================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
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) September 25, 1996
------------------------------
INTEGRATED HEALTH SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-12306 23-2428312
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(State or other jurisdiction (Commission (IRS Employer
of corporation) File Number) Identification No.)
10065 Red Run Boulevard, Owings Mills, Maryland 21117
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 998-8400
----------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
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<PAGE>
Item 2. Acquisition or Disposition of Assets
On September 25, 1996 Integrated Health Services, Inc. ("the Company")
acquired all the outstanding stock of Signature Home Care Group, Inc.
("Signature") headquartered in Irving, Texas. The total purchase price was $9.2
million, of which $4.7 million represents the issuance of 196,374 shares of the
Company's common stock, with the remaining being paid with borrowings under the
Company's revolving credit facility. The Company has agreed to use its best
efforts to register the shares with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, within 90 days of the Closing.
Signature is a full service home health care company with 22 branch
locations in five states. Signature offers home nursing services, infusion
services, respiratory therapy and home medical equipment in Arizona, Florida,
Kansas, New Jersey and Texas, in addition to providing management services to
home health providers.
<PAGE>
Item 5. Other Events
On September 25, 1996, Integrated Health Services, Inc. ("the Company")
acquired all of the outstanding capital stock of Signature Home Care, Inc.
("Signature"). All acquisitions completed by the Company between January 1, 1996
and September 24, 1996, were not significant either individually or in aggregate
under Rule 3-05 of Regulation S-X. The Signature acquisition, however, qualified
as significant as its pre-tax loss exceeded 10% of the Company's pre-tax loss
for the year ended December 31, 1995. In addition, the Signature acquisition
resulted in the aggregate impact of the individually insignificant businesses
acquired in 1996 exceeding 20% of the Company's loss before income taxes for the
year ended December 31, 1995. As a result, the audited financial statements of
Signature Home Care, Inc., and the pro forma consolidated financial statements
of the Company are included in Item 7 herein in compliance with Rule 3-05 and
Article 11 of Regulation S-X.
SYMPHONY PHARMACY SERVICES INC.
On July 30, 1996, the Company sold its pharmacy division, Symphony
Pharmacy Services, Inc. ("Symphony Pharmacy") to Capstone Pharmacy Services,
Inc. ("Capstone"). Total sale price was $150 million, including $25 million in
Capstone common stock. (See the Company's Current Report on Form 8-K dated July
30, 1996).
INTEGRATED LIVING COMMUNITIES, INC.
On October 9, 1996, Integrated Living Communities, Inc. ("ILC"), a
wholly-owned subsidiary of the Company which provides assisted living and
related services, completed an initial public offering of ILC common stock.
Following the offering, the Company continues to own approximately 37.3% of the
outstanding ILC common stock. Total proceeds to the Company were approximately
$17.8 million, including a $7.4 million loan repayment.
CENTURY HOME SERVICES, INC.
On September 13, 1996, the Company purchased Century Home Services,
Inc. ("Century"), a home health services company located in Murfreesboro,
Tennessee. Total purchase price was approximately $2.4 million.
EDGEWATER HOME INFUSION SERVICES, INC.
On August 19, 1996, the Company purchased Edgewater Home Infusion
Services, Inc. ("Edgewater"), a home infusion company in Miami, Florida for
approximately $8.0 million.
EXTENDICARE OF TENNESSEE, INC.
On August 12, 1996, the Company purchased Extendicare of Tennessee,
Inc. ("Exendicare"), a home health company located in Memphis, Tennessee for
approximately $3.4 million.
<PAGE>
J. R. REHAB ASSOCIATES, INC.
On August 1, 1996, the Company purchased J.R. Rehab Associates, Inc.
("J.R. Rehab"), an inpatient and outpatient rehabilitation center in
Mooresville, North Carolina for approximately $2.1 million.
HOSPICE OF THE GREAT LAKES, INC.
On May 1, 1996, the Company purchased Hospice of the Great Lakes, Inc.
("Hospice of the Great Lakes"), a hospice company in North Brook, Illinois, for
approximately $8.2 million representing the issuance of 304,822 share of the
Company's common stock.
REHAB MANAGEMENT SYSTEMS, INC.
On March 19, 1996, the Company acquired Rehab Management Systems, Inc.
("RMS"), a company that operates rehabilitation clinics in central Florida, for
approximately $10.0 million, including $8.0 million representing the issuance of
385,542 shares of the Company's common stock.
VINTAGE HEALTH CARE CENTER
On January 29, 1996, the Company purchased Vintage Health Care Center
("Vintage"), a skilled nursing and assisted living center in Denton, Texas for
approximately $6.9 million.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
a. Financial Statements of Businesses Acquired.
The consolidated balance sheet of Signature Home Care, Inc. as of
December 31, 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1995, and
the notes thereto, audited by Price Waterhouse LLP, independent auditors, are
included herein. The unaudited consolidated balance sheet of Signature Home
Care, Inc. as of June 30, 1996 and the related unaudited consolidated statements
of operations and cash flows for the six months ended June 30, 1996 and 1995,
and the notes thereto, are included herein.
b. Pro Forma Financial Information.
The unaudited pro forma consolidated balance sheet and statement of
operations of Integrated Health Services, Inc. reflecting the disposition of
Symphony Pharmacy Services and a majority interest in ILC, and the acquisition
of Signature, Century, Edgewater, Extendicare, J.R. Rehab, Hospice of the Great
Lakes, RMS and Vintage as of September 30, 1996, and for the year ended December
31, 1995 and the nine months ended September 30, 1996, and the notes thereto are
included herein.
c. Exhibits.
23.01 Consent of Price Waterhouse LLP, Dallas, Texas.
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Signature Home Care, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Signature Home Care, Inc. and its subsidiaries at December
31, 1995, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
September 25, 1996
<PAGE>
SIGNATURE HOME CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents.............................................................$ 1
Cash restricted to repayment of revolving debt (Note 6a).............................. 888
Accounts receivable from lender....................................................... 1,113
Trade accounts receivable, less allowances for doubtful accounts of $3,384............ 14,105
Inventory............................................................................. 1,559
Income taxes receivable............................................................... 807
Deferred income tax............................................................... 99
Other current assets.................................................................. 429
------
Total current assets............................................................... 19,001
Furniture, equipment and capital leases, net.................................................. 5,391
Goodwill, net of accumulated amortization of $170............................................. 1,563
Other assets.................................................................................. 447
------
Total assets.......................................................................$ 26,402
======
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt and capital leases...............................$ 10,103
Accounts payable...................................................................... 7,612
Accrued liabilities................................................................... 1,359
Accrued compensation and benefits..................................................... 1,640
------
Total current liabilities.......................................................... 20,714
Long-term debt and capital leases............................................................. 2,131
Minority interest in equity and earnings of consolidated subsidiaries......................... 2,722
Commitments and contingencies (Note 11)
Redeemable Stock:
Class A Stock, $1 par value 1,093
Authorized, issued, and outstanding shares - 1,061....................................
