By: | /s/ Jack E. Polson | |||
| Jack E. Polson | ||||
| Date: August 10, 2004 | Chief Accounting Officer | |||
Table of Contents
Northern Healthcare Associates and Subsidiaries
Combined Financial Statements
Years Ended December 31, 2003 and 2002
Northern Healthcare Associates and Subsidiaries
Contents
| 3 | ||||||||
Financial Statements: |
||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 7-11 | ||||||||
| Ex-23.1 Consent of Selznick & Company, LLP | ||||||||
2
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145 Bedford Road, Suite 201
|
www.dselznick.com | Telephone: (914) 273-3700 | ||
Armonk, New York 10504
|
Facsimile: (914) 273-9331 |
Independent Auditors’ Report
To the Partner’s,
Northern Healthcare Associates
Eden Prairie, MN
We have audited the accompanying combined balance sheets for Northern Healthcare Associates and Subsidiaries (“the Company”) as of December 31, 2003 and 2002 and the related combined statements of income and partners’ capital, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northern Healthcare Associates and Subsidiaries as of December 31, 2003 and 2002 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Selznick & Company, LLP
July 12, 2004
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Northern Healthcare Associates and Subsidiaries
Combined Balance Sheets
December 31, 2003
| Three | ||||||||||||
| Months | ||||||||||||
| Ended | ||||||||||||
| December 31, | March 31, | |||||||||||
| 2003 |
2002 |
2004 |
||||||||||
| (Unaudited) | ||||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 1,379,640 | $ | 947,044 | $ | 1,692,823 | ||||||
Patient accounts receivable, net of allowance for doubtful
accounts and unbilled contractual allowance of $3,180,235,
$2,751,114 and $5,056,192 at December 31, 2003, 2002 and
March 31, 2004, respectively |
7,036,076 | 6,016,991 | 8,840,203 | |||||||||
Current portion of other receivable |
2,246,247 | 214,284 | 2,246,247 | |||||||||
Due from related parties |
601,937 | 525,195 | 709,671 | |||||||||
Prepaid expenses and other current assets |
694,046 | 449,062 | 327,991 | |||||||||
Total current assets |
11,957,946 | 8,152,576 | 13,816,935 | |||||||||
Property and equipment, net of accumulated depreciation |
1,940,192 | 2,092,210 | 1,877,208 | |||||||||
Other receivable, less current portion |
— | 2,246,247 | — | |||||||||
Other assets |
184,046 | 224,062 | 462,475 | |||||||||
Total assets |
$ | 14,082,184 | $ | 12,715,095 | $ | 16,156,618 | ||||||
Liabilities and partners’ capital |
||||||||||||
Current liabilities: |
||||||||||||
Borrowing under accounts receivable facility purchase
agreement |
$ | 3,936,420 | $ | 3,942,845 | $ | 4,353,286 | ||||||
Current maturities of long-term debt |
2,563,395 | 900,902 | 2,152,916 | |||||||||
Accounts payable and accrued expenses |
4,547,367 | 1,060,924 | 4,051,356 | |||||||||
Accrued payroll and other vacation benefits |
1,002,311 | 4,574,450 | 1,169,103 | |||||||||
Note payable
- other |
100,000 | 200,000 | 100,000 | |||||||||
Due to third-party payors |
1,051,462 | 200,869 | 1,286,972 | |||||||||
Due to government agencies |
148,541 | 297,511 | 240,726 | |||||||||
Total current liabilities |
13,349,496 | 11,177,501 | 13,354,359 | |||||||||
Long-term debt, less current maturities |
— | 2,060,274 | — | |||||||||
Total liabilities |
13,349,496 | 13,237,775 | 13,354,359 | |||||||||
Partners’ capital (deficit) |
||||||||||||
Partners’ capital (deficit) |
495,033 | (709,823 | ) | 2,336,299 | ||||||||
Minority interest |
237,655 | 187,143 | 465,960 | |||||||||
Total partners’ capital (deficit) |
732,688 | (522,680 | ) | 2,802,259 | ||||||||
Total liabilities and partners’ capital |
$ | 14,082,184 | $ | 12,715,095 | $ | 16,156,618 | ||||||
See accompanying notes to combined financial statements.
