Attached files

file filename
8-K - UNIVERSAL HEALTH SERVICES INC--FORM 8-K - UNIVERSAL HEALTH SERVICES INCd8k.htm

Exhibit 99.1

Capitalization

The following table sets forth our capitalization as of June 30, 2010:

 

 

on an actual basis; and

 

 

on a pro forma as adjusted basis to give effect to the Transactions (the acquisition of PSI, the establishment and borrowing under the senior credit facility and the senior unsecured financing and the use of proceeds thereof) as if each had occurred on that date.

 

(amounts in thousands)    As of June 30, 2010
      Actual    Pro forma
as
adjusted

Cash and cash equivalents

   $ 12,337    $ 12,337
      

Total debt (including current maturities)

     

Existing revolving credit facility

     166,000     

New senior credit facility:

     

Revolving credit facility (1)

          391,964

Term loan A (1)

          1,042,125

Term loan B (1)

          1,576,000

Accounts receivable securitization program (2)

     100,000      250,000

7.125% senior notes due 2016 (3)

     400,026      400,026

6.75% senior notes dues 2011 (3)

     200,850      200,850

Existing UHS debt, other (4)

     16,500      16,500

Rolled PSI debt (5)

          39,635
      

Total senior secured debt (6)

     883,376      3,917,100

Senior unsecured financing

          250,000
      

Total debt

     883,376      4,167,100

Total stockholders’ equity

     1,930,130      1,884,520
      

Total capitalization

   $ 2,813,506    $ 6,051,620

 

(1) Represents pro forma borrowings pursuant to the revolving credit facility assuming that PSI’s cash on hand as of June 30, 2010 of $49.7 million is utilized to fund a portion of the costs of the Transactions. As of June 30, 2010, after giving effect to the Transactions, we would have had $345.0 million available to be borrowed under the revolving credit facility, after taking into account $63.0 million of outstanding letters of credit. The Term loan A amount represents the $1,050.0 million facility, net of original issue discount of $7.825 million. The Term loan B amount represents the $1,600.0 million facility, net of original issue discount of $24.0 million.

 

(2) As of June 30, 2010, we had $100.0 million available to be borrowed under the terms of our existing accounts receivable securitization program, which is secured by the patient-related accounts receivable of substantially all of our acute care hospitals. We expect to obtain a new $250.0 million accounts receivable securitization program with terms similar to our existing program.

 

(3) As of June 30, 2010, we had $400.0 million in aggregate principal amount of 7.125% senior notes due 2016 and $200.0 million in aggregate principal amount of 6.75% senior notes due 2011. These senior notes are currently unsecured, but in connection with the Transactions, we expect that they will be equally and ratably secured by the collateral that will secure our senior credit facility.


(4) Includes amounts under capitalized leases, industrial revenue bonds, notes payable and mortgages payable that will remain outstanding following the Transactions.

 

(5) PSI’s existing mortgage loans with respect to five of its hospitals, amounting to $32.6 million in the aggregate, will remain outstanding after the Transactions. Principal and interest on the loans are payable in 420 monthly installments through the final maturity dates in 2036, 2037 and 2038, and the loans bear interest at fixed rates of 5.7% to 7.6%. The loans are insured by the U.S. Department of Housing and Urban Development (“HUD”). See note 6 to PSI’s unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2010 included in this offering memorandum. In addition, PSI has $7.0 million of other debt, consisting primarily of capital leases.

 

(6) The amounts set forth for total senior secured debt includes the 7.125% senior notes due 2016 and the 6.75% senior notes due 2011, which will only become secured in connection with the Transactions. See note (3) above.


Unaudited pro forma condensed combined financial information

The unaudited pro forma condensed combined statement of income for Universal Health Services, Inc. (“UHS”) and Psychiatric Solutions, Inc. (“PSI”) for the twelve months ended June 30, 2010, the year ended December 31, 2009 and the six-month periods ended June 30, 2010 and 2009, give effect to UHS’s acquisition of PSI and related financing transactions, including this senior unsecured financing and other debt financing commitments (collectively, the “Transactions”), as if they had occurred on January 1, 2009. The unaudited pro forma condensed combined balance sheet as of June 30, 2010 gives effect to the Transactions as if they had occurred on June 30, 2010.