Class B Stock, convertible, $1.27 par value
Authorized shares - 398; issued and outstanding - 312................................. 472
------
Total redeemable stock............................................................. 1,565
------
Stockholders' Deficit:
Common Stock, $.0127 par value
Authorized shares - 13,000; issued and outstanding - 1,695............................ 21
Common stock warrants exercisable........................................................ 28
Paid in capital.......................................................................... 3,320
Accumulated deficit...................................................................... (4,040)
Notes receivable from sale of stock...................................................... (59)
------
Total stockholders' deficit........................................................ (730)
Total liabilities, redeemable stock and stockholders' deficit......................$ 26,402
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
SIGNATURE HOME CARE , INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net revenues..................................................................$ 59,482
Cost of sales................................................................. (34,179)
-------
Gross profit....................................................... 25,303
Operating expenses:
General and administrative............................................ (27,105)
Provision for doubtful accounts....................................... (4,635)
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Total operating expenses........................................... (31,740)
-------
Loss from operations............................................ (6,437)
Other income (expense):
Interest expense...................................................... (595)
Interest income....................................................... 7
-------
Other income (expense), net........................................ (588)
-------
Loss before minority interest and income taxes.................. (7,025)
Minority interest............................................................. 945
-------
Loss before income taxes........................................ (6,080)
Benefit from income taxes..................................................... 60
-------
Net loss........................................................$ (6,020)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
SIGNATURE HOME CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE STOCK
----------------
CLASS A CLASS B COMMON
STOCK STOCK STOCK
----- ----- -----
COMMON RETAINED
STOCK PAID IN EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL (DEFICIT)
------- -------- -------- -------- -------- ------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994...... 1,061 $1,194 312 $448 1,681 $21 $28 $3,262 $2,068
Net loss.......................... (6,020)
Accrual of cumulative dividends on
Class A and Class B stock........ 64 24 (88)
Distribution of dividends on
Class A stock.................... (165)
Exercise of common stock options.. 14 -- 58
--------------------------------------------------------------------------------------------------
Balance at December 31, 1995...... 1,061 $1,093 312 $472 1,695 $21 $28 $3,320 $(4,040)
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
SIGNATURE HOME CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss........................................................................ $(6,020)
Adjustments reconciling net loss to net cash used in operating activities:
Depreciation and amortization................................................ 1,374
Minority interest............................................................ (945)
Interest income on stock loans............................................... (7)
Change in current assets and liabilities (net of acquisitions):
Accounts receivable (net)................................................. 41
Inventory................................................................. (66)
Income taxes receivable................................................... (807)
Deferred income tax ...................................................... 561
Other current assets...................................................... 472
Other assets.............................................................. (61)
Accounts payable, accrued liabilities and accrued compensation and
benefits.................................................................. 2,339
Income taxes payable...................................................... (198)
------------------
Net cash used in operating activities .................................... (3,317)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in furniture and equipment........................................ (3,385)
Receipts on notes receivable from sale of stock.............................. 30
------------------
Net cash used in investing activities..................................... (3,355)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of common stock options........................... 37
Payment of dividends......................................................... (165)
Proceeds from debt........................................................... 11,736
Cash restricted to repayment of revolving debt .............................. (888)
Payment of debt.............................................................. (4,100)
------------------
Net cash provided by financing activities................................. 6,620
------------------
Net decrease in cash and cash equivalents.............................. (52)
Cash and cash equivalents at beginning of year....................................... 53
------------------
Cash and cash equivalents at end of year............................................. $ 1
==================
Supplemental disclosure of cash flow information on cash paid during the year
for:
Income taxes................................................................. $ 567
Interest..................................................................... $ 500
Supplemental disclosures of non-cash investing and financing activities:
Capital leases entered into to acquire equipment............................. $ 2,080
Common stock options vested.................................................. $ 21
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Signature Home Care, Inc. (formerly, SHCG Holdings, Inc.) (the Company or
Signature) was organized as a Delaware corporation on May 18, 1992. On May
20, 1992, the Company acquired 100% of Signature Home Care Group, Inc.
(SHCG) from VHA Enterprises, Inc. (the Seller) pursuant to a Stock Purchase
Agreement (the Acquisition Agreement). The Seller is an affiliate of
Voluntary Hospitals of America, Inc. (VHA). Under the terms of the
Acquisition Agreement, the Company acquired all outstanding stock of SHCG
and received a commitment from the Seller and VHA that neither will compete
with SHCG for a five-year period.
Effective September 1, 1993, the Company acquired a 51% interest in SHC of
Arizona and SHC Services of Arizona, ("the Arizona Subsidiaries"), the home
care business units affiliated with Samaritan Health System based in
Phoenix, Arizona. In addition to its 51% ownership, the Company controls
the Arizona Subsidiaries via the terms of management agreements between one
of the Company's wholly-owned subsidiaries and each of the Arizona
Subsidiaries.
NATURE OF BUSINESS
The Company provides home health care services including conventional
nursing and therapy services, home infusion therapy, and rental and sale of
respiratory and durable medical equipment in Arizona, Florida, Georgia,
Kansas, Missouri, New Jersey, and Texas. The Company also provides
management services to home health care providers. Operating revenues are
derived from the Medicare and Medicaid programs and from private sources.
2. SIGNIFICANT ACCOUNTING POLICIES
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 and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
Page 7
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
REVENUE RECOGNITION
Revenue is recognized when the service and related products are provided to
patients. Revenue is recognized net of discounts provided under arrangements
with third party payors (insurance companies, Medicare and Medicaid).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents.
Cash equivalents are subject to potential concentrations of credit risk. The
Company attempts to lessen that risk by investing only at financial
institutions having a debt rating of at least A. At December 31, 1995, the
majority of the Company's cash equivalents were held at one such financial
institution.
ACCOUNTS RECEIVABLE
Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients, payors, and management
contracts and by the geographic dispersion of the Company's home health care
operations. The largest concentration of the Company's operations are in
Arizona and Texas. Net accounts receivable consists primarily of amounts due
from the following payors at December 31:
Medicare and Medicaid......................................... 50%
Commercial insurance companies and managed care companies..... 45%
Private payors................................................ 5%
-----
100%
The Company continually monitors its estimated allowances for doubtful
accounts and contractual adjustments based on historical experience,
collection trends and other factors.
INVENTORY
Inventory consisting of pharmaceuticals and other supplies necessary for the
delivery of home healthcare services (excluding durable medical equipment)
is stated at the lower of cost (determined by the first-in, first-out
method) or market.
FURNITURE AND EQUIPMENT
Furniture, equipment and capital leases (including durable medical
equipment) are stated at cost less accumulated depreciation. Depreciation is
provided using the straight-line method over the estimated useful lives of
the assets including medical equipment, which range from five to fifteen
years.
Page 8
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
ORGANIZATION COSTS
Costs associated with the formation of the Company are capitalized and
reported as other assets. These costs are amortized using the straight-line
method over a five-year period.
GOODWILL
The excess of aggregate purchase price over the fair value of net assets of
businesses acquired is recorded as goodwill. Goodwill is amortized over 20
years using the straight-line method. If events or changes in circumstances
indicate the carrying amount of goodwill and related assets may not be
recoverable, the Company will evaluate the assets for possible impairment.
The Company assesses impairment based on anticipated net future cash flows
(undiscounted and without interest charges). If the sum of expected net
future cash flows is less than the carrying amount of the assets, the assets
will be written down to fair value.
Minority Interest
The original equity investment and subsequent interest in earnings of
minority owners is presented as minority interest in equity and earnings of
consolidated subsidiaries.