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Northern Healthcare Associates and Subsidiaries
Combined Statements of Income and Partners’ Capital
Year Ended December 31, 2003
| Three | ||||||||||||
| Months | ||||||||||||
| Ended | ||||||||||||
| December 31, | March 31, | |||||||||||
| 2003 |
2002 |
2004 |
||||||||||
| (Unaudited) | ||||||||||||
Revenues |
$ | 44,770,353 | $ | 35,163,725 | $ | 13,358,635 | ||||||
Operating expenses: |
||||||||||||
Salaries and benefits |
22,127,017 | 18,766,928 | 5,860,141 | |||||||||
Professional fees |
5,671,638 | 4,866,422 | 1,743,111 | |||||||||
Other operating expenses |
3,386,083 | 2,856,795 | 933,879 | |||||||||
Bad debt expense |
3,159,633 | 1,903,861 | 783,029 | |||||||||
Supplies |
2,896,133 | 2,336,176 | 806,736 | |||||||||
Rent and lease expenses |
1,651,536 | 1,605,547 | 465,972 | |||||||||
Taxes, licenses and fee expense |
388,641 | 199,700 | 124,312 | |||||||||
Interest expense |
351,914 | 383,225 | 85,343 | |||||||||
Depreciation |
311,482 | 317,661 | 62,778 | |||||||||
Indigent care expense |
134,846 | 110,930 | 58,963 | |||||||||
Total expenses |
40,078,923 | 33,347,245 | 10,924,264 | |||||||||
Consolidated net income |
4,691,430 | 1,816,480 | 2,434,371 | |||||||||
Less: minority interest |
(464,432 | ) | (251,922 | ) | (293,104 | ) | ||||||
Net income |
4,226,998 | 1,564,558 | 2,141,267 | |||||||||
Partners’ capital (deficit), beginning of year |
(709,823 | ) | (1,899,185 | ) | 495,032 | |||||||
Distributions to partners |
(3,022,142 | ) | (375,196 | ) | (300,000 | ) | ||||||
Partners’ capital (deficit), end of year |
$ | 495,033 | $ | (709,823 | ) | $ | 2,336,299 | |||||
See accompanying notes to combined financial statements.
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Northern Healthcare Associates and Subsidiaries
Combined Statements of Cash Flows
Year Ended December 31, 2003
| Three | ||||||||||||
| Months | ||||||||||||
| Ended | ||||||||||||
| December 31, | March 31, | |||||||||||
| 2003 |
2002 |
2004 |
||||||||||
| (Unaudited) | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Net income before minority interest |
$ | 4,691,430 | $ | 1,816,480 | $ | 2,434,371 | ||||||
Adjustments to reconcile net income to net cash flow
provided by operating activities: |
||||||||||||
Depreciation and amortization |
311,482 | 317,661 | 62,778 | |||||||||
Recovery of contractual adjustments and doubtful accounts |
(429,121 | ) | (395,753 | ) | 1,875,957 | |||||||
Loss on disposal of assets |
— | 351 | — | |||||||||
(Increase) decrease in: |
||||||||||||
Patient accounts receivable |
(589,964 | ) | 142,768 | (4,533,556 | ) | |||||||
Due from related parties |
77,519 | (72,985 | ) | (59,245 | ) | |||||||
Prepaid expenses and other current assets |
(244,984 | ) | (105,259 | ) | 366,055 | |||||||
Other assets |
58,986 | (37,327 | ) | (297,399 | ) | |||||||
Increase (decrease) in: |
||||||||||||
Accounts payable and accrued expenses |
(27,083 | ) | 506,579 | (496,011 | ) | |||||||
Accrued payroll and vacation benefits |
(58,613 | ) | 140,558 | 166,792 | ||||||||
Due to third-party payors |
850,593 | 87,193 | 1,088,982 | |||||||||
Due to government agencies |
(148,970 | ) | 156,083 | 92,185 | ||||||||
Net cash provided by operating activities |
4,491,275 | 2,556,349 | 700,909 | |||||||||
Cash flows from investing activities: |
||||||||||||
Purchase of equipment |
(159,463 | ) | (254,431 | ) | 206 | |||||||
Collections of note receivable |
195,314 | 214,287 | 18,970 | |||||||||
Net cash provided by investing activities |
35,851 | (40,144 | ) | 19,176 | ||||||||
Cash flows from financing activities: |
||||||||||||
Advances to related parties |
(154,261 | ) | (308,131 | ) | (48,489 | ) | ||||||
Advance from affiliate |
— | 184,401 | — | |||||||||
Repayments under accounts receivable facility purchase
agreements, net |
(6,425 | ) | (654,176 | ) | 416,866 | |||||||
Proceeds from mortgage refinancing |
510,607 | — | — | |||||||||
Repayments of long-term debt |
(1,008,388 | ) | (508,783 | ) | (410,479 | ) | ||||||