The pro forma adjustments are preliminary and have been made solely for purposes of developing the pro forma financial information for illustrative purposes. The actual results reported in periods following the Transactions may differ significantly from that reflected in these pro forma financial statements for a number of reasons, including, but not limited to, differences between the assumptions used to prepare these pro forma financial statements and actual amounts, cost savings from operating efficiencies, differences resulting from the final PSI merger agreement, timing and impact of potential synergies, the impact of potential divestiture of UHS and/or PSI facilities as required by the Federal Trade Commission, the impact of the incremental costs incurred in integrating the PSI facilities, and the actual interest rates applicable to the funds borrowed to finance the acquisition of PSI. In addition, no adjustments have been made for non-recurring items related to the Transactions in the pro forma statements of income. As a result, the pro forma information does not purport to be indicative of what the financial condition or results of operations would have been had the Transactions been completed on the applicable dates of this pro forma financial information. The pro forma financial statements are based upon the historical financial statements of UHS and PSI and do not purport to project the future financial condition and results of operations after giving effect to the Transactions.

The pro forma adjustments and related assumptions are described in the accompanying notes presented on the following pages. The pro forma adjustments are based on assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities of PSI based on preliminary estimates of fair value. The final purchase price and the allocation thereof will differ from that reflected in the pro forma financial statements after final valuation procedures are performed and amounts are finalized following the completion of the Transactions.

The following unaudited pro forma condensed combined financial information is derived from the historical financial statements of UHS and PSI and has been prepared to illustrate the effects of the acquisition of PSI by UHS and the receipt of $250.0 million of proceeds from this senior unsecured financing, as well as the proceeds from other debt financing commitments. The pro forma financial information should be read in conjunction with the historical financial statements and the accompanying notes of UHS, which are included in this offering memorandum, and for PSI, also included in this offering memorandum.


Unaudited pro forma condensed combined balance sheet

June 30, 2010

(amounts in thousands)

 

      UHS    PSI   

Pro forma

adjustments

         Pro forma
combined
 
   

Current assets:

            

Cash and cash equivalents

   $ 12,337    $ 49,698    $ (49,698   (A)   $ 12,337   

Accounts receivable, net

     618,855      254,412          873,267   

Supplies

     84,683         6,200      (B)     90,883   

Other current assets

     38,985      85,760      (31,500   (B)     93,245   

Deferred income taxes

     51,109         27,899      (C)     79,008   

Current assets held for sale

     16,250             16,250   
        

Total current assets

     822,219      389,870      (47,099       1,164,990   

Property and equipment, net

     2,307,617      965,833      52,487      (D)     3,325,937   

Other assets:

            

Goodwill

     732,754      1,153,111      811,633      (E)     2,697,498   

Deferred charges

     8,864         87,800      (F)     96,664   

Other

     118,303      58,959      23,300      (G)     200,562   
        
   $ 3,989,757    $ 2,567,773    $ 928,121        $ 7,485,651   
        

Liabilities and stockholders’ equity

            

Current liabilities:

            

Current maturities of long-term debt

   $ 2,032    $ 4,742    $          $ 6,774   

Accounts payable and accrued liabilities

     552,794      215,462      (18,166   (H)     750,090   

Federal and state taxes

     3,298         (13,668   (I)     (10,370
        

Total current liabilities

     558,124      220,204      (31,834       746,494   
        

Other noncurrent liabilities

     346,310      32,932          379,242   

Long-term debt

     881,344      1,125,625      2,121,482      (J)     4,128,451   

Deferred income taxes

     68,386      82,260      (13,501   (C)     137,145   

Redeemable noncontrolling interests

     205,463      4,336          209,799   

UHS/PSI common stockholders’ equity

     1,887,365      1,102,416      (1,148,026   (K)     1,841,755   

Noncontrolling interests

     42,765             42,765   
        

Total equity

     1,930,130      1,102,416      (1,148,026       1,884,520   
        
   $ 3,989,757    $ 2,567,773    $ 928,121        $ 7,485,651   
   


Unaudited pro forma condensed combined statements of income

for the twelve months ended June 30, 2010

(amounts in thousands, except per share amounts)