INCOME TAXES
The Company provides for deferred taxes using the asset and liability
approach. This method considers the future tax consequences associated with
differences between financial accounting and tax bases of assets and
liabilities. The Company's principal differences relate to the availability
of unused net operating loss carryforwards and the timing of deductibility
of reserves for contractual adjustments and doubtful accounts.
3. ESTIMATED THIRD PARTY SETTLEMENTS
Final determination of amounts earned under cost-reimbursement programs is
subject to review by appropriate governmental authorities or their agents.
In addition to the Company's ongoing operations, the Company has
responsibility for such reviews at certain former operations.
4. ACQUISITIONS
Effective January 1, 1994, the Company issued 124,292 shares of its common
stock to increase its interest to 80% in Signature Home Care of New Jersey,
Inc., a New Jersey general partnership owned by the Company, VHA of New
Jersey, Inc. and three subsidiaries of three hospitals. The acquisition of
the additional interest was accounted for as a purchase resulting in
goodwill of $428,773. The acquisition agreement provides for additional cash
consideration of $205,664
Page 9
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
which is contingent upon specified events. The Company paid $102,832 of this
additional consideration during 1995; the remaining balance of $102,832 is
included in accrued liabilities as of December 31, 1995.
The shares of common stock issued as part of this acquisition are redeemable
for cash at the shareholders' option, given the occurrence or nonoccurrence
of certain events. Management anticipates that such option will exist for
these shareholders during 1996. As such, these shares are included in
redeemable common stock at December 31, 1995.
5. FURNITURE, EQUIPMENT AND CAPITAL LEASES
The components of furniture, equipment and capital leases at December 31,
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
FURNITURE AND EQUIPMENT:
Furniture and fixtures.................................................$ 1,400
Medical equipment...................................................... 2,414
Computer equipment..................................................... 507
Other equipment........................................................ 159
CAPITAL LEASES:
Medical equipment...................................................... 2,794
Other equipment........................................................ 755
-------------------
Furniture, equipment and capital leases at cost........................ 8,029
Accumulated depreciation and amortization.............................. (2,638)
-------------------
Net furniture, equipment and capital leases............................$ 5,391
===================
</TABLE>
During 1995, the Company reevaluated the useful lives of its fixed assets.
Based on this reevaluation, the Company determined that useful lives should
range between five and fifteen years depending on the asset, rather than the
three to five year lives used in previous periods. This change in estimate
resulted in depreciation expense for the year ended December 31, 1995 which
is $314,000 lower than that calculated using the previous useful lives.
Page 10
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
6. NOTES PAYABLE AND LONG-TERM DEBT
Subordinated notes payable and long-term debt at December 31, 1995 consist
of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Note payable to Provider Funding Corporation dated December 8, 1995,
secured by accounts receivable (a)......................................................... $ 8,036
Subordinated note payable to Samaritan Health Systems (owned by SHC Services
of Arizona) dated March 17, 1995 payable in semiannual installments of
$162,500, at prime beginning on July 1, 1995 through
January 1, 1999 (b)........................................................................ 1,300
Subordinated notes payable to related parties payable on December 31,
1996, at 8.75% per annum (c)............................................................... 575
Capital leases............................................................................. 2,323
---------------
12,234
Less current portion.................................................................. (10,103)
---------------
$ 2,131
===============
</TABLE>
(a) On December 8, 1995 the Company entered into an agreement with a newly
formed, wholly-owned subsidiary, Signature Receivables Corporation (SRC)
whereby substantially all of the Company's health care receivables were
sold to SRC (the Sales Agreement). In addition, the Sales Agreement
provides for weekly sales of the Company's receivables generated after
December 8, 1995 to SRC. The receivables are sold to SRC at their estimated
net realizable value less a discount of 3%. SRC's business consists solely
of the purchase of receivables from the Company. SRC is a separate
corporate entity with its own creditors, which upon its liquidation will be
entitled to be satisfied out of SRC's assets prior to any value in the
Company or any other corporation becoming available to SRC's equity
holders.
Concurrent with the sale, SRC entered into a Loan and Servicing Agreement
(the Loan Agreement) with Provider Funding Corporation (PFC), a subsidiary
of John Alden Asset Management Company. The Loan Agreement, as amended,
provides that PFC will advance SRC, on a revolving basis, an amount not to
exceed 80% of the net realizable value of the receivables purchased from
the Company or $12 million, whichever is lower. These advances are repaid
as cash collections on the receivables securing the advances are received.
The remaining 20% of the receivables for which no advance is made are
maintained in a mandatory reserve account by PFC. Interest accrues at a
rate of 8.8% per annum on the outstanding balance of the loan and the
balance of the mandatory reserve. The Loan Agreement terminates on December
8, 1998.
As of December 31, 1995, SRC had purchased health care receivables with an
estimated net realizable value of $10,044,980. Advances to SRC through this
date totaled $8,035,984. Accrued interest and administrative fees were
$43,490 which results in an outstanding loan balance of $8,079,474 at
December 31, 1995.
Accounts receivable from lender of approximately $1.1 million represent
cash receipts provided to PFC that had not been applied to the outstanding
loan at December 31, 1995. In addition, the Company's cash balance includes
approximately $888,000 in cash restricted to repayment of the Loan
Agreement.
Page 11
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
The Company used the proceeds from the Sale and Loan Agreements to repay
its existing revolving line of credit and two subordinated notes payable to
VHA. Remaining proceeds were used to pay general corporate expenses.
(b) The Company has not made any of the scheduled payments under this note as
the terms are currently being renegotiated. Management does not anticipate
that Samaritan Health Systems will accelerate payment on the loan.
(c) The notes bear interest at prime plus 1% from May 1, 1994 through April 30,
1995; prime plus 1-1/2% from May 1, 1995 through April 30, 1996 and prime
plus 2% from May 1, 1996 through April 30, 1997.
Maturities of long-term debt, excluding capital leases, are as follows (in
thousands):
1996.................................................. $ 488
1997.................................................. 325
1998.................................................. 325
1999.................................................. 162
----------
$ 1,300
==========
The Company has noncancelable capital leases on a substantial amount of
medical equipment and other equipment. The approximate rental commitments on
the future minimum capital leases beginning January 1, 1996 are as follows
(in thousands):
1996..................................................$ 1,144
1997.................................................. 1,034
1998.................................................. 438
1999.................................................. 58
2000.................................................. 1
----------
Total minimum lease payments.......................... 2,675
Less: amount representing interest.................... 352
----------
Present value of net minimum lease payments........... 2,323
Less: Current maturities.............................. 1,005
----------
Long-term obligation..................................$ 1,318
==========
7. STOCKHOLDERS' EQUITY
As conditions to the initial investment in the Company, the stockholders
entered into a stockholders' agreement, a registration rights agreement, and
a stock purchase agreement (the Agreements). The Agreements, among other
things, establish the composition of the Company's board of directors, limit
the manner and terms by which ownership of Company stock may be transferred,
and grant certain rights relative to the ownership of Company stock.
Page 12
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
CLASS A STOCK
The Class A stock is mandatorily redeemable by July 1, 2000 at a per share
redemption price of face value plus cumulative dividends calculated at 10%
per annum through December 1, 1992 and 6% thereafter. At December 31, 1995,
unpaid cumulative dividends of $31,840 were included in the stock value.