Distributions to partners |
(3,436,063 | ) | (437,566 | ) | (364,800 | ) | ||||||
Net cash used in financing activities |
(4,094,530 | ) | (1,724,255 | ) | (406,902 | ) | ||||||
Net increase in cash |
432,596 | 791,950 | 313,183 | |||||||||
Cash and cash equivalents, beginning of year |
947,044 | 155,094 | 1,379,640 | |||||||||
Cash and cash equivalents, end of year |
$ | 1,379,640 | $ | 947,044 | $ | 1,692,823 | ||||||
Supplemental disclosures of cash flow information |
||||||||||||
Interest paid during the year |
$ | 397,136 | $ | 594,557 | $ | 9,215 | ||||||
Interest received during the year |
$ | 163,387 | $ | 168,239 | $ | 15,111 | ||||||
See accompanying notes to combined financial statements.
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Northern Healthcare Associates and Subsidiaries
1.
|
Summary of Accounting Policies | Principles of Combination | ||
| The accompanying combined financial statements include the accounts of Summit Health, LLC, and the consolidated financial statements of Northern Healthcare Associates, and its majority owned subsidiaries, Millwood Health, LLC and Fort Lauderdale Hospital Management, LLC, (collectively, the “Company”). All material inter-company transactions have been eliminated in combination. There are no cross collateral agreements between the Company and its affiliates for assets and liabilities. | ||||
| The accompanying unaudited combined condensed financial statements as of March 31, 2004 and for the three months ended March 31, 2004 were prepared in accordance with accounting principles generally accepted in the United States of America and all applicable financial statement rules and regulations of the Securities and Exchange Commission pertaining to interim financial information. The interim financial statements do not include all information or footnote disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. All adjustments which are, in the opinion of management, of a normal recurring nature and are necessary for a fair presentation of the interim financial statements have been included. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year. | ||||
| Organization and Description of Operations | ||||
| The Company maintains and operates psychiatric hospitals in Summit, New Jersey, Fort Lauderdale, Florida and Arlington, Texas, which operate under individual licenses for each facility. It also owns and operates a chemical dependency treatment center in Minnesota and provides management services to other medical facilities in Florida, Illinois, New Jersey, New York and Texas. | ||||
| Cash Equivalents | ||||
| For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. | ||||
| Property and Equipment | ||||
| Property and equipment acquisitions are recorded at cost. Depreciation is calculated over the estimated useful life of the assets using the straight-line method. | ||||
| Net Patient Services Revenue | ||||
| The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its billed charges. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods, as final settlements are determined. |
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Northern Healthcare Associates and Subsidiaries
Notes to Combined Financial Statements
1.
|
Summary of Accounting Policies (continued) | Use of Estimates | ||
| 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 the 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 may differ from those estimates. | ||||
| Reclassification | ||||
| Certain items on the prior year’s combined financial statements have been reclassified to be consistent with the current year presentation. | ||||
| Income Taxes | ||||
| The Company is treated as a partnership for Federal Income Tax purposes, but is subject to New Jersey Partnership Tax, Texas Franchise Tax and New York City Unincorporated Business Tax for state purposes. Consequently, the Federal tax effects of its income or losses are passed through to the partners, individually. | ||||
2.