 

     UHS   PSI     Pro forma
adjustments
         Pro forma
combined
 

Net revenues

  $ 5,271,788   $ 1,894,794          $ 7,166,582

Operating charges:

         

Salaries, wages and benefits

    2,263,653     1,033,787            3,297,440

Other operating expenses

    984,950     378,131        (24,566   (N)     1,338,515

Supplies expense

    712,613     94,142            806,755

Provision for doubtful accounts

    538,109     41,599            579,708

Depreciation and amortization

    210,020     48,579        8,682      (L)     267,281

Lease and rental expense

    71,407     19,680            91,087
     
    4,780,752     1,615,918        (15,884       6,380,786
     

Income from operations

    491,036     278,876        15,884          785,796

Interest expense, net

    45,947     69,888        132,845      (M)     248,680
     

Income before income taxes

    445,089     208,988        (116,961       537,116

Provision for income taxes

    157,676     80,455        (44,281   (O)     193,850
     

Net income

    287,413     128,533        (72,680       343,266

Less: Income attributable to noncontrolling interests

    38,083     (202         37,881
     

Net income attributable to UHS

  $ 249,330   $ 128,735      $ (72,680     $ 305,385
     

Basic earnings per share attributable to UHS

  $ 2.56         $ 3.13
                 

Diluted earnings per share attributable to UHS

  $ 2.54         $ 3.11
                 

Weighted average number of common shares—basic

    97,229           97,229

Add: Other share equivalents

    725           725
                 

Weighted average number of common shares and equivalents—diluted

    97,954           97,954
 

See accompanying notes to the unaudited pro forma condensed combined financial statements


Unaudited pro forma condensed combined statements of income

for the year ended December 31, 2009

(amounts in thousands, except per share amounts)

 

     UHS   PSI   Pro forma
adjustments
         Pro forma
combined
 

Net revenues

  $ 5,202,379   $ 1,805,361       $ 7,007,740

Operating charges:

         

Salaries, wages and benefits

    2,204,422     1,005,204         3,209,626

Other operating expenses

    994,923     339,653         1,334,576

Supplies expense

    699,249     92,572         791,821

Provision for doubtful accounts

    508,603     36,414         545,017

Depreciation and amortization

    204,703     44,778     8,682      (L)     258,163

Lease and rental expense

    69,947     20,131         90,078
     
    4,681,847     1,538,752     8,682          6,229,281
     

Income from operations

    520,532     266,609     (8,682       778,459

Interest expense, net

    45,810     71,549     137,121      (M)     254,480
     

Income before income taxes

    474,722     195,060     (145,803       523,979

Provision for income taxes

    170,475     74,889     (55,201   (O)     190,163
     

Net income

    304,247     120,171     (90,602       333,816

Less: Income attributable to noncontrolling interests

    43,874     93         43,967
     

Net income attributable to UHS

  $ 260,373   $ 120,078   $ (90,602     $ 289,849
     

Basic earnings per share attributable to UHS

  $ 2.65         $ 2.95
                 

Diluted earnings per share attributable to UHS

  $ 2.64         $ 2.94
                 

Weighted average number of common shares—basic

    97,794           97,794

Add: Other share equivalents

    481           481
                 

Weighted average number of common shares and equivalents—diluted

    98,275           98,275
 

See accompanying notes to the unaudited pro forma condensed combined financial statements


Unaudited pro forma condensed combined statements of income

for the six months ended June 30, 2010

(amounts in thousands, except per share amounts)

 

      UHS    PSI    Pro forma
adjustments
         Pro forma
combined
 

Net revenues

   $ 2,685,468    $ 978,650        $ 3,664,118

Operating charges:

            