CLASS B STOCK
The Class B stock is mandatorily redeemable 30 days following the redemption
of the Class A stock. The per share redemption price is at face value plus
cumulative dividends calculated at 9% per annum through December 1, 1992 and
6% thereafter. The Class B stock is convertible, at the option of the
holder, into the Company's Common Stock at a ratio of 0.7 shares of Common
Stock to 1 share of Class B stock. The Company has reserved 218,701 shares
of Common Stock for conversion of Class B stock. At December 31, 1995,
unpaid cumulative dividends of $73,630 were included in the stock value.
The holders of Class A Stock, Class B Stock, and Common Stock have equal
voting rights and vote together as a single class. Upon redemption of the
Class A Stock, the Class B Stock will no longer have voting rights.
COMMON STOCK WARRANTS EXERCISABLE
During 1994 the Company granted warrants to purchase 17,905 shares of Common
Stock at a price equal to $4.59 per share to a vendor who provides double
clinical monitoring of Signature patients who receive total parenteral
nutrition services. The warrants, which vested immediately upon issuance,
were measured at their fair value on the date issued ($1.55 per option) for
a total value of $27,752. These warrants expire on July 14, 1999.
8. 1992 OPTION AND RESTRICTED STOCK PLAN
On May 19, 1992, the Company adopted the 1992 Option and Restricted Stock
Plan (the Plan), pursuant to which the Company can grant shares of the
Company's Common Stock (Restricted Stock Grants), incentive options to
acquire the Company's Common Stock, and options to acquire the Company's
Common Stock to employees, consultants, or directors of the Company. The
Company has reserved 1,061,332 shares of its Common Stock for issuance under
the Plan.
Options granted under the Plan have various vesting periods as determined by
the date of grant, and are exercisable for a period of up to nine years from
the date of grant, after which they expire. During 1995, transactions
involving stock options were as follows:
Outstanding options at January 1 295,078
Additional options granted 72,920
Forfeitures and exercises (37,445)
Outstanding options at December 31 330,553
Eligible at December 31 for exercise currently 244,319
During 1995, options for 13,737 shares vested and were immediately
exercised. The value of the options vested was $1.55 per share, and the
exercise price was $36,991. The exercise price of options outstanding at
December 31, 1995 equaled or exceeded the fair market value of the Company's
stock as of that date.
Page 13
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
Common Stock issued pursuant to Restricted Stock Grants made under the Plan
is restricted as to transfer prior to vesting. Vesting periods will be
determined individually for each grant. Upon termination, unvested
Restricted Stock Grants are subject to repurchase by the Company. The
Company has made Restricted Stock Grants for 232,509 shares of Common Stock,
all of which vested during 1992. The Common Stock which vested during 1992
is reflected in the consolidated balance sheet as outstanding and is further
restricted as to transfer until May 20, 1996. Individuals who received these
grants were required to enter into the Stockholder Agreement.
9. RETIREMENT PLAN
In May 1992, the Company adopted a defined contribution plan whereby
eligible employees may contribute up to 15% of their compensation. During
1995, the Company's matching contribution was 50% of the employee's
contribution (up to 6% of compensation) for contributions of $187,000.
10. INCOME TAXES
The benefit from income taxes consists of the following (in thousands):
<TABLE>
<S> <C>
Current:
Federal..........................................$ (647)
State and local................................... 13
Deferred:
Federal........................................... 515
State............................................. 59
------------
Benefit from income taxes................................$ (60)
============
</TABLE>
A reconciliation of the tax effect of the differences between the benefit
from federal income taxes based upon the statutory income tax rate of 34%
and the effective tax rate is as follows (in thousands):
<TABLE>
<S> <C>
Federal income tax benefit at 34%.........................$ (2,045)
State and local taxes, net................................ (151)
Change in valuation allowance............................. 1,939
Reconciliation of tax provision to tax return............. 142
Other..................................................... 55
-----------
Benefit from income tax ..................................$ (60)
===========
</TABLE>
Page 14
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
DEFERRED TAXES
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset for 1995 were as follows (in
thousands):
<TABLE>
<S> <C>
Accounts Receivable Reserves.............................$ 319
Net Operating Loss Carryforwards......................... 2,572
Furniture & Equipment.................................... 23
---------------
Gross Deferred Tax Asset................................. 2,914
Valuation Allowance...................................... (2,595)
---------------
319
Intangible Assets........................................ (220)
---------------
$ 99
===============
</TABLE>
Prior to its acquisition by the Company, SHCG accumulated unused net
operating loss (NOL) carryforwards of approximately $5 million expiring at
various dates from 1999 to 2006. The acquisition of SHCG by the Company
produced an "ownership change" under section 382 of the Internal Revenue
Code of 1986, as amended. Section 382 subjects the use of the NOL
carryforwards to certain limitations. While the total amount of Signature's
NOL carryforwards remain unchanged, the amount of preacquisition NOL
carryforwards available to offset income earned by Signature during each
taxable year is limited to approximately $107,000 annually.
In 1995, the Company generated a net operating loss carryforward, after
considering loss carrybacks of approximately $2 million, of approximately
$5.5 million which will expire if unutilized in 2010.
A valuation allowance has been provided for the full amount of the tax
benefit of the Company's loss carryforwards since it is undetermined whether
such benefits will be realized. The change in the valuation allowance
relates primarily to such tax loss carryforwards.
11. COMMITMENTS AND CONTINGENCIES
PROFESSIONAL LIABILITY RISKS
As is typical in the healthcare industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. The
Company maintains medical malpractice coverage with liability limits of
$1,000,000 per claim and $3,000,000 in the aggregate.
OPERATING LEASES
The Company has noncancelable operating leases on substantially all of its
office equipment and office space for its corporate and field locations. The
approximate rental commitments on the future minimum operating leases
beginning January 1, 1996 are as follows (in thousands):
Page 15
<PAGE>
SIGNATURE HOME CARE, INC.
AND SUBSIDIARIES
1996...............................................$ 1,776
1997............................................... 1,680
1998............................................... 1,144
1999............................................... 601
2000............................................... 584
------------------
$ 5,785
==================
Rental expense of $1,579,131 was incurred for the year ended December 31,
1995.
12. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1995 the Company paid its directors
consulting and directors fees of $334,000.
Notes receivable from certain directors and stockholders for the purchase of
stock bear interest at 6.5% and are due July 1, 2000. The notes are secured
by the stock purchased. During 1995, $30,000 of the notes receivable were
repaid by certain directors, resulting in the notes receivable balance of
$59,000 at December 31, 1995. Interest income from these notes was $4,675
for the year ended December 31, 1995.
During the year ended December 31, 1995, the Company held notes payable to
certain directors (see note 6). The Company incurred $8,100 in interest
expense related to these agreements during the year ended December 31, 1995.
During the first quarter of 1996, the Company entered into separate
arrangements with two directors whereby the directors loaned the Company
$250,000 each. These notes accrue interest at 8.75% per annum and are due
December 31, 1996.
13. LIQUIDITY AND CHANGE IN OWNERSHIP
As of December 31, 1995 the Company had a working capital deficit of
$1,713,000, and a stockholders' deficit of $730,000. For the year ended
December 31, 1995 the Company had a loss from operations of $6,437,000. Due
to the financial condition and operation results of the Company, the Company
sought additional capital or a merger partner. On September 25, 1996
Integrated Health Services, Inc. acquired all of the outstanding stock of
the Company. The total purchase price was $9,200,000.
