<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 10, 1997
HOME HEALTH CORPORATION OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2224800 0-26938
(State or other jurisdiction (IRS Employer (Commission File
of incorporation) Identification No.) Number)
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (610) 272-1717
Exhibit index is located on page 25
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective January 1, 1997, Home Health Corporation of America, Inc. (the
"Company") acquired certain assets of LHS Holdings, Inc. ("LHS") and certain
assets of two of its subsidiaries, which are providers of primarily Medicare
cost-reimbursed nursing and related patient services. In connection with this
acquisition, the Company has also agreed to purchase certain assets of two
affiliated companies by April 30, 1997, which are providers of primarily
pediatric nursing and infusion therapy services (collectively, the purchases,
including those related to the affiliates, are hereafter referred to as the "LHS
Acquisition"). The operations of the companies acquired and to be acquired in
the LHS Acquisition had net revenues of $16.0 million for the twelve month
period ended June 30, 1996. The aggregate consideration payable for the LHS
Acquisition is expected to be $9.3 million, including an estimated contingent
amount of $2.7 million related to the acquisition of the two affiliates. The
aggregate consideration, excluding the contingent amount, is comprised of
approximately $5.1 million in cash, $1.0 million in notes, and the balance in
shares of the Company's common stock. Of this amount, $2.0 million was paid on
January 10, 1997, and was funded through borrowings under the Company's senior
credit facility. The balance of the purchase price is due upon closing of the
acquisition of the affiliated companies. The LHS Acquisition will be accounted
for as a purchase.
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
a) Financial Statements
The following lists the historical financial statements of the companies
acquired and to be acquired in the LHS Acquisition, attached hereto:
Page
------
Report of Baird, Kurtz & Dobson 5
Consolidated Balance Sheet as of
December 31, 1995 and Combined Balance 6
Sheet as of September 30, 1996
(unaudited)
Consolidated Statements of Operations
and Accumulated Deficit for the year
ended December 31, 1995 and the nine
months ended September 30, 1995
(unaudited) and Combined Statement of 7
Operations and Accumulated Deficit for
the nine months ended September 30,
1996 (unaudited)
Consolidated Statements of Cash Flows
for the year ended December 31, 1995
and the nine months ended September
30, 1995 (unaudited) and Combined 8
Statement of Cash Flows for the nine
months ended September 30, 1996
(unaudited)
2
<PAGE>
Notes to the Financial Statements 10
b) Unaudited Pro Forma Financial Information
The following lists the unaudited pro forma financial information of the
companies acquired and to be acquired in the LHS Acquisition, attached hereto:
Page
------
Pro forma Consolidated Balance Sheet as 20
of September 30, 1996
Pro forma Consolidated Statement of
Operations for the year ended June 30, 21
1996
Pro forma Consolidated Statement of
Operations for the three months ended 22
September 30, 1996
Notes to Unaudited Pro Forma 23
Consolidated Financial Statements
c) Exhibits
2.1 * Asset Acquisition Agreement Among Home Health Corporation of America,
Inc. and its Nominees, LHS Holdings, Inc., Liberty Health Services,
Inc., Nurses Today M/C, Inc. and Mark H. O'Brien.
2.2 * Asset Acquisition Agreement Among Home Health Corporation of America,
Inc. and its Nominees, PDN, Inc., Medical I.V., Inc. and Mark H.
O'Brien.
2.3 * Indemnification Agreement Among Home Health Corporation of America,
Inc. and its Nominees, LHS Holdings, Inc., Liberty Health Services,
Inc., Nurses Today M/C, Inc., PDN, Inc., Medical I.V., Inc. and Mark H.
O'Brien.
23.1 Consent of Independent Accountant
--------------
* Incorporated by reference to the Company's Form 8-K dated November 27,
1996, as filed on December 13, 1996.
3
<PAGE>
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.
Home Health Corporation of America, Inc.
Date: March 20, 1997 /s/ Bruce J. Colburn
-----------------------
Name: Bruce J. Colburn,
Title: Chief Financial and Accounting Officer
4
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
-------------------------------
Stockholder and Board of Directors
LHS Holdings, Inc.