Salaries, wages and benefits

     1,142,478      522,773          1,665,251

Other operating expenses

     496,142      202,857      (24,566   (N)     674,433

Supplies expense

     363,742      47,982          411,724

Provision for doubtful accounts

     269,154      21,937          291,091

Depreciation and amortization

     107,536      25,269      4,342      (L)     137,147

Lease and rental expense

     36,119      9,678          45,797
      
     2,415,171      830,496      (20,224       3,225,443
      

Income from operations

     270,297      148,154      20,224          438,675

Interest expense, net

     24,654      33,051      68,371      (M)     126,076
      

Income before income taxes

     245,643      115,103      (48,147       312,599

Provision for income taxes

     86,466      44,295      (18,228   (O)     112,533
      

Net income

     159,177      70,808      (29,919       200,066

Less: Income attributable to noncontrolling interests

     21,786      50          21,836
      

Net income attributable to UHS

   $ 137,391    $ 70,758    $ (29,919     $ 178,230
      

Basic earnings per share attributable to UHS

   $ 1.42           $ 1.84
                    

Diluted earnings per share attributable to UHS

   $ 1.40           $ 1.82
                    

Weighted average number of common shares—basic

     96,621             96,621

Add: Other share equivalents

     1,131             1,131
                    

Weighted average number of common shares and equivalents—diluted

     97,752             97,752
 

See accompanying notes to the unaudited pro forma condensed combined financial statements


Unaudited pro forma condensed combined statements of income

for the six months ended June 30, 2009

(amounts in thousands, except per share amounts)

 

      UHS    PSI    Pro forma
adjustments
         Pro forma
combined
 

Net revenues

   $ 2,616,059    $ 889,217        $ 3,505,276

Operating charges:

            

Salaries, wages and benefits

     1,083,247      494,190          1,577,437

Other operating expenses

     506,115      164,379          670,494

Supplies expense

     350,378      46,412          396,790

Provision for doubtful accounts

     239,648      16,752          256,400

Depreciation and amortization

     102,219      21,468      4,342      (L)     128,029

Lease and rental expense

     34,659      10,129          44,788
      
     2,316,266      753,330      4,342          3,073,938
      

Income from operations

     299,793      135,887      (4,342       431,338

Interest expense, net

     24,517      34,712      72,647      (M)     131,876
      

Income before income taxes

     275,276      101,175      (76,989       299,462

Provision for income taxes

     99,265      38,729      (29,148   (O)     108,846
      

Net income

     176,011      62,446      (47,841       190,616

Less: Income attributable to noncontrolling interests

     27,577      345          27,922
      

Net income attributable to UHS

   $ 148,434    $ 62,101    $ (47,841     $ 162,694
      

Basic earnings per share attributable to UHS

   $ 1.51           $ 1.65
                    

Diluted earnings per share attributable to UHS

   $ 1.50           $ 1.65
                    

Weighted average number of common shares—basic

     98,056             98,056

Add: Other share equivalents

     202             202
                    

Weighted average number of common shares and equivalents—diluted

     98,258             98,258
 

See accompanying notes to the unaudited pro forma condensed combined financial statements


Notes to unaudited pro forma condensed combined financial statements

Note 1—Basis of presentation

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting under existing U.S. GAAP standards and are based on our historical consolidated financial statements and the financial statements of PSI for the twelve months ended June 30, 2010, the year December 31, 2009 and the six-month periods ended June 30, 2010 and 2009.

The unaudited pro forma condensed combined statement of income for UHS and PSI for the twelve months ended June 30, 2010, the year December 31, 2009 and the six-month periods ended June 30, 2010 and 2009 give effect to UHS’s acquisition of PSI and related financing transactions, including this senior unsecured financing and other debt financing commitments (collectively the “Transactions”), as if they had occurred on January 1, 2009. The unaudited pro forma condensed combined balance sheet as of June 30, 2010 gives effect to the Transactions as if they had occurred on June 30, 2010.

We prepared the unaudited pro forma condensed combined financial information using the acquisition method of accounting, which is based upon Accounting Standards Codification (“ASC”) 805, Business Combinations, the Financial Accounting Standard Board’s (“FASB”) standard related to business combinations. The business combination standard incorporates the FASB standard related to fair value measurement concepts. We have adopted both FASB standards related to business combinations and fair value measurements as required.