Page 16
<PAGE>
Signature Home Care, Inc.
and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(In Thousands)
June 30,
1996
---------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 1,415
Trade accounts receivable less allowance of $2,990 18,849
Inventory 1,539
Income tax receivable 807
Other current assets 362
--------
Total current assets 22,972
Furniture, equipment and capital leases, net 6,609
Net intangibles 1,930
Deferred income tax 99
--------
Total assets $ 31,610
========
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' DEFICIT
- -------------------------------------------------------
Current Liabilities:
Current maturities of long-term debt and capital leases $ 16,379
Accounts payable 7,538
Accrued liabilities 2,432
Accrued compensation and benefits 2,206
--------
Total current liabilities 28,555
Long-term debt and capital leases 3,104
Minority interest in equity and earnings of consolidated subsidiaries 2,022
Redeemable Stock:
Class A Stock $1 par value:
Authorized, issued, and outstanding shares - 1,061,332 1,093
Class B Stock, convertible, $1.27 par value
Authorized shares - 398,000, issued and outstanding 472
--------
Total liabilities and redeemable stock 35,246
Stockholders' deficit:
Common Stock, $.0127 par value, Respecitvely:
Authorized shares - 13,000,000
Issued and outstanding of 1,694,744 21
Common Stock warrants exercisable 49
Paid in capital 3,278
Accumulated deficit (6,925)
Notes receivable for sale of stock (59)
--------
Total stockholders' deficit (3,636)
Total liabilities and stockholders' deficit $ 31,610
========
<PAGE>
Signature Home Care, Inc.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
------ ------
<S> <C> <C>
Net Revenues $ 34,571 $ 32,395
Cost of sales (20,998) (16,933)
---------- ----------
Gross profit 13,573 15,462
Operating Expenses:
General and adminstrative (14,852) (12,764)
Provision for doubtful accounts (2,308) (1,098)
---------- ----------
Total operating expenses (17,160) (13,862)
---------- ----------
Income (loss) before minority interest and income taxes (3,587) 1,600
Minority interest 701 (665)
---------- ----------
Income (loss) before income taxes (2,886) 935
Benefit from (provision for) income taxes 0 (328)
---------- ----------
Net income/(loss) $ (2,886) $ 607
========== ==========
</TABLE>
<PAGE>
Signature Home Care, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,886) $ 607
Adjustments reconciling net income to set cash
provided from operating activities:
Depreciation and amortization 438 634
Minority interest (701) 665
Change in current assets and liabilities (net of acquisitions):
Accounts receivible, (net) (3,631) (2,110)
Inventory 20 (16)
Other assets 67 (143)
Accounts payable, accrued liabilities and accrued
compensation and benefits 1,566 21
----------- -----------
Net cash used in operating activities (5,127) (342)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in funiture and equipment (328) (752)
---------- -----------
(328) (752)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVIES:
Proceeds (payment) from the exercise of common
stock options (21) 37
Proceeds from (payment of) debt, net 6,002 1,064
----------- -----------
Net cash provided by financing activities 5,981 1,101
----------- -----------
Net increase in cash and cash 526 7
Cash and cash equivalents at beginning of period 889 53
----------- -----------
Cash and cash equivalents at end of period $ 1,415 $ 60
=========== ===========
Financing and Investing Activities Not Affecting Cash:
Capital Lease Obligations Incurred $ 1,248 0
----------- -----------
</TABLE>
<PAGE>
SIGNATURE HOME CARE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30,
1996 AND FOR THE SIX MONTHS ENDED
JUNE 30,1996 AND 1995
1. PRESENTATION ON INTERIM INFORMATION
-----------------------------------
In the opinion of the management of Signature Home Care, Inc. (the
"Company"), the accompanying unaudited consolidated financial statements
include all normal asjustments considered necessary to present fairly the
financial positon as of June 30, 1996, and the results of operations for
the six months ended June 30, 1996 and 1995, and cash flows for the six
months ended June 30, 1996 and 1995. Interim results are not necessarily
indicative of results for a full year. The consolidated financial
statements and notes do not contain certain information included in the
Company's audited consolidated financial statements and notes for the
fiscal year ended December 31, 1995.
2. FINANCIAL STATEMENTS
--------------------
The consolidated financial statements included the accounts of the Company
and its majority owned subsidiairies. All significant intercompany
transactions and accounts have been eliminated.
3. RELATED PARTY NOTES RECEIVABLE/PAYABLE
--------------------------------------
Note receivable from certain directors and stockholders for the purchase
of stock bear interest at 6.5% and are due July 1, 2000. The notes are
secured by the stock purchased.
Long-term debt includes subordinated notes payable to certain directors,
including $500,000 in additional borrowings entered into during the first
quarter of 1996. Such notes bear interest at 8.75% and are due December
31, 1996.
4. CHANGE IN OWNERSHIP
-------------------
On September 25, 1996, Intergrated Health Services, Inc. acquired all of
the outstanding stock of the Company. The total purchase price was
$9,200,000.
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following pro forma condensed financial information gives effect to (i)
the sale by the Company of its pharmacy division in July 1996 (the "Pharmacy
Sale"), (ii) the sale of a majority interest in its assisted living services
subsidiary in October 1996 (the "ILC Offering") and (iii) the acquisition of (a)
Vintage Health Care Center, a skilled nursing and assisted living facility, in
January 1996 (the "Vintage Acquisition"), (b) Rehab Management Systems, Inc., an
outpatient rehabilitation company in March 1996 (the "RMS Acquisition"), (c)
Hospice of the Great Lakes, Inc., a hospice company, in May 1996 (the "Hospice
Acquisition"), (d) J.R. Rehab Associates, Inc. an inpatient and outpatient
rehabilitation center, in August 1996 (the "J.R. Rehab Acquisition"), (e)
Extendicare of Tennessee, Inc., a home health company, in August 1996 (the
"Extendicare Acquisition"), (f) Edgewater Home Infusion Services, Inc., a home
infusion company, in August 1996 (the "Edgewater Acquisition"), (g) Century Home
Services, Inc., a home health services company, in September 1996 (the "Century
Acquisition"), and (h) Signature Home Care, Inc., a home health company, in
September 1996 (the "Signature Acquisition").
The pro forma balance sheet at September 30, 1996 was prepared as if the
ILC Offering was consummated at September 30, 1996. The Pharmacy Sale, the
Vintage Acquisition, the RMS Acquisition, the Hospice Acquisition, the J.R.
Rehab Acquisition, the Extendicare Acquisition, the Edgewater Acquisition, the
Century Acquisition and the Signature Acquisition were all consummated prior to
September 30, 1996 and are therefore reflected in the actual September 30, 1996
balance sheet. The pro forma statements of operations for the year ended
December 31, 1995 and the nine months ended September 30, 1996 were prepared as
if (i) the Pharmacy Sale, (ii) the ILC Offering, (iii) the Vintage Acquisition,
(iv) the RMS Acquisition, (v) the Hospice Acquisition, (vi) the J.R. Rehab
Acquisition, (vii) the Extendicare Acquisition, (viii) the Edgewater
Acquisition, (ix) the Century Acquisition, and (x) the Signature Acquisition
were consummated on January 1, 1995.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The unaudited pro forma
financial information set forth below is not necessarily indicative of the
Company's financial position or the results of operations that actually would
have occurred if the transactions had been consummated on the dates shown. In
addition, they are not intended to be a projection of results of operations that
may be obtained by the Company in the future.