Louisville, Kentucky
We have audited the accompanying consolidated balance sheet of LHS HOLDINGS,
INC. AND ITS SUBSIDIARIES, as of December 31, 1995, and the related consolidated
statement of operations and accumulated deficit, and statement of cash flows for
the year 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LHS
HOLDINGS, INC. AND ITS SUBSIDIARIES, as of December 31, 1995, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BAIRD, KURTZ & DOBSON
July 9, 1996
Tulsa, Oklahoma
5
<PAGE>
LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995
AND
COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash $ 143,123 $ 757,643
Accounts receivable, net 1,241,784 1,608,614
Accounts receivable, other 1,197,513 777,008
Accounts receivable, managed entity - 69,145
Inventory - 166,803
Deferred income taxes 280,588 251,356
Prepaid expenses and other current assets 250,712 182,093
---------- ----------
Total current assets 3,113,720 3,812,662
---------- ----------
Fixed assets
Fixed assets 61,853 269,413
Less: Accumulated depreciation and amortization (19,278) (47,083)
---------- ----------
Total fixed assets 42,575 222,330
---------- ----------
Cost in excess of net assets acquired, net 2,368,564 2,831,441
Loans and interest receivable, related party 497,884 1,611,251
---------- ----------
Total assets $6,022,743 $8,477,684
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 533,533 $ 528,557
Accrued compensation 436,404 387,955
Accrued employee benefits 1,825,470 1,657,002
Accrued taxes 229,952 356,351
Income taxes payable 214,392 -
Accrued expenses 741,848 671,510
Accrued interest, related party - 38,212
Due to third party 425,530 235,902
Notes payable, current 1,613,847 3,522,415
---------- ----------
Total current liabilities 6,020,976 7,397,904
---------- ----------
Notes payable, third party 475,000 491,529
Notes payable, related party - 937,500
Employee benefits, long term - 507,662
Stockholder's equity (deficit)
Common stock (See Note 11) 20 40
Additional paid in capital - 1,980
Accumulated deficit (473,253) (858,931)
---------- ----------
Total stockholder's equity (deficit) (473,233) (856,911)
---------- ----------
Total liabilities and
stockholder's equity (deficit) $6,022,743 $8,477,684
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
AND
COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
1995 1995 1996
------------- ----------- ----------
(Unaudited)
<S> <C> <C> <C>
Net revenue $15,689,278 $10,372,863 $17,953,933
Operating expenses:
Employee compensation 5,763,855 3,662,291 9,207,546
Employee benefits 2,530,747 1,783,838 1,953,454
Contracted clinical services 2,752,478 1,917,380 823,442
Transportation 565,186 383,577 688,742
Rent 655,410 346,351 846,178
Cost of medical supplies sold - - 444,516
Professional fees 239,504 88,308 274,123
Depreciation and amortization 126,691 91,883 169,333
Other 2,875,851 1,891,528 3,421,114
------------ ----------- -----------
Total operating expenses 15,509,722 10,165,156 17,828,448
------------ ----------- -----------
Operating income 179,556 207,707 125,485
Interest income 5,200 2,663 10,970
Interest income, related party 34,280 23,041 90,699
Interest expense (374,945) (255,023) (574,045)
Interest expense, related party - - (38,787)
------------ ----------- -----------
Net loss (155,909) (21,612) (385,678)
Accumulated deficit at beginning of period (317,344) (317,344) (473,253)
------------ ----------- -----------
Accumulated deficit at end of period $ (473,253) $ (338,956) $ (858,931)
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
AND
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
1995 1995 1996
------------ ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($155,909) ($21,612) ($385,678)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Depreciation and amortization 126,691 91,883 169,333
Changes in operating assets and liabilities:
Increase in accounts receivable (1,431,869) (440,826) (15,470)
Increase in inventory - - (166,803)
(Increase)/decrease in deferred income taxes (214,392) (135,811) 29,232
(Increase)/decrease in prepaid expenses and other current assets (59,873) (13,477) 68,619
Increase/(decrease) in accounts payable 158,035 126,677 (4,976)
Increase in accrued compensation and benefits 1,525,705 1,151,653 290,745
Increase in accrued taxes 156,386 14,701 126,399
Increase/(decrease) in income taxes payable 148,196 135,811 (214,392)
Increase/(decrease) in accrued expenses 311,223 (239,163) (70,338)
Increase in accrued interest, related party - - 38,212
Increase/(decrease) in due to third party 425,530 738,291 (189,628)
Decrease in unearned revenue (125,000) (75,000) -
---------- ---------- ----------
Net cash provided by/(used in) operating activities 864,723 1,333,127 (324,745)
---------- ---------- ----------
</TABLE>
Continued
8
<PAGE>
LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
AND
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended Nine Months Ended
December 31, September 30,
1995 1995 1996
------------ ---------- -----------
(Unaudited)
Cash flows from financing activities:
Proceeds from the issuance of common stock - - 2,000
Proceeds from issuance of notes payable, related party - - 937,500
Repayments of notes payable, third party (1,166,685) (1,091,684) (1,882,121)
Proceeds from issuance of notes payable, third party 1,150,498 187,069 3,211,450
----------- ----------- -----------
Net cash provided by/(used in) financing activities (16,187) (904,615) 2,268,829
----------- ----------- -----------
Cash flows from investing activities:
Investment in fixed assets (41,057) (28,179) (210,627)
Investment in affiliate (675,904) - (118,902)
Investment in subsidiary - (72,968) (25,853)
Cash for the transfer of HNT - - 139,185
Loans to related party (393,354) (369,871) (1,188,367)
Repayments of loans receivable, related party 172,600 150,000 75,000
Repayments of loans receivable, third party 134,555 134,555 -
----------- ----------- -----------
Net cash used in investing activities (803,160) (186,463) (1,329,564)
----------- ----------- -----------
Increase in cash 45,376 242,049 614,520
Cash at beginning of period 97,747 97,747 143,123
----------- ----------- -----------
Cash at end of period $ 143,123 $ 339,796 $ 757,643
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995, SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
(AMOUNTS AND INFORMATION APPLICABLE TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1996 ARE UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
LHS Holdings, Inc. (LHS) was organized in the state of Kentucky in August
1993 for the purpose of acquiring, operating and developing home health
providers. The December 31, 1995 consolidated financial statements reflect
operations as of and for the year ended December 31, 1995 and include the
accounts of LHS and its wholly-owned subsidiaries, Liberty Health Services,
Inc. (Liberty), Gateway Home Health Agency, Inc. (Gateway), PDN, Inc. (PDN)
and Hospice of North Texas, Inc. (HNT), herein referred to as the Company
for 1995 reporting. The September 30, 1995 unaudited consolidated
financial statements do not include the accounts of PDN and HNT as the
statements precede the acquisition dates of the subsidiaries. All
significant intercompany transactions have been eliminated.