The FASB standard issued related to business combinations requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. In addition, the standard establishes that the consideration transferred be measured at the closing date of the acquisition at the then-current market price. Our intent is to use the proceeds from this senior unsecured financing and the other debt financing commitments to pay cash to PSI as consideration for the acquisition. The transaction fees have been excluded from the unaudited pro forma condensed combined statements of income as they are non-recurring and are reflected as borrowings under the revolving credit facility and as an adjustment to retained earnings on the unaudited pro forma condensed combined balance sheet.

ASC 820, Fair Value Measurements and Disclosures, the FASB’s standards related to fair value measurements, define the term “fair value” and set forth the valuation requirements for any asset or liability measured at fair value, expand related disclosure requirements and specify a hierarchy of valuation techniques based on the nature of inputs used to develop the fair value measures. Fair value is defined in the standard as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result of these standards, we may be required to record assets that we do not intend to use or sell (defensive assets) and/or to value assets at fair value measurements that do not reflect our intended use of those assets. Many of these fair value measurements can be highly subjective, and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

The assumptions and related pro forma adjustments described below have been developed based on assumptions and adjustments, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from PSI based on preliminary


estimates of fair value. The final purchase price allocation will differ from that reflected in the pro forma financial statements after final valuation procedures are performed and amounts are finalized following the completion of the Transactions.

The unaudited pro forma condensed combined financial statements are preliminary, are provided for illustrative purposes only and do not purport to represent what our actual consolidated results of operations or consolidated financial position would have been had the Transactions occurred on the dates assumed, nor are they necessarily indicative of our future consolidated results of operations or financial position. The actual results reported in periods following the Transactions may differ significantly from those reflected in these pro forma financial statements for a number of reasons, including, but not limited to, differences between the assumptions used to prepare these pro forma financial statements and actual amounts, cost savings from operating efficiencies, differences resulting from the final PSI merger agreement, timing and impact of potential synergies, the impact of potential divestiture of UHS and/or PSI facilities as may be required by the Federal Trade Commission, the impact of the incremental costs incurred in integrating the PSI facilities, and the actual interest rates applicable to the funds borrowed to finance the acquisition of PSI. In addition, no adjustments have been made to the condensed combined statements of income for non-recurring items related to the Transactions. As a result, the pro forma information does not purport to be indicative of what the financial condition or results of operations would have been had the Transactions been completed on the applicable dates of this pro forma financial information. The pro forma financial statements are based upon the historical financial statements of UHS and PSI and do not purport to project the future financial condition and results of operations after giving effect to the Transactions.

Note 2—Preliminary purchase price

We have entered into a merger agreement to acquire PSI. The purchase price for the acquisition is estimated as follows, subject to adjustments to PSI’s actual debt outstanding:

Estimated purchase price (in thousands):

 

Cash paid to PSI stockholders

   $ 1,982,936

Assumption of PSI outstanding debt (a)

     1,153,367
      

Subtotal—estimated purchase price

     3,136,303

Financing and transaction costs (b)

     197,119
      

Total purchase price, financing and transaction costs

   $ 3,333,422
 

 

(a) Amount represents PSI’s aggregate debt outstanding as of June 30, 2010, plus $23.0 million required to extinguish PSI’s senior notes upon acquisition.

 

(b) Consists of financing costs, original issue discounts, investment banking fees, legal, accounting, rating agency and other fees.

In connection with the acquisition of PSI, in addition to the funds generated from this senior unsecured financing, we have obtained a debt financing commitment of $3.45 billion under a senior credit facility, consisting of an $800.0 million, 5-year revolving credit agreement, a $1.05 billion, 5-year term loan A facility and a $1.6 billion, 6-year term loan B facility.

Note 3—Preliminary purchase price allocation

We will allocate the purchase price paid by us to the fair value of the PSI business assets acquired and liabilities assumed. The pro forma purchase price allocation below has been developed based on preliminary estimates of fair value using the historical financial statements of PSI as of June 30, 2010.