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Actual
------
ILC Pro Forma
IHS Adjustment Consolidated
--- ---------- ------------
<S> <C> <C> <C>
Assets Increase/(Decrease)
Current Assets:
Cash and cash equivalents $ 41,127 $ (144)(a) $ 40,983
Temporary investments 1,896 1,896
Patient accounts and third-party payor settlements
receivable, less allowance for doubtful receivables 261,563 (280)(a) 261,283
Supplies, inventories, prepaid expenses
and other current assets 22,415 (248)(a) 22,167
----------- ---------------------- -----------------
Total current assets 327,001 (672) 326,329
----------- ---------------------- -----------------
Property, plant and equipment, net 865,556 (53,393)(a) 812,163
Intangible assets 316,144 316,144
Investments 55,142 24,019 (b) 79,161
Other assets 93,342 (5,918)(a)(c) 87,424
----------- ---------------------- -----------------
Total assets $1,657,185 $ (35,964) $ 1,621,221
=========== ====================== =================
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 3,612 $ 3,612
Accounts payable and accrued expenses 207,880 $ (14,586)(a) 193,294
----------- ---------------------- -----------------
Total current liabilities 211,492 (14,586) 196,906
----------- ---------------------- -----------------
Long-term Debt:
Convertible subordinated debentures 258,750 258,750
Other long-term debt less current maturities 596,152 (17,851)(d) 578,301
----------- ---------------------- -----------------
Total long-term debt 854,902 (17,851) 837,051
----------- ---------------------- -----------------
Other-long term liabilities
Deferred income taxes 55,797 55,797
Deferred gain on sale-leaseback transactions 6,500 6,500
Stockholders' equity:
Common stock, $0.001 par value. Authorized
150,000,000 shares 23 23
Additional paid-in capital 438,880 438,880
Retained earnings 78,108 (3,527)(e) 74,581
Unrealized gain on available for sale securities 11,483 11,483
----------- ---------------------- -----------------
Net stockholders' equity 528,494 $ (3,527) $ 524,967
----------- ---------------------- -----------------
Total liabilities and stockholders' equity $1,657,185 $ (35,964) $ 1,621,221
=========== ====================== =================
</TABLE>
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
PRO FORMA STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Actual Actual
Pharmacy ILC Century
IHS(1) Adjustments Adjustments Century Adjustments Signature
--- ----------- ----------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues:
Basic medical services $ 296,468 $ 0 $ 0 $ 0 $ 0
Specialty medical services 658,297 (52,331)(f) (16,101)(f) 19,324 50,155
Management services and other 33,953 0 (1,020)(f) 0 0
Gain on sale of assets 34,298 (34,298)(g) 0 0 0
---------- ----------- ----------- ---------- ---------
Total revenues 1,023,016 (86,629) (17,121) 19,324 50,155
Costs and expenses:
Operating expenses 790,236 (43,279)(f) (12,453)(f) 18,681 53,075
Depreciation and amortization 25,909 (1,785)(f) (833)(f) 74 $ 208 (j) 340
Rent 53,980 (838)(f) (1,885)(f) 447 1,121
Interest, net 46,033 (3,817)(h) (963)(i) 12 123 (k) 1,383
---------- ----------- ----------- ---------- -------- ---------
Total costs and expenses 916,158 (49,719) (16,134) 19,214 331 55,919
Earnings (loss) before equity in earnings 106,858 (36,910) (987) 110 (331) (5,764)
of affiliates and income taxes
Equity in earnings of affiliates 1,083 0 722 0 1,032
---------- ----------- ----------- ---------- -------- ---------
Earnings (loss) before income taxes 107,941 $ (36,910) $ (265) $ 110 $ (331) $ (4,732)
=========== =========== ========== ========= =========
Federal and state income taxes 62,353
----------
Earnings before extraordinary items $ 45,588
==========
Per Common Share:
Earnings before extraordinary-primary $ 1.95
Earnings before extraordinary-fully diluted 1.68
====
Weighted Avg. Shares:
Primary 23,393
Fully-diluted 31,477
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
Actual Actual
Signature Edgewater
Adjustments Edgewater Adjustments Extendicare
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Basic medical services $ 0 $ 0
Specialty medical services 5,552 3,082
Management services and other 0 0
Gain on sale of assets 0 0
----------- ------------
Total revenues 5,552 3,082
Costs and expenses:
Operating expenses 4,783 3,095
Depreciation and amortization $ 304 (j) 19 $ 119 (j) 12
Rent 24 42
Interest, net 244 (k) 45 361 (k) 194
--------- ----------- -------- ------------
Total costs and expenses 548 4,871 480 3,343
Earnings (loss) before equity in earnings (548) 681 (480) (261)
of affiliates and income taxes
Equity in earnings of affiliates
--------- ----------- -------- ------------
Earnings (loss) before income taxes $ (548) $ 681 $ (480) $ (261)
========== =========== ======== ============
Federal and state income taxes
Earnings before extraordinary items
Per Common Share:
Earnings before extraordinary-primary
Earnings before extraordinary-fully diluted
Weighted Avg. Shares:
Primary 192 (m)
Fully-diluted 192 (m)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
Actual Actual Hospice of
Extendicare J.R. Rehab Hospice of Great Lakes
Adjustments J.R. Rehab Adjustments Great Lakes Adjustments
----------- ---------- ----------- ----------- -----------
<C> <C> <C> <C> <C>
Net revenues:
Basic medical services $ 0 $ 0
Specialty medical services 2,474 2,608
Management services and other 0 0
Gain on sale of assets 0 0
--------- -----------
Total revenues 2,474 2,608
Costs and expenses:
Operating expenses 2,036 2,537
Depreciation and amortization $ 30 (j) 29 $ 45 (j) 15 $ 75 (j)
Rent 27 23
Interest, net 155 (k) 10 89 (k) 2
-------- --------- ------- ----------- --------
Total costs and expenses 185 2,102 134 2,577 75
Earnings (loss) before equity in earnings of (185) 372 (134) 31 (75)
affiliates and income taxes
Equity in earnings of affiliates
-------- --------- ------- ----------- ----------
Earnings (loss) before income taxes $ (185) $ 372 $ (134) $ 31 $ (75)
======== ========= ======== =========== =========
Federal and state income taxes
Earnings before extraordinary items
Per Common Share:
Earnings before extraordinary-primary
Earnings before extraordinary-fully diluted
Weighted Avg. Shares:
Primary 136(m)
Fully-diluted 136(m)
</TABLE>
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Actual Actual
RMS Vintage Pro
RMS Adjustments Vintage Adjustments Forma
--- ----------- ------- ----------- -----
<S> <C> <C> <C>
Net revenues:
Basic medical services $ 0 $ 292 $ 296,760
Specialty medical services 3,740 174 676,974
Management services and other 0 3 32,936
Gain on sale of assets 0 0 0
--------- --------- -----------
Total revenues 3,740 469 1,006,670
Costs and expenses: 3,495 410 822,616
Operating expenses 52 $ 67 (j) 24 24,704
Depreciation and amortization 86 0 53,027
Rent 21 29 (k) 53 41 (k) 44,015
Interest, net --------- --------- --------- -------- -----------
3,654 96 487 41 944,362
Total costs and expenses
86 (96) (18) (41) 62,308
Earnings (loss) before equity in earnings of
affiliates and income taxes
2,837
Equity in earnings of affiliates --------- --------- --------- --------- -----------
Earnings before income taxes $ 86 $ (96) $ (18) $ (41) 65,145
========= ========= ========= ========
Federal and state income taxes 25,081(1)
-----------
Earnings (loss) before extraordinary items $ 40,064
===========
Per Common Share:
Earnings before extraordinary-primary $ 1.68
Earnings before extraordinary-fully diluted 1.49
====
Weighted Avg. Shares:
Primary 110(m) 23,831
Fully-diluted 110(m) 31,915
======
</TABLE>