In March 1996, LHS sold PDN and HNT to S-corporations owned by LHS's sole
stockholder, resulting in PDN-S and HNT-S. Additionally, in March 1996,
Medical Infusion Services, Inc. (Med IV) became an affiliate of LHS when it
was purchased by an S-corporation owned by LHS's sole stockholder. In July
1996, Nurses Today M/C, Inc. (Nurses Today) was acquired from an
independent party and became a wholly-owned subsidiary of LHS. Because
PDN-S and Med IV are not owned by LHS and these two companies are included
in the September 30, 1996 unaudited financial statements, such financial
statements are presented on a combined basis rather than a consolidated
basis. The September 30, 1996 unaudited financial statements reflect
operations as of and for the nine months ended September 30, 1996 and
include the accounts of LHS and its wholly-owned subsidiaries, and
companies under common control, PDN-S and Med IV, herein referred to as the
Company for 1996 reporting. PDN-S assets and liabilities reflect their
carryover book values since they were transferred between parties under
common control. All significant intercompany and affiliate transactions
have been eliminated. The September 30, 1996 financial statements exclude
HNT-S as it is not included in the acquisition of certain subsidiaries and
affiliates of the Company by Home Health Corporation of America, Inc.
(HHCA). See Note 13.
Revenue Recognition
Revenue is recognized when service is provided. The Company is paid for its
services primarily by Medicare, Medicaid, commercial insurance companies,
managed care companies and patients. Contractual allowances are recorded
when the services are rendered to give recognition to third-party payment
arrangements. Revenues generated from patients served under the Medicare
and Medicaid cost reimbursed programs are presented at an amount equivalent
to allowable cost as defined by the respective program rather than
customary charges. Medicare and Medicaid reimbursable costs are limited by
aggregate cost limits and by the disallowance of certain costs not directly
resulting from patient care services such as promotion and advertising.
During 1995 and 1996, the Company had not exceeded the aggregated cost
limits and believes adequate
10
<PAGE>
provisions have been made for any potential disallowances as a result of
audits by the respective program fiscal intermediary, which have not yet
been completed for either period. Approximately 95%, 95% and 84% of the
Company's net revenues for the year ended December 31, 1995 and the nine
months ended September 30, 1995 and 1996, respectively, were from
participation in Medicare and Medicaid programs.
The Company generates a portion of its revenue by providing consulting
services to other health care providers. These services include acquisition
brokering, due diligence, financial planning and clinical consulting. Total
revenues related to consulting services for the year ended December 31,
1995 and the nine months ended September 30, 1995 and 1996, were $383,000,
$372,700 and $17,000, respectively.
Accounts Receivable
At December 31, 1995 and September 30, 1996, approximately 86% and 73%,
respectively, of net accounts receivable were due from Medicare and
Medicaid, representing a concentrated group of credit for the Company;
however, management does not believe there is credit risk associated with
these governmental agencies. Furthermore, the Company monitors the expected
collectability of accounts receivable and records allowances for doubtful
accounts as necessary. This allowance was $24,000 and $34,000 at December
31, 1995 and September 30, 1996, respectively.
During September 1993, the Company entered into a receivables financing
program which the Company accounts for in accordance with Statement of
Financial Accounting Standards, No. 77, (SFAS 77), "Reporting by
Transferors for Transfers of Receivables with Recourse." See Note 5.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired is being amortized over 15 years from
original acquisition, resulting in amortization of approximately $97,000,
$65,000 and $107,000 for the periods ended December 31, 1995, September 30,
1995 and 1996, respectively. Cumulative amortization of cost in excess of
net assets acquired as of December 31, 1995 and September 30, 1996 is
$187,553 and $294,054, respectively.