In addition, the allocation of the purchase price to acquired intangible assets is based on preliminary fair value estimates and is subject to final management analyses, with the assistance of valuation advisors, at the completion of the acquisition. The residual amount of the purchase price after preliminary allocation to identifiable intangibles has been allocated to goodwill. The actual amounts recorded when the acquisition is complete may differ materially from the pro forma amounts presented as follows (in thousands):

 

Cash

   $ 49,698   

Net working capital

     127,309   

Other assets

     22,259   

Property and equipment

     1,018,320   
        

Total tangible assets acquired

     1,217,586   

Identifiable intangible assets acquired

     60,000   

Other liabilities assumed

     (106,027
        

Total assets acquired in excess of liabilities assumed

     1,171,559   

Goodwill

     1,964,744   
        

Total purchase price before financing and transaction costs

   $ 3,136,303   
   

We have determined that goodwill arising from UHS’s acquisition of PSI will not be deductible for tax purposes.

Note 4—Unaudited pro forma adjustments

Unaudited pro forma condensed combined balance sheet

(A) Sources and uses of funds:

Adjustments reflect the use of $49.7 million of PSI’s cash on hand as of June 30, 2010 to fund a portion of the purchase price and financing and transaction costs.

Sources and uses of funds to finance the PSI acquisition are as follows (in thousands):

 

Sources of funds:

      

PSI cash on hand

   $ 49,698

Proceeds from new revolving credit facility (1)

     391,964

Proceeds from Term loan A, net of original issue discount

     1,042,125

Proceeds from Term loan B, net of original issue discount

     1,576,000

Proceeds from new accounts receivable securitization program

     250,000

Proceeds from senior unsecured financing

     250,000

Rolled PSI debt (2)

     39,635
      

Total sources of funds for purchase price, financing and transaction costs and refinancing of certain components of UHS’s and PSI’s existing debt (1)(3)

   $ 3,599,422
      

 

Uses of funds:

  

Payment to PSI stockholders

   $ 1,982,936

Portion of PSI’s debt outstanding refinanced upon acquisition (4)

     1,113,732

Refinancing of borrowings outstanding as of June 30, 2010 pursuant to UHS’s revolving credit facility and accounts receivable securitization program

     266,000

Rolled PSI debt (2)

     39,635

Financing, transaction, and change of control costs (5)

     197,119
      

Total uses of funds

   $ 3,599,422
 


(1) Includes $266.0 million required to refinance borrowings outstanding as of June 30, 2010 pursuant to UHS’s revolving credit facility and accounts receivable securitization program.

 

(2) Consists of PSI’s existing mortgage loans with respect to five of its hospitals, amounting to $32.6 million in the aggregate, and $7.0 million of PSI’s other debt, consisting primarily of capital leases, which will remain outstanding after the Transactions.

 

(3) In accordance with the FASB issue standards related to business combinations, the costs related to the acquisition will be expensed as they are incurred. These include $77.4 million consisting of: (i) $54.0 million related primarily to legal, investment banking, accounting and filing and other fees incurred by both UHS and PSI and (ii) $23.4 million of change of control payments to PSI officers. In addition, we expect to incur $142.7 million, which will be recorded as assets or reductions to debt on the balance sheet, consisting of the following: (i) $87.8 million of anticipated financing costs related to the new debt facilities indicated above, which are expected to be utilized to finance the acquisition of PSI; (ii) $31.9 million of original issue discounts in connection with the 5-year Term loan A and 6-year Term loan B; and (iii) $23.0 million required to extinguish PSI’s senior notes upon acquisition. The financing costs and original issue discounts will be amortized over the term of the various debt agreements (ranging from 5 to 8 years).

 

(4) Amount represents PSI’s aggregate debt outstanding as of June 30, 2010 ($1.130 billion), less the portion of PSI’s outstanding debt that we do not intend to refinance upon acquisition ($39.6 million), plus the premium required to extinguish PSI’s senior notes upon acquisition ($23.0 million).

 

(5) Consists of costs mentioned in (3) above excluding the $23.0 million required to extinguish PSI’s senior notes, which is included in (4) above.