|
Net Patient Services Revenue | Payment arrangements with major third-party payors are summarized as follows: | ||
| Medicare | ||||
| Inpatient services are paid based on a cost reimbursement methodology. The Company is reimbursed for cost reimbursable items at a tentative per diem rate with final settlement determined after submission of annual cost reports by the Company and audits thereof by a Medicare fiscal intermediary. The Company’s Medicare cost reports have not been audited by the Medicare fiscal intermediary at December 31, 2003. In the opinion of management, adequate provisions have been made for any adjustments that may result from such audits. Outpatient services are paid on a prospective payment system. | ||||
| Other | ||||
| The Company has also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations (“HMO”) and preferred provider organizations (“PPO”). The basis for payment to the Company under these agreements includes predetermined rates and prospectively determined rates per patient day. | ||||
| Due to third party-payors at December 31, 2003 and 2002 was $1,015,462 and $200,869, respectively. | ||||
3.
|
Concentrations of Credit Risk | Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and patient accounts receivable. The Company maintains its cash balances in various financial institutions. The balances are insured up to $100,000 by the Federal Deposit Insurance Corporation (“FDIC”), and at times may exceed this limit. Credit risk with respect to receivables is considered low because a substantial portion of the receivables are from state Medicaid programs, commercial insurance carriers and HMO/PPO programs. Medicare represents approximately 32.6%, 20% and 20.9% of all net patient billings in the states of Florida, Texas and New Jersey, respectively. |
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Northern Healthcare Associates and Subsidiaries
Notes to Combined Financial Statements
4.
|
Professional Liability Insurance | The Company maintains professional malpractice liability insurance through a policy with limits of $1 million per claim and $3 million annual aggregate with a $5 million umbrella. There have been no claims filed as of December 31, 2003 that would, in the opinion of management, result in any uninsured liability to the Company. | ||
5.
|
Accounts Receivable Facility Purchase Agreement | In January 2001, the Company entered into an accounts receivable facility purchase agreement with Connecticut Bank of Commerce (the “Bank”), which was being accounted for as a financing agreement. Under this agreement, the Company could sell up to 85% of its interest in an unpaid receivable of an approved obligor that is less than 120 days old. Sales of the Company’s receivables under this agreement could not exceed $2,000,000 per entity. The arrangement is further collateralized by a security interest in all assets of each individual entity. Effective June 26, 2002, the FDIC took over all operations of the Bank. Interest is at 2% above the FDIC’s prime interest rate. On June 1, 2004, the amount due under this arrangement was paid (see note 15). | ||
6.
|
Property and Equipment | Property and equipment consists of the following: |
| 2003 |
2002 |
|||||||
Land |
$ | 130,000 | $ | 130,000 | ||||
Building and improvements |
1,240,345 | 1,216,024 | ||||||
Leasehold improvements |
219,021 | 211,421 | ||||||
Furniture and fixtures |
797,492 | 683,655 | ||||||
Fixed equipment |
890,887 | 876,961 | ||||||
Machinery and equipment |
101,541 | 99,499 | ||||||
Total |
3,379,286 | 3,217,560 | ||||||
Less: accumulated depreciation |
1,436,831 | 1,125,350 | ||||||
| $ | 1,942,455 | $ | 2,092,210 | |||||
| Depreciation expense was $311,482 in 2003 and $317,661 in 2002. | ||||
7.
|
Other Receivable | In March of 2000, Fort Lauderdale Hospital Management LLC, made an investment in a limited liability company. The principal asset of this limited liability company is a secured note receivable. The receivable was collected after the sale of the Company’s assets (see Note 15). | ||
8.
|
Leases | The Company’s subsidiaries lease facilities and equipment under various operating agreements with outside entities. The Company owns the Minnesota facility and leases office space in New York, Texas, Florida and New Jersey. The lease terms expire between March 2005 and April 2020. The leases provide for annual basic rental payments of $1,219,764 plus all ad valorem and real property taxes. Lease expense for the period ending December 31, 2003 was $1,651,536. Minimum lease payments under this arrangement as of December 31, 2003 are as follows: |
Years ended December 31, 2004 |
$ | 1,444,764 | ||
2005 |
994,764 | |||
2006 |
813,652 | |||
2007 |
752,088 | |||
2008 |
741,678 | |||
Thereafter |
8,258,928 | |||
| $ | 13,005,874 | |||
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Northern Healthcare Associates and Subsidiaries
Notes to Combined Financial Statements
9.