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 assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes
The Company, excluding the S-corporations, recognizes income taxes in
accordance with Statement of Financial Accounting Standards, No. 109,
"Accounting for Income Taxes." This method requires recognition of deferred
tax assets and liabilities arising from differing financial reporting and
tax bases of assets and liabilities. Taxable income or loss attributable to
the S-corporations will be included in the sole stockholder's tax return.
Therefore, no provision for income taxes is included in the accompanying
combined financial statements for these S-
11
<PAGE>
corporations.
Unaudited Interim Information
The financial statements for the nine months ended September 30, 1995 and
1996 are unaudited. In the opinion of management, such interim financial
statements include all adjustments (consisting only of those of a recurring
nature) necessary for a fair presentation as of and for the periods indicated.
Results of operations for the interim periods are not necessarily indicative
of the results for the year.
Reclassification
Certain reclassifications have been made to the December 31, 1995 financial
statements to conform to the September 30, 1995 and 1996 financial statement
presentation. These reclassifications did not affect net loss.
2. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable and
accrued expenses approximate fair value because of the short maturity of these
instruments. It was not practical to estimate the fair value of long term
receivables and payables with related parties or officers. The terms of the
amounts reflected in the balance sheets at December 31, 1995 and September 30,
1996 with related parties or officers are more fully discussed in Notes 4 and
12. The fair value of other notes payable is estimated based on the borrowing
rates currently available to the Company for bank loans with similar terms and
maturities. At December 31, 1995 and September 30, 1996, the fair value of
these notes is not materially different from the carrying value.
3. ACQUISITIONS
The acquisitions described below have been accounted for under the purchase
method. The results of operations for these acquisitions have been included
from their respective acquisition dates. The acquisition purchase prices have
been allocated to identifiable assets, and the excess of the purchase price
over net assets acquired from these acquisitions is recorded as cost in excess
of net assets acquired, which is amortized over 15 years from the original
acquisition dates.
Twelve months ended December 31, 1995 Acquisitions
During 1995, the Company acquired three home health companies. On January 1,
1995, the Company acquired Gateway, a Kentucky-based Medicare certified home
health agency. During November 1995, the Company acquired HNT, a home health
agency that specializes in the provision of hospice services in Texas, and
PDN, an agency that specializes in the provision of pediatric home health
services in Texas.
Nine months ended September 30, 1996 Acquisitions
During March 1996, LHS sold PDN and HNT to S-corporations owned by LHS's sole
stockholder, resulting in PDN-S and HNT-S. This transaction represents a
transfer of interest under common control. Additionally, during March 1996,
Med IV, an infusion therapy company
12
<PAGE>
based in Texas, was acquired from an independent party by an S-corporation
owned by LHS's sole stockholder. Effective July 1996, LHS acquired Nurses
Today, a Texas-based Medicare certified home health agency from an independent
party in exchange for cash and debt.
The following unaudited pro forma summary information combines the results of
operations of the Company for the 1995 and 1996 acquisitions, assuming the
acquisitions had occurred at January 1 of each of the following periods:
<TABLE>
<CAPTION>
Nine months
Year ended ended
December 31, September 30,
1995 1996
------------- --------------
(Unaudited)
<S> <C> <C>
Net revenues $18,899,103 $19,281,542
Net loss $ (261,388) $ (359,842)
</TABLE>
The pro forma results presented above do not necessarily represent results
which would have occurred if the respective acquisitions had taken place at
the beginning of each period, nor are they indicative of the results of future
combined operations.
4. NOTES PAYABLE
Notes payable as of December 31, 1995 and September 30, 1996 consist of:
<TABLE>
<CAPTION>
December 31 September 30
------------ ------------
(Unaudited)
<S> <C> <C>
(Unaudited)
8% Note to former owner of subsidiary,
payable in installments through 1997 $ -- $ 46,950
8.5% Notes to former owners of subsidiary,
payable in installments through 1998 166,666 100,000
9.5% Revolving line of credit, due 1996 343,310 500,000
10% Notes to related party for purchase of
subsidiaries, due through 1999 -- 937,500
11% Notes to former owners of subsidiaries,
payable in installments through 1999 562,500 757,500
11.25% Revolving line of credit, due 1998 -- 209,039
12% Revolving line of credit, due 1996 -- 216,338
12% Note, payable to former owner of
subsidiary, due 1996 100,000 --
12% Notes, due 1996 170,270 170,270
14.5% Note, due 1996 99,221 50,000
17% Revolving line of credit, due 1997 415,628 898,496
18% Notes, due 1997 -- 590,000
18% Notes, payable to officer in
installments through 1996 231,252 456,252
Other notes payable -- 19,099
---------- ----------
2,088,847 4,951,444
Less current notes and maturities 1,613,847 3,522,415
---------- ----------
Long-term notes payable $ 475,000 $1,429,029
========== ==========
</TABLE>
13
<PAGE>
Notes payable to officer are secured by the stock of Liberty, the revolving
lines of credit are secured by accounts receivable, and all other notes
payable are secured by the personal guaranty of the Company's sole
stockholder. Accrued interest related to the notes payable to officer was
$23,218 as of September 30, 1996, and related interest expense was $23,482,
$23,482 and $23,218 for the year ended December 31, 1995 and the nine
months ended September 30, 1995 and 1996, respectively.