(B) Supplies and other current assets:

Purchase price allocation reclassifications required to conform PSI’s balance sheet items to UHS’s balance sheet presentation, consisting of: (i) $6.2 million reclassified to supplies and (ii) $25.3 million reclassified to deferred income taxes.

(C) Deferred income tax asset and liability:

Adjustments to record deferred income tax assets and liabilities pursuant to the purchase price allocation.

(D) Property and equipment, net:

Adjustments to record the net property and equipment at fair value estimates, calculated as follows (amounts in thousands):

 

Fair value estimate of property and equipment (Note 3)

   $ 1,018,320   

Property and equipment on PSI’s balance sheet as of June 30, 2010

     (965,833
        

Adjustment to property and equipment, net

   $ 52,487   
   


(E) Goodwill:

Adjustment to record goodwill pursuant to purchase price allocation, calculated as follows (amounts in thousands):

 

Purchase price allocation to goodwill (Note 3)

   $ 1,964,744   

Goodwill on PSI’s balance sheet as of June 30, 2010

     (1,153,111
        

Adjustment to goodwill

   $ 811,633   
   

(F) Deferred charges:

Consists of anticipated financing costs related to the senior credit facility and the senior unsecured financing utilized to finance the acquisition of PSI.

(G) Other assets:

Adjustment consists of (amounts in thousands):

 

Purchase price allocation to intangible assets (Note 3)

   $ 60,000   

Purchase price allocation to other assets (Note 3)

     22,259   

Other assets (including intangible assets) on PSI’s balance sheet as of
June 30, 2010 (1)

     (58,959
        

Adjustment to other assets

   $ 23,300   
   
(1) Consists primarily of PSI’s intangible assets and deferred financing costs.

(H) Accounts payable and accrued liabilities:

Reclassification (to long-term debt) of accrued transaction expenses recorded by UHS and PSI as of June 30, 2010, consisting of investment banking fees, legal and other fees.

(I) Current federal and state income taxes:

Adjustment to record the income tax benefit of accrued transaction expenses incurred by UHS and PSI and the write-off of PSI’s unamortized financing costs.

(J) Long-term debt:

Adjustment to record incremental long-term debt resulting from the acquisition of PSI, including financing and transaction costs, as follows (amounts in thousands):

 

Estimated total purchase price, financing and transaction costs (Note 2)

   $ 3,333,422   

Less: assumption of PSI’s outstanding debt (1)

     (1,130,367

Less: PSI’s cash on hand as of June 30, 2010

     (49,698
        

Incremental debt before original issue discounts

     2,153,357   

Less: original issue discounts

     (31,875
        

Adjustment to long-term debt

   $ 2,121,482   
   
(1) Consists of the following recorded on PSI’s balance sheet as of June 30, 2010:


Current maturities of long-term debt

   $ 4,742

Long-term debt

     1,125,625
      

Total PSI debt as of June 30, 2010

   $ 1,130,367
 

PSI’s debt outstanding as of June 30, 2010 will be extinguished in connection with the Transactions, as indicated under Note 4(A) above, other than mortgage loans on facilities in the amount of $32.6 million and other debt in the amount of $7.0 million, which consists primarily of capital leases.

(K) UHS/PSI common stockholders’ equity:

Adjustment calculated as follows (amounts in thousands):

 

Elimination of PSI’s common stockholder’s equity as of June 30, 2010

   $ (1,102,416

Recording of pre-tax transaction and change of control expenses (1)

     (59,278

Income tax benefit on transaction and change of control expenses

     13,668   
        

Adjustment to UHS/PSI common stockholders’ equity

   $ (1,148,026
   
(1) Consists of the following:

 

Total anticipated transaction and change of control expenses

   $ 77,444   

Amount previously expensed by UHS as of June 30, 2010

     (18,166
        

Additional pre-tax transaction and change of control expenses

   $ 59,278   
   

Unaudited pro forma condensed combined statements of income for the twelve months ended June 30, 2010, the year December 31, 2009 and six-month periods ended June 30, 2010 and 2009

(L) Depreciation and amortization:

The adjustment consists of (amounts in thousands):

 

      Twelve months
ended
June 30, 2010
and year ended
December  31,
2009
   Six-month
periods
ended
June 30,
2010 and
2009
 

Incremental depreciation expense on fair value step-up of
property (1)

   $ 2,099    $ 1,050

Incremental amortization expense on identifiable intangible assets acquired (2)

     6,583      3,292
      

Total incremental depreciation and amortization expense

   $ 8,682    $ 4,342
 
(1) The increase in depreciation expense is the result of adjusting the acquired real property to estimated fair values ($52.5 million incremental increase) and estimated remaining useful lives (25 years) based upon preliminary fair value estimates.