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Actual
Pharmacy ILC
IHS Adjustments Adjustments
--------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
Basic medical services $ 368,569 $ 0 $ 0
Specialty medical services 770,554 (73,566)(f) (15,123)(f)
Management services and other 39,765 0 (1,146)
-------------- -------------- ----------------
Total revenues 1,178,888 (73,566) (16,269)
Costs and expenses:
Operating expenses 944,567 (63,082)(f) (12,285)(f)
Depreciation and amortization 39,961 (2,681)(f) (414)(f)
Rent 66,125 (1,227)(f) (2,430)(f)
Interest, net 38,977 (6,543)(h) (1,283)(i)
Loss on impairment 83,321 0 (5,126)(f)
Other non-recurring charges 49,639 0 0
-------------- -------------- ----------------
Total costs and expenses 1,222,590 (73,533) (21,538)
Earnings (loss) before equity in earnings (loss)
of affiliates and income taxes (43,702) (33) 5,269
Equity in earnings (loss) of affiliates 1,443 0 (1,475)
-------------- -------------- ----------------
Earnings (loss) before income taxes (42,259) $ (33) $ 3,794
============== ================
Federal and state income taxes (16,270)
--------------
Loss before extraordinary items $ (25,989)
==============
Per Common Share:
Loss before extraordinary item - primary $ (1.21)
Loss before extraordinary item - fully-diluted (1.21)
==============
Weighted Average Shares:
Primary 21,463
Fully-diluted 21,463
==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
Actual Actual
Century
Century Adjustments Signature
------- ----------- ---------
<S> <C> <C> <C>
Net revenues:
Basic medical services $ 0 $ 0
Specialty medical services 30,592 59,482
Management services and other 0 0
------------- ------------
Total revenues 30,592 59,482
Costs and expenses:
Operating expenses 29,616 65,119
Depreciation and amortization 125 $ 293 (j) 961
Rent 889 0
Interest, net 164 173 (k) 424
Loss on impairment 0 0
Other non-recurring charges 0 0
------------- -------- ------------
Total costs and expenses 30,794 466 66,504
Earnings (loss) before equity in earnings (loss)
of affiliates and income taxes (202) (466) (7,022)
Equity in earnings (loss) of affiliates 0 942
------------- -------- ------------
Earnings (loss) before income taxes $ (202) $ (466) $ (6,080)
============= ======== ============
Federal and state income taxes
Loss before extraordinary items
Per Common Share:
Loss before extraordinary item - primary
Loss before extraordinary item - fully-diluted
Weighted Average Shares:
Primary
Fully-diluted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
Actual
Signature Edgewater Actual
Adjustments Edgewater Adjustments Extendicare
----------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Net revenues:
Basic medical services $ 0 $ 0
Specialty medical services 6,874 3,544
Management services and other 0 0
--------------- ------------
Total revenues 6,874 3,544
Costs and expenses:
Operating expenses 4,931 3,429
Depreciation and amortization $ 406 (j) 42 $ 191 (j) 28
Rent 32 70
Interest, net 325 (k) 5 578 (k) 262
Loss on impairment 0 0
Other non-recurring charges 0 0
------ --------------- ------ ------------
Total costs and expenses 731 5,010 769 3,789
Earnings (loss) before equity in earnings (loss)
of affiliates and income taxes (731) 1,864 (769) (245)
Equity in earnings (loss) of affiliates
------- --------------- ------ ------------
Earnings (loss) before income taxes $ (731) $ 1,864 $ (769) $ (245)
======= =============== ====== ============
Federal and state income taxes
Loss before extraordinary items
Per Common Share:
Earnings before extraordinary-primary
Earnings before extraordinary-fully diluted
Weighted Avg. Shares:
Primary 196 (m)
Fully-diluted 196 (m)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
Actual
Extendicare J.R. Rehab
Adjustments J.R. Rehab Adjustments
----------- ---------- -----------
<S> <C> <C> <C>
Net revenues:
Basic medical services $ 0
Specialty medical services 3,609
Management services and other 0
-------------
Total revenues 3,609
Costs and expenses:
Operating expenses 3,393
Depreciation and amortization $ 49 (j) 66 77 (j)
Rent 25
Interest, net 247 (k) 16 152 (k)
Loss on impairment 0
Other non-recurring charges 0
---------- ------------- -------
Total costs and expenses 296 3,500 229
Earnings (loss) before equity in earnings (loss)
of affiliates and income taxes (296) 109 (229)
Equity in earnings (loss) of affiliates
---------- ------------- -------
Earnings (loss) before income taxes $ (296) $ 109 $ (229)
========== ============= ======
Federal and state income taxes
Loss before extraordinary items
Per Common Share:
Earnings before extraordinary-primary
Earnings before extraordinary-fully diluted
Weighted Avg. Shares:
Primary
Fully-diluted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
Actual Hospice of Actual
Hospice of Great Lakes RMS
Great Lakes Adjustments RMS Adjustments
----------- ----------- --- -----------
<S> <C> <C> <C> <C>
Net revenues:
Basic medical services $ 0 $ 0
Specialty medical services 8,890 13,272
Management services and other 0 0
---------------- -------------
Total revenues 8,890 13,272
Costs and expenses:
Operating expenses 7,711 12,220
Depreciation and amortization 88 $ 224 (j) 200 321 (j)
Rent 50 260
Interest, net 3 81 138 (k)
Loss on impairment 0 0
Other non-recurring charges 0 0
---------------- ---------- ------------- ----------
Total costs and expenses 7,852 224 12,761 459
Earnings (loss) before equity in earnings (loss)
of affiliates and income taxes 1,038 (224) 511 (459)
Equity in earnings (loss) of affiliates
---------------- ---------- ------------- ----------
Earnings (loss) before income taxes $ 1,038 $ (224) $ 511 $ (459)
================ ========== ============= ==========
Federal and state income taxes
Loss before extraordinary items
Per Common Share:
Earnings before extraordinary-primary
Earnings before extraordinary-fully diluted
Weighted Avg. Shares:
Primary 305(m) 386(m)
Fully-diluted 305(m) 386(m)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
Actual
Vintage Pro
Vintage Adjustments Forma
------- ----------- ---------
<S> <C> <C> <C>
Net revenues: $
Basic medical services 3,505 $ 372,074
Specialty medical services 2,086 810,214
Management services and other 37 38,656
------------- ------------
Total revenues 5,628 1,220,944
Costs and expenses:
Operating expenses 4,916 1,000,535
Depreciation and amortization 294 40,231
Rent 0 63,794
Interest, net 630 $ 489 (j) 34,838
Loss on impairment 0 78,195
Other non-recurring charges 0 49,639
------------- ---------- -------------
Total costs and expenses 5,840 489 1,267,232
Earnings (loss) before equity in earnings (loss)
of affiliates and income taxes (212) (489) (46,288)
Equity in earnings (loss) of affiliates 910
------------- ---------- -------------
Earnings (loss) before income taxes $ (212) $ (489) (45,378)
============= ===========
(17,471)(1)
Federal and state income taxes -------------
Loss before extraordinary items $ (27,907)
===========
Per Common Share:
Loss before extraordinary items- primary $ (1.25)
Loss before extraordinary items - fully-diluted (1.25)
===========
Weighted Average Shares:
Primary 22,350
Fully-diluted 22,350
==============
</TABLE>
<PAGE>
NOTES TO THE PRO FORMA ADJUSTMENTS
(1) Includes the results of operations of (i) Vintage from January 29, 1996,
(ii) RMS from March 19, 1996, (iii) Hospice of the Great Lakes from May 1,
1996, (iv) J.R. Rehab from August 1, 1996, (v) Extendicare from August 12,
1996, (vi) Edgewater from August 19, 1996, (vii) Century from September 13,
1996 and (viii) Signature from September 25, 1996.