As of December 31, 1995, the maturities of long term debt are $1,613,847 in
calendar 1996, $254,166 in calendar 1997 and $220,834 in calendar 1998.
5. ACCOUNTS RECEIVABLE
During September 1993, Liberty entered into a twenty-seven-month agreement
with an independent financing organization to advance collections of
eligible patient accounts receivable. Liberty is currently in the process
of renegotiating the terms of this arrangement. The financing organization
has agreed to continue the advances until specific contract terms can be
met. Eligible accounts generally include all accounts relating to the
Medicare and Medicaid programs. Total advances were approximately $12.4
million during the twelve months ended December 31, 1995, $8.9 million
during the nine months ended September 30, 1995, and $12.9 million during
the nine months ended September 30, 1996. The Company is contingently
liable for the collection of the receivables advanced which, as of December
31, 1995 and September 30, 1996 were $1.2 million and $1.5 million,
respectively. In the accompanying financial statements, reserves withheld
from the gross advances are reflected as accounts receivable, other.
Interest costs related to this agreement of $274,160, $195,664, and
$288,167 are included in interest expense for the year ended December 31,
1995 and the nine months ended September 30, 1995 and 1996, respectively.
Beginning in 1997, Statement of Financial Accounting Standards, No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", will supersede SFAS 77 in determining
accounting for transfers and servicing of financial assets. The Company's
receivable financing program will need to be analyzed in comparison to this
new guidance to evaluate the impact of the new statement on accounting for
these transactions.
6. INCOME TAXES
The components of the provision for income taxes for the twelve months
ended December 31, 1995 and the nine months ended September 30, 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
1995 1995 1996
------------- ---------- --------
(Unaudited)
<S> <C> <C> <C>
Current taxes payable/(receivable) $ 214,392 $ 202,007 $(9,508)
Deferred income taxes (214,392) (202,007) 9,508
--------- --------- -------
Net provision $ - $ - $ -
========= ========= =======
</TABLE>
14
<PAGE>
The provision for income taxes varies from the amount computed at the
federal statutory rate as follows:
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
1995 1995 1996
------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Tax based on the federal statutory rate (34%) $(53,009) $ (7,348) $(153,790)
Change in the deferred tax asset valuation
allowance 3,142 (24,067) 114,482
Non-deductible amortization of goodwill 29,256 21,942 25,069
Other 20,611 9,473 14,239
-------- -------- ---------
Provision $ -- $ -- $ --
======== ======== =========
</TABLE>
Deferred income taxes are provided for those items reported in different
periods for income tax and financial reporting purposes. The components of
the net deferred tax asset as of December 31, 1995 and September 30, 1996
are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------- --------------
(Unaudited)
<S> <C> <C>
Deferred tax assets:
Accrued bonuses $281,961 $ 454,566
Accrued compensated absences 61,579 --
Other accrued expenses 26,287 17,619
-------- ---------
Gross deferred tax asset 369,827 472,185
Deferred tax liabilities:
Accumulated depreciation (4,750) (2,134)
-------- ---------
Net deferred tax assets before valuation allowance 365,077 470,051
Valuation allowance (84,489) (218,695)
-------- ---------
Net deferred tax asset $280,588 $ 251,356
======== =========
</TABLE>
The Company has limited recognition of net deferred tax assets to the
amount recoverable from previously paid income taxes.
7. EMPLOYEE BENEFITS
The Company has established a 401(k) defined contribution plan under which
employees who have completed six months and 1,000 hours of service and
attained the age of 21 are eligible to participate. For the eight months
ended August 31, 1995, the Company matched 100% of the employees'
contributions up to 3% of compensation. Effective September 1, 1995, the
Company increased its matching contribution to 100% of the employees'
contributions up to 6% of compensation. Additionally, the Company
contributed a discretionary amount to the plan during the year ended
December 31, 1995. Participants are
15
<PAGE>
fully vested in their voluntary contribution and vest 30%, 60% and 100% in
the Company's contributions upon the completion of their first, second and
third years of service, respectively. The Company reflected $738,131,
$636,359 and $640,152 for the twelve months ended December 31, 1995 and the
nine months ended September 30, 1995 and 1996, respectively, as expense for
401(k) contributions, in the financial statements.