 

(2) The increase in amortization expense is the result of adjusting the identifiable intangible assets ($39.5 million incremental increase) and the estimated useful lives (6 years) based upon preliminary fair value estimates.


The purchase price allocations for the real property and identifiable assets and are preliminary and were made only for the purpose of presenting the pro forma combined financial information. In accordance with the FASB issue standards related to business combinations, we will finalize the analysis of the fair value of the assets acquired and liabilities assumed resulting from the acquisition of PSI for the purpose of allocating the purchase price. It is possible that the final valuation of real property and intangible assets could differ materially from our estimates.

(M) Interest expense:

In connection with the acquisition of PSI, in addition to the funds generated from this senior unsecured financing, we have obtained debt financing commitments of $3.45 billion under a senior credit facility, consisting of: (i) an $800.0 million, 5-year revolving credit agreement; (ii) a $1.05 billion, 5-year Term loan A facility; and (iii) a $1.6 billion, 6-year Term loan B facility. In addition, we expect to obtain an additional $500.0 million of debt financing consisting of: (i) a $250.0 million accounts receivable securitization program; and (ii) $250.0 million gross proceeds from this senior unsecured financing. On a combined basis, we expect to obtain $3.95 billion of new financing capacity, which we anticipate utilizing to: (i) finance the acquisition of PSI and related transaction and change of control costs; (ii) refinance the vast majority of PSI’s existing outstanding debt; and (iii) refinance UHS’s existing $800.0 million revolving credit facility and $200.0 million accounts receivable securitization facility.

The interest expense adjustments included in the unaudited pro forma condensed combined statements of income reflect the additional interest expense on the above-mentioned debt using estimated weighted average interest rates of 5.7% and 5.8% during the twelve months ended June 30, 2010 and the year ended December 31, 2009, respectively, and 5.7% and 5.9% during the six-month periods ended June 30, 2010 and 2009, respectively, including the amortization of the related deferred financing fees (amounting to $24.4 million for the twelve months ended June 30, 2010 and the year ended December 31, 2009 and $12.2 million for the six-month periods ended June 30, 2010 and 2009). In connection with the above-mentioned financing, we expect to incur an aggregate of $119.7 million in deferred financing fees and original issue discounts with an average amortization period of 4.9 years. For purposes of estimating the weighted average interest rates, we have made certain assumptions about the aggregate principal amount allocated to each component of debt. The actual weighted average interest rate will likely differ from the estimated interest rate due to changes in market conditions and the relative principal amounts. We expect that certain components of the debt financing, including the proceeds generated from this senior unsecured financing, will be obtained at fixed interest rates as established at the various pricing or closing dates, which are expected to occur during the third and fourth quarters of 2010. The pro forma financial statements include fixed interest rate assumptions for those debt components based upon the appropriate current market rates. For each 1/8% deviation between our assumed weighted average interest rate and the actual weighted average interest rate, interest expense would increase or decrease, as applicable, by $4.6 million for each of the twelve months ended June 30, 2010 and the year ended December 31, 2009 and $2.3 million for each of the six-month periods ended June 30, 2010 and 2009.

(N) Other operating expenses:

Adjustment to neutralize the impact of the pre-tax transaction costs included in UHS’s ($18.2 million) and PSI’s ($6.4 million) statements of income for the six months ended June 30, 2010.

(O) Provision for income taxes:

Adjustments reflect the income tax effect of the pro forma impact on income before income taxes based on applicable federal and state statutory rates, amounting to 37.9% during each of the periods presented.