(a) Represents actual carrying values of assets and liabilities sold.
(b) Represents carryover basis in shares of ILC retained by the Company and
adjustments to reflect the Company's equity in ILC's earnings.
(c) Represents loan repayment by ILC to the Company.
(d) Represents net proceeds from the ILC offering applied to reduce long-term
debt.
(e) Represents loss on sale of shares of ILC of $4,512 less income tax effect
of $1,738, and adjustments to reflect the Company's equity in ILC's
earnings.
(f) Represents actual revenues and expenses of divisions sold.
(g) Represents gain on the sale of pharmacy division recorded in July 1996.
(h) Represents reduction of interest expense resulting from repayment of
$91,000 outstanding under the Company's revolving credit facility based on
the Company's interest rate of 7.19% under the revolving credit facility on
July 30, 1996. The indentures under which IHS' senior subordinated notes
were issued require that IHS use the proceeds of asset sales (as defined in
the indentures) to either (i) invest in healthcare businesses, (ii) repay
senior indebtedness or (iii) repurchase the senior subordinated notes.
(i) Represents reduction of interest expense resulting from repayment of
$17,851 outstanding under the Company's revolving credit facility based on
the Company's interest rate of 7.19% under the revolving credit facility on
October 9, 1996. The indentures under which IHS' senior subordinated notes
were issued require that IHS use the proceeds of asset sales (as defined in
the indentures) to either (i) invest in healthcare businesses, (ii) repay
senior indebtedness or (iii) repurchase the senior subordinated notes
(j) Represents additional amortization relating to goodwill recorded as a
result of the acquisition, as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
Less:Previously
Annual Recorded Annual Months
COMPANY Goodwill Life Amortization Amortization Amortization In 1996 Adjustment
- ------- -------- ---- ------------ ------------ ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Century $11,919 40 $ 298 ($5) $ 293 8.5 $208
Signature 17,182 40 430 (24) 406 9.0 304
Edgewater 7,685 40 192 (1) 191 7.5 119
Extendicare 1,945 40 49 0 49 7.5 30
J.R. Rehab 3,159 40 79 (2) 77 7.0 45
Hospice of Great Lakes 9,031 40 226 (2) 224 4.0 75
RMS 12,832 40 321 0 321 2.5 67
Vintage 0 40 0 0 0 1.0 0
------ -- ------- ---- ------ --- ----
TOTAL $63,753 40 $1,595 ($34) $1,561 $848
======= == ======= ==== ====== ====
</TABLE>
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Less:Previously
Annual Recorded
COMPANY Goodwill Life Amortization Amortization Adjustment
- ------- -------- ---- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Century $11,919 40 $ 298 ($5) $ 293
Signature 17,182 40 430 (24) 406
Edgewater 7,685 40 192 (1) 191
Extendicare 1,945 40 49 0 49
J.R. Rehab 3,159 40 79 (2) 77
Hospice of Great Lakes 9,031 40 226 (2) 224
RMS 12,832 40 321 0 321
Vintage 0 40 0 0 0
------ -- ------- ---- ------
TOTAL $63,753 40 $1,595 ($34) $1,561
======= == ======= ==== ======
</TABLE>
<PAGE>
(k) Represents additional interest resulting from borrowings under the
Company's revolving line of credit to fund acquisition, as follows:
NINE MONTHS ENDED SEPTEMBER 30, 1996
Months Interest Interest
Debt in 1996 Rate Adjustment
-------- ------- --------- ----------
Pharmacy $ (91,000) 7.0 7.19% $ (3,817)
ILC (17,851) 9.0 7.19% (963)
Century 2,390 8.5 7.25% 123
Signature 4,519 9.0 7.19% 244
Edgewater 7,974 7.5 7.25% 361
Extendicare 3,410 7.5 7.25% 155
J.R. Rehab 2,100 7.0 7.25% 89
Hospice of Great Lakes 0 4.0 6.94% 0
RMS 2,000 2.5 6.88% 29
Vintage 6,932 1.0 7.06% 41
------ --- ------- ------
TOTAL $(79,526) 7,20% (1) $ (3,738)
======= ======= ======
Effect of 1/8% reduction
in interest rate $(79,526) 7.08% (1) $(3,674)
Effect of 1/8% increase
in interest rate $(79,526) 7.33% (1) $(3,804)
(1) Percentage is weighted average based on purchase price
YEAR ENDED DECEMBER 31, 1995
Interest Interest
Debt Rate Adjustment
-------- -------- ----------
Pharmacy $ (91,000) 7.19% $(6,543)
ILC (17,851) 7.19% (1,283)
Century 2,390 7.25% 173
Signature 4,519 7.19% 325
Edgewater 7,974 7.25% 578
Extendicare 3,410 7.25% 247
J.R. Rehab 2,100 7.25% 152
Hospice of Great Lakes 0 6.94% 0
RMS 2,000 6.88% 138
Vintage 6,932 7.06% 489
------ ------- ------
TOTAL $(79,526) 7,20% (1) $(5,724)
======= ======= ======
Effect of 1/8% reduction
in interest rate $(79,526) 7.08% (1) $(5,630)
Effect of 1/8% increase
in interest rate $(79,526) 7.33% (1) $(5,829)
(1) Percentage is weighted average based on purchase price
(l) Represents 38.5% effective tax rate.
(m) Represents the additional weighted average number of shares of Company
Common Stock that would have been outstanding during the period had all
shares issued in the acquisitions presented during the period, been issued
on the first day of the period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRATED HEALTH SERVICES, INC.
Date: July 8, 1997 By /s/ W. Bradley Bennett
--------------------------------
Name: W. Bradley Bennett
Title: Executive Vice President and
Chief Accounting Officer
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the following Registration Statements on Form S-3 or S-4:
Nos. 33-87890
33-66126
33-68302
33-77380
33-81378
33-98764
333-4053
333-12685
and in the following Registration Statements on Form S-8:
Nos. 33-44648
33-44649
33-44650
33-44651
33-44653
33-53912
33-53914
33-53916
33-86684
33-97190
333-1432
of Integrated Health Services, Inc. of our report dated September 25, 1996
relating to the consolidated financial statements of Signature Home Care, Inc.
which appears in the Current Report on Form 8-K/A of Integrated Health Services,
Inc. dated September 25, 1996.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Dallas, Texas
July 7, 1997