|
Debt | Debt at December 31, 2003 and 2002 consists of the following: |
| 2003 |
2002 |
|||||||
Mortgage note payable with a financial lending
institution, collateralized by the building
owned by Northern Healthcare Associates, LLC,
payable in monthly installments of principle
and interest at a fixed rate of 6%, originally
maturing September 2018. The collateral is
limited to the assets of the borrowing entity
subject to the terms of the note. |
$ | 505,290 | $ | 348,605 | ||||
Loan payable to the FDIC (see notes 5 and 15)
collateralized by the general assets of Fort
Lauderdale Hospital Management, LLC, payable in
quarterly installments of $53,571, including
interest at prime plus 1%, originally maturing
March 2007. The collateral is limited to the
assets of the borrowing entity subject to the
terms of the note. |
696,436 | 1,017,860 | ||||||
Loan payable to the FDIC (see notes 5 and 15),
collateralized by certain property and
equipment of Fort Lauderdale Hospital
Management, LLC, payable in monthly
installments of $1,667, including interest at
12%, originally maturing July 2005. The
collateral is limited to the assets of the
borrowing entity subject to the terms of the
note. |
40,000 | 51,667 | ||||||
Loan payable to the FDIC (see notes 5 and 15)
collateralized by the general assets of the
Millwood Health, LLC, payable in monthly
installments of principle and interest at the
Wall Street Journal prime rate plus 2%,
originally maturing April 2008. The
collateral is limited to the assets of the
borrowing entity subject to the terms of the
note |
557,147 | 685,715 | ||||||
Loan payable to the FDIC (see notes 5 and 15)
collateralized by the general assets of the
Summit Health, LLC, payable in monthly
installments of principle and interest at the
Wall Street Journal prime rate plus 2%,
originally maturing March 2006. The
collateral is limited to the assets of the
borrowing entity subject to the terms of the
note |
739,374 | 820,625 | ||||||
Other |
25,148 | 36,704 | ||||||
Total |
2,563,395 | 2,961,176 | ||||||
Less: current maturities |
2,563,395 | 900,902 | ||||||
Total |
$ | — | $ | 2,060,274 | ||||
| On June 1, 2004, upon the sale of the assets of the Company, all of the short-term debt was paid (see note 15). |
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Northern Healthcare Associates and Subsidiaries
Notes to Combined Financial Statements
10.
|
Note Payable - Other | During 2003, an advance of $200,000 was made by a party related to one of the partners of Millwood Health, LLC. The loan is personally guaranteed by the partners of Millwood Health, LLC. It was payable in full, plus interest and administrative fees of $20,000, on February 6, 2003. On February 26, 2003 a payment was made in the amount of $100,000 and the remaining $100,000, payable in March, 2004 with interest of $5,000, was extended. | ||
11.
|
Due to Government Agencies | Fort Lauderdale Hospital Management, LLC is subject to compliance with the Health Care Consumer Protection and Awareness Act of 1984. This Act created a fund for the treatment of indigent patients. Fort Lauderdale Hospital Management, LLC is assessed an amount equal to 1.5% of net inpatient service revenues. The Hospital’s expense was $134,846 for the year ended December 31, 2003. The unpaid assessments at December 31, 2003 totaled $148,541 and at December 31, 2002 totaled $297,511. | ||
12.
|
Retirement Plan | The Company has established a 401(k) retirement plan for all employees who meet certain eligibility criteria such as age, term of employment, etc. Eligible employees may elect to contribute to the plan, a portion of their gross salary (subject to Federal tax law limits). The Company currently matches 25% of the employee’s contribution up to 4% of the employees’ wages. Amounts contributed to the plan by employees are fully vested when contributed. The contributions to these plans in 2003 and 2002 were $48,710 and $39,640, respectively. | ||
13.
|
Commitments and Contingencies | The Company is subject to compliance with laws and regulations of various governmental agencies. Recently, governmental review of compliance with these laws and regulations has increased, resulting in fines and penalties of noncompliance by individual health care providers. While no outstanding regulatory actions exist at December 31, 2003 for the Company, compliance with these laws and regulations is subject to future government review, interpretation or actions which are unknown and unasserted at this time. | ||
14.
|
Related Party Transactions | Related party transactions consist of the following: |
| 2003 |
2002 |
|||||||
Due from affiliates |
$ | 650,426 | $ | 727,945 | ||||
Due to members |
(48,489 | ) | (202,750 | ) | ||||
| $ | 601,937 | $ | 525,195 | |||||
15.