In April 1995, the Company established a partially self-insured health care
plan for its employees. The Company is self-insured under the plan to the
extent of $10,000 per person, per plan year, not to exceed a maximum of
$400,000, with excess risk coverage obtained from an insurance company.
The Company accrues the expense of claim costs and plan administrative
expenses for actual claims and expenses incurred, and estimates of unfiled
claims based upon the Company's claims experience. Claims liabilities are
reevaluated periodically to consider recently settled claims, frequency of
claims, and other economic and social factors. The amount accrued for the
estimate of incurred but unpaid claims at December 31, 1995 and September
30, 1996 is $65,000 and $10,000, respectively. In April 1996, the Company
returned to a fully-insured health care plan for its employees.
The Company does not provide any post retirement health care and life
insurance benefits to retired employees.
8. PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company is subject to claims and legal actions by patients in the
ordinary course of business. The Company maintains comprehensive general
liability insurance under an occurrence-based policy for losses related to
incidents which occur during the period of coverage. Coverage for
professional liability claims is maintained under both occurrence-based and
claims-made policies. The Company also maintains an umbrella policy to
cover claims and judgments in excess of the normal professional liability
insurance coverage. No claims have been filed since the inception of the
Company.
9. COMMITMENTS AND CONTINGENCIES
Estimated Third-Party Settlements
Final determination of amounts earned under Medicare and Medicaid cost-
reimbursement programs are subject to review and audit by appropriate
governmental authorities or their agents. In the opinion of management,
adequate provision has been made in the financial statements for any
adjustments that could result from such reviews and audits.
16
<PAGE>
Leases
Noncancelable operating leases for office space and equipment expire in
various years through 2001. Certain leases contain renewal options. Future
minimum lease payments as of December 31, 1995 are:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1996 $ 894,014
1997 848,751
1998 709,864
1999 603,132
2000 470,791
Thereafter 39,712
----------
Future minimum payments $3,566,264
==========
</TABLE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
1995 1995 1996
------------ -------- --------
(Unaudited)
<S> <C> <C> <C>
Non-cash Investing and Financing Activities
Long-term debt issued for acquisition
of subsidiaries $862,500 $200,000 $526,000
======== ======== ========
Long-term debt issued for acquisition
of affiliates - - $ 69,768
======== ======== ========
Additional Cash Payment Information
Interest paid $385,700 $280,540 $446,526
======== ======== ========
Income taxes paid $ 77,410 $ 77,410 $185,200
======== ======== ========
</TABLE>
11. COMMON STOCK
The common stock as of December 31, 1995 and September 30, 1996 consisted
of:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------- -------------
(unaudited)
<S> <C> <C>
LHS Holdings, Inc., no par value,
10,000 shares authorized, 100 shares
issued and outstanding $ 20 $ 20
PDN, Inc., par value $0.01, 1,000
shares authorized, 1,000 shares
issued and outstanding -- $ 10
Medical Infusion Services, Inc., par
value $0.01, 1,000 shares authorized,
1,000 shares issued and outstanding -- $ 10
</TABLE>
17
<PAGE>
12. RELATED PARTY TRANSACTIONS
As of December 31, 1995 and September 30, 1996, the Company had lent the
sole stockholder $497,884 and $1,611,251 respectively. This loan bears
interest at a rate of 10% per annum and was unsecured at December 31, 1995
and September 30, 1996. Additionally, the sole stockholder had lent the
Company $937,500 at September 30, 1996, that bears interest at a rate of
10% per annum.
13. SALE OF THE COMPANY (UNAUDITED)
On December 5, 1996, the sole stockholder of LHS, PDN-S and Med IV entered
into a definitive acquisition agreement with HHCA with respect to the sale
of selected assets, subject to certain liabilities, of LHS, Liberty, Nurses
Today, PDN-S and Med IV. The acquisition of LHS, Liberty and Nurses Today
was completed on January 10, 1997. The acquisition of PDN-S and Med IV is
expected to close by April 30, 1997.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated balance sheet at September 30, 1996
reflects the accounts of the companies acquired and to be acquired in the LHS
Acquisition and the acquisition of certain nursing services companies in
Massachusetts and New Hampshire on December 1, 1996 (the "RSD Acquisition,"
collectively with the LHS Acquisition, the "Acquisitions"), as if they occurred
on September 30, 1996.
The unaudited pro forma consolidated statements of operations for the year ended
June 30, 1996 and the three months ended September 30, 1996 reflect the
operations of the companies acquired and to be acquired in the Acquisitions, as
if they occurred as of July 1, 1995 and 1996, respectively. The Acquisitions are
accounted for as purchases.