|
Subsequent Event (Unaudited) | On June 1, 2004, substantially all of the Company’s net assets were purchased by Psychiatric Solutions, Inc., a leading provider of behavioral health care services, for approximately $47 million. |
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following table sets forth the unaudited pro forma condensed combined financial data for Psychiatric Solutions, Inc. (the “Company”), Brentwood Health Management, LLC (“Brentwood”), and Northern Healthcare Associates and Subsidiaries (“Heartland”) as a combined company, giving effect to the acquisitions as if they occurred on the dates indicated and after giving effect to the pro forma adjustments discussed herein. The acquisitions of Brentwood and Heartland occurred on March 1, 2004 and June 1, 2004, respectively. The unaudited pro forma condensed combined balance sheet as of March 31, 2004 has been derived from the Company’s and Heartland’s historical balance sheets, adjusted to give effect to the acquisition as if it occurred on March 31, 2004. The pro forma condensed combined income statement for the three months ended March 31, 2004 and the year ended December 31, 2003 gives effect to the acquisitions above as if they occurred at the beginning of the respective periods presented.
The adjustments necessary to fairly present the unaudited pro forma condensed combined financial information have been made based on available information and in the opinion of management are reasonable. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma condensed combined financial information. The pro forma adjustments are preliminary and revisions to the preliminary purchase price allocations may have a significant impact on the pro forma adjustments.
The unaudited pro forma condensed financial information is for comparative purposes only and does not purport to represent what our financial position or results of operations would actually have been had the events noted above in fact occurred on the assumed dates or to project our financial position or results of operations for any future date or future period.
Table of Contents
Unaudited Pro Forma Condensed Combined Balance Sheet
March 31, 2004
| Psychiatric | Pro Forma | Pro Forma | ||||||||||||||
| Solutions |
Heartland |
Adjustments |
Combined |
|||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash |
$ | 34,176 | $ | 1,693 | $ | (21,808 | ) (1) | $ | 14,061 | |||||||
Accounts receivable |
65,278 | 8,840 | — | 74,118 | ||||||||||||
Prepaids and other |
6,762 | 3,284 | (3,116 | ) (2) | 6,930 | |||||||||||
Total current assets |
106,216 | 13,817 | (24,924 | ) | 95,109 | |||||||||||
Property and equipment, net |
175,851 | 1,877 | — | 177,728 | ||||||||||||
Cost in excess of net assets acquired |
70,501 | — | 42,229 | (3) | 112,730 | |||||||||||
Contracts, net |
2,614 | — | — | 2,614 | ||||||||||||
Other assets |
16,685 | 462 | — | 17,147 | ||||||||||||
Total assets |
$ | 371,867 | $ | 16,156 | $ | 17,305 | $ | 405,328 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable and accrued
expenses |
$ | 52,567 | $ | 6,748 | $ | (1,287 | ) (4) | $ | 58,028 | |||||||
Current portion of long-term debt |
1,100 | 6,606 | (6,606 | ) (5) | 1,100 | |||||||||||
Total current liabilities |
53,667 | 13,354 | (7,893 | ) | 59,128 | |||||||||||
Long-term debt, less current portion |
190,816 | — | 28,000 | (6) | 218,816 | |||||||||||
Other liabilities |
10,801 | 466 | (466 | ) (7) | 10,801 | |||||||||||
Total liabilities |
255,284 | 13,820 | 19,641 | 288,745 | ||||||||||||
Series A convertible preferred stock |
25,617 | — | — | 25,617 | ||||||||||||
Stockholders’ equity: |
||||||||||||||||
Common stock |
120 | — | — | 120 | ||||||||||||
Additional paid-in capital |
91,412 | — | — | 91,412 | ||||||||||||
Other stockholders’ (deficit) equity |
(566 | ) | 2,336 | (2,336 | ) (8) | (566 | ) | |||||||||
Total stockholders’ equity |
90,966 | 2,336 | (2,336 | ) | 90,966 | |||||||||||
Total liabilities and stockholders’ equity |
$ | 371,867 | $ | 16,156 | $ | 17,305 | $ | 405,328 | ||||||||
Table of Contents
Unaudited Pro Forma Condensed Combined Income Statement
For the three months ended March 31, 2004
| Psychiatric | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||||
| Solutions |
Brentwood |
Adjustments |
Heartland |
Adjustments |
Combined |
|||||||||||||||||||
Revenue |
$ | 107,584 | $ | 5,612 | $ | — | $ | 13,359 | $ | — | $ | 126,555 | ||||||||||||
Salaries, wages and employee benefits |
58,995 | 2,977 | — | 5,860 | (119 | ) (13) | 67,713 | |||||||||||||||||
Professional fees |
12,056 | 395 | — | 1,743 | — | 14,194 | ||||||||||||||||||
Supplies |
6,941 | 285 | — | 807 | — | 8,033 | ||||||||||||||||||
Rentals and leases |
1,783 | 356 | (319 | ) (9) | 466 | — | 2,286 | |||||||||||||||||
Other operating expenses |
12,862 | 746 | — | 1,118 | — | 14,726 | ||||||||||||||||||
Provision for bad debts |
2,027 | 370 | — | 783 | — | 3,180 | ||||||||||||||||||
Depreciation and amortization |
2,117 | 30 | 132 | (10) | 63 | — | 2,342 | |||||||||||||||||
Interest expense |
4,456 | 2 | 106 | (11) | 85 | 183 | (11) | 4,832 | ||||||||||||||||
Loss on refinancing long-term debt |
6,407 | — | — | — | — | 6,407 | ||||||||||||||||||
Minority interest |
— | — | — | 293 | (293 | ) (12) | — | |||||||||||||||||
| 107,644 | 5,161 | (81 | ) | 11,218 | (229 | ) | 123,713 | |||||||||||||||||
(Loss) income before income taxes |
(60 | ) | 451 | 81 | 2,141 | 229 | 2,842 | |||||||||||||||||
(Benefit
from) provision for income taxes |
(23 | ) | — | 202 | (14) | — | 901 | (14) | 1,080 | |||||||||||||||
Net (loss) income |
(37 | ) | 451 | (121 | ) | 2,141 | (672 | ) | 1,762 | |||||||||||||||
Accrued preferred stock dividends |
323 | — | — | — | — | 323 | ||||||||||||||||||
Net (loss) income available to common stockholders |
$ | (360 | ) | $ | 451 | $ | (121 | ) | $ | 2,141 | $ | (672 | ) | $ | 1,439 | |||||||||
Earnings per share: |
||||||||||||||||||||||||
Basic |
$ | (0.03 | ) | $ | 0.12 | |||||||||||||||||||
Diluted |
$ | (0.03 | ) | $ | 0.10 | |||||||||||||||||||
Shares used in computing per share amounts: |
||||||||||||||||||||||||
Basic |
11,958 | 11,958 | ||||||||||||||||||||||
Diluted |
11,958 | 17,231 | ||||||||||||||||||||||
Unaudited Pro Forma Condensed Combined Income Statement
For the year ended December 31, 2003
| Psychiatric | Pro Forma | Pro Forma | Pro Forma | |||||||||||||||||||||
| Solutions |
Brentwood |
Adjustments |
Heartland |
Adjustments |
Combined |
|||||||||||||||||||
Revenue |
$ | 293,665 | $ | 31,425 | $ | — | $ | 44,770 | $ | — | $ | 369,860 | ||||||||||||
Salaries, wages and employee benefits |
153,498 | 16,913 | — | 22,127 | (476 | ) (13) | 192,062 | |||||||||||||||||
Professional fees |
33,293 | 653 | — | 5,672 | — | 39,618 | ||||||||||||||||||
Supplies |
17,074 | 1,719 | — | 2,896 | — | 21,689 | ||||||||||||||||||
Rentals and leases |
4,109 | 2,110 | (1,942 | ) (9) | 1,652 | — | 5,929 | |||||||||||||||||
Other operating expenses |
44,569 | 3,981 | — | 3,909 | — | 52,459 | ||||||||||||||||||
Provision for bad debts |
6,315 | 1,835 | — | 3,160 | — | 11,310 | ||||||||||||||||||
Depreciation and amortization |
5,754 | 419 | 555 | (10) | 311 | — | 7,039 | |||||||||||||||||
Interest expense |
14,781 | 39 | 1,360 | (11) | 352 | 1,888 | (11) | 18,420 | ||||||||||||||||