The unaudited pro forma consolidated financial statements do not purport to
represent what the Company's actual results of operations or financial condition
would have been had the Acquisitions occurred as of such dates, or to project
the Company's results of operations or financial condition for any period or
date, nor does it give effect to any matters other than those described in the
notes thereto. In addition, the allocations of purchase price to the assets and
liabilities of the companies acquired and to be acquired in the Acquisitions are
preliminary and the final allocations may differ from the amounts reflected
therein. The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable. These adjustments
are directly attributable to the Acquisitions and are expected to have a
continuing impact on the financial condition and results of operations of the
Company. The unaudited pro forma consolidated financial statements should be
read in conjunction with the respective historical financial statements of the
Company, as filed on Form 10-K on September 30, 1996, the RSD Acquisition, as
filed on Form 8-K/A on February 11, 1997 and the LHS Acquisition, included
elsewhere in this Form 8-K/A.
19
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ----------------------------------------------
OPERATIONS
RETAINED BY
HHCA ACQUISITIONS (1) SELLER (2) ADJUSTMENTS TOTAL
---------- ----------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 2,041 $ 781 $ (13) $ (745) (3) $ 2,064
Accounts receivable 28,525 8,532 (345) - 36,712
Inventories 1,584 167 - - 1,751
Prepaid expenses and other 688 360 (73) - 975
Deferred taxes 862 251 (46) (205) (3) 862
------- ------- ------- --------- --------
33,700 10,091 (477) (950) 42,364
Property and equipment 9,184 434 (24) - 9,594
Goodwill 31,051 2,831 (241) 17,252 (3) 50,893
Other assets 1,054 1,611 (118) (1,493) (3) 1,054
------- ------- ------- --------- --------
Total assets $74,989 $14,967 $ (860) $ 14,809 $103,905
======= ======= ====== ========= ========
LIABILITIES
Current Liabilities:
Long-term debt, current portion $ 3,409 $ 9,541 $ (204) $ (9,338) (3) $ 3,408
Accounts payable 2,353 1,032 (36) - 3,349
Accrued salaries 2,277 2,716 (297) - 4,696
Accrued expenses 1,660 2,245 (155) - 3,750
Income taxes payable 966 356 (30) - 1,292
------- ------- ------- --------- --------
10,665 15,890 (722) (9,338) 16,495
Long-term debt, net 22,566 1,429 (33) 17,825 (3)(4) 41,787
Other noncurrent liabilities 698 990 (144) (364) (3) 1,180
Deferred taxes 126 - - - 126
------- ------- ------- --------- --------
Total liabilities 34,055 18,309 (899) 8,123 59,588
Common stock, no par, mezzanine 500 - - - 500
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par 34,400 2 - 3,380 (3)(4) 37,782
Retained earnings (deficit) 6,048 (859) 39 3,306 (3) 8,534
Subscriptions receivable (14) (2,485) - - (2,499)
------- ------- ------- --------- --------
Total stockholders'
equity (deficit) 40,434 (3,342) 39 6,686 43,817
------- ------- ------- --------- --------
Total liabilities and
stockholders' equity
(deficit) $74,989 $14,967 $ (860) $ 14,809 $103,905
======= ======= ======= ========= ========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
20
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- --------------------------------------------
OPERATIONS
RETAINED BY
HHCA ACQUISITIONS (5) SELLER (6) ADJUSTMENTS TOTAL
---------- ----------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 87,694 $ 37,749 $ (3,263) $ 1,329 (7) $ 123,509
Operating Costs and Expenses:
Patient care costs 42,050 22,745 (1,313) - 63,482
General and administrative 32,893 15,234 (2,195) - 45,932
Provision for doubtful accounts 2,848 295 - - 3,143
Depreciation 784 77 - 5 (8) 866
Amortization 1,016 131 (22) 476 (8) 1,601
Interest expense, net 1,454 914 (60) 803 (9) 3,111
Bridge financing 913 - - - 913
-------- -------- --------- -------- ---------
Total costs and expenses 81,958 39,396 (3,590) 1,284 119,048
-------- -------- --------- -------- ---------
Income before provision for income taxes
and extraordinary item 5,736 (1,647) 327 45 4,461
Provision for income taxes 2,348 - (12) (508) (10) 1,828
-------- -------- --------- -------- ---------
Income before extraordinary item $ 3,388 $ (1,647) $ 339 $ 553 $ 2,633
======== ======== ========= ======== =========
Per Share Data:
Net income available to common
stockholders before extraordinary item $ 2,550 $ 1,795
======== =========
Earnings per share before extraordinary item $ 0.39 $ 0.27
-------- ---------
Weighted average common and common equivalent
shares outstanding 6,468 6,675 (11)
======== =========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
21
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- --------------------------------------------
OPERATIONS
RETAINED BY
HHCA ACQUISITIONS (5) SELLER (6) ADJUSTMENTS TOTAL
---------- ----------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Net revenues $25,302 $11,268 $ (693) $ 280(7) 36,157
Operating Costs and Expenses:
Patient care costs 12,226 6,809 (463) - 18,572
General and administrative 8,819 4,959 (296) - 13,482
Provision for doubtful accounts 906 14 - - 920
Depreciation 260 13 - 7(8) 280
Amortization 355 65 (2) 110(8) 528
Interest expense, net 431 344 (4) 51(9) 822
------- ------- ------- ----- --------
Total costs and expenses 22,997 12,204 (765) 168 34,604
------- ------- ------- ----- --------
Income before provision for income
taxes and extraordinary item 2,305 (936) 72 112 1,553
Provision for income taxes 899 - - (308)(10) 591
------- ------- ------- ------- --------
Income before extraordinary item $ 1,406 $ (936) $ 72 $ 420 $ 962
======= ======= ======= ====== ========
Per Share Data:
Net income available to common
stockholders before extraordinary item $ 1,406 $ 962
======= ========
Earnings per share before
extraordinary item $ 0.17 $ 0.12
======= ========
Weighted average common and
common equivalent shares outstanding 8,182 8,389(11)
======= ========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents the historical balance sheets of the Acquisitions. The
Acquisitions are accounted for as purchases in the pro forma consolidated
balance sheet.