Loss on refinancing long-term debt |
4,856 | — | — | — | — | 4,856 | ||||||||||||||||||
Change in valuation of put warrants |
960 | — | — | — | — | 960 | ||||||||||||||||||
Change in reserve of stockholder notes |
(545 | ) | — | — | — | — | (545 | ) | ||||||||||||||||
Minority interest |
— | 150 | (150 | ) (12) | 464 | (464 | ) (12) | — | ||||||||||||||||
| 284,664 | 27,819 | (177 | ) | 40,543 | 948 | 354,797 | ||||||||||||||||||
Income before income taxes |
9,001 | 3,606 | 177 | 4,227 | (948 | ) | 16,063 | |||||||||||||||||
Provision for income taxes |
3,785 | — | 1,438 | (14) | — | 1,246 | (14) | 6,469 | ||||||||||||||||
Net income |
5,216 | 3,606 | (1,261 | ) | 4,227 | (2,194 | ) | 9,594 | ||||||||||||||||
Accrued preferred stock dividends |
811 | — | — | — | — | 811 | ||||||||||||||||||
Net income available to common stockholders |
$ | 4,405 | $ | 3,606 | $ | (1,261 | ) | $ | 4,227 | $ | (2,194 | ) | $ | 8,783 | ||||||||||
Earnings per share: |
||||||||||||||||||||||||
Basic |
$ | 0.53 | $ | 1.05 | ||||||||||||||||||||
Diluted |
$ | 0.44 | $ | 0.82 | ||||||||||||||||||||
Shares used in computing per share amounts: |
||||||||||||||||||||||||
Basic |
8,370 | 8,370 | ||||||||||||||||||||||
Diluted |
11,749 | 11,749 | ||||||||||||||||||||||
Table of Contents
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
| (1) | Excludes Heartland’s cash on hand of $1,693 because this was not purchased by the Company. Also, includes $20,115 cash paid for the acquisition of Heartland by the Company. | |||
| (2) | Excludes $3,116 of notes receivable and other current assets at Heartland not purchased by the Company. | |||
| (3) | The preliminary estimated purchase price of Heartland is as follows: | |||
Total assets acquired by the Company: |
||||
Total assets of Heartland at March 31, 2004 |
$ | 16,156 | ||
Less cash, prepaids and other assets
not acquired by the Company |
(4,809 | ) | ||
Total assets acquired by the Company |
11,347 | |||
Heartland liabilities assumed |
(5,461 | ) | ||
Goodwill/unallocated purchase price |
42,229 | |||
Total preliminary estimated purchase price |
$ | 48,115 | ||
| (4) | Excludes estimated third party settlements of $1,287 not assumed by the Company. | |||
| (5) | Excludes debt of $6,606 not assumed by the Company. | |||
| (6) | Includes $28,000 drawn by the Company on its revolving line of credit to purchase Heartland. | |||
| (7) | Eliminates $466 of Heartland’s pre-acquisition minority interest. | |||
| (8) | Eliminates $2,336 of Heartland’s pre-acquisition stockholders’ equity. | |||
| (9) | Eliminates Brentwood’s related party rent payments for land and buildings purchased by the Company as part of the acquisition. | |||
| (10) | Increases depreciation expense to reflect the purchase the land and buildings of Brentwood by the Company. | |||
| (11) | Reflects additional interest expense for $17,000 borrowed through the Company’s revolving line of credit for the purchase of Brentwood. The balance of the purchase price for Brentwood was paid with the Company’s cash on hand. Reflects additional interest expense for $28,000 borrowed through the Company’s revolving line of credit for the purchase of Heartland. The balance of the purchase price for Heartland was paid with the Company’s cash on hand. | |||
| (12) | Eliminates minority interests not assumed in conjunction with the acquisitions of Brentwood and Heartland. | |||
| (13) | Reflects the elimination of salaries allocated from Heartland’s corporate office, which was not acquired. | |||
| (14) | Reflects additional income tax provision to give effect to the incremental earnings of the acquisitions of Brentwood and Heartland. | |||