(2) Reflects adjustments to the LHS Acquisition to eliminate net assets
attributable to certain operations and subsidiaries of LHS which were not
acquired.
(3) Adjusts assets and liabilities of the Acquisitions to estimated fair market
value and eliminates certain assets and liabilities not acquired or assumed
in the Acquisitions.
(4) Reflects the consideration for the Acquisitions which includes $2.4 million
of notes payable to the sellers with interest at 8.0% per annum, $1.6
million in common stock of the Company and $16.3 million in cash. The cash
portion of the consideration was financed, or is assumed to be financed for
the PDN and Med IV Acquisitions, through the Company's senior credit
facility.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(5) Represents the historical results of operations of the Acquisitions for the
year ended June 30, 1996 and the three months ended September 30, 1996.
The Acquisitions are accounted for as purchases in the pro forma
consolidated statements of operations.
(6) Reflects adjustments to the LHS Acquisition to eliminate the results of
operations attributable to certain operations and subsidiaries of LHS which
were not acquired.
(7) Reflects the pro forma allocation of corporate expenses, which results in
corresponding adjustments to net revenues for cost-based reimbursed
Medicare agencies.
(8) Reflects increases (decreases) in the historical amounts of the net assets
of the Acquisitions for depreciation resulting from the revaluation in
purchase accounting of fixed assets and for the amortization of goodwill
over 25 years.
(9) Reflects the additional interest expense that would have been incurred if
the Acquisitions had occurred as of July 1, 1995 and 1996. The interest
rate of 9% per annum used to calculate pro forma interest expense on the
debt required to fund the cash payments for the Acquisitions reflects the
Company's weighted average borrowing rate on its senior credit facility for
the fiscal year ended
23
<PAGE>
June 30, 1996 and the three months ended September 30, 1996. The interest
rate used to calculate pro forma interest expense on the seller notes of
8.0% per annum represents the rate of interest on those notes.
(10) Reflects the adjustments to income taxes which would have been provided on
the pro forma income before provision for income taxes and extraordinary
item using the Company's effective tax rate of 41%.
(11) The weighted average shares outstanding used in calculating pro forma
net income per share reflects the shares that would have been outstanding
if the shares issued as partial consideration for the Acquisitions had been
issued as of July 1, 1995 and 1996. The shares issuable in connection with
the LHS Acquisition assume the price at closing used to determine the
number of shares issuable was $12.50 per share.
24
<PAGE>
EXHIBIT INDEX
2.1* Asset Acquisition Agreement Among Home Health Corporation of America, Inc.
and its Nominees, LHS Holdings, Inc., Liberty Health Services, Inc., Nurses
Today M/C, Inc. and Mark H. O'Brien.
2.2* Asset Acquisition Agreement Among Home Health Corporation of America, Inc.
and its Nominees, PDN, Inc., Medical I.V., Inc. and Mark H. O'Brien.
2.3* Indemnification Agreement Among Home Health Corporation of America, Inc.
and its Nominees, LHS Holdings, Inc., Liberty Health Services, Inc., Nurses
Today M/C, Inc., PDN, Inc., Medical I.V., Inc. and Mark H. O'Brien.
23.1 Consent of Independent Accountant
- --------------------------
* Incorporated by reference to the Company's Form 8-K dated November 27, 1996,
as filed on December 13, 1996.
25
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANT
We consent to the incorporation by reference in the registration statement
on Form S-8 of Home Health Corporation of America, Inc. Employee Stock
Option Plan and 1995 Employee and Consultant Equity Plan, of our report
dated July 9, 1996, on our audit of the consolidated financial statements
of LHS HOLDINGS, INC. AND ITS SUBSIDIARIES as of and for the year ended
December 31, 1995, which report is included in this Form 8-K/A.
/s/ BAIRD, KURTZ & DOBSON
Tulsa, Oklahoma
March 19, 1997
