PROSPECTUS
1,813,434 SHARES
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
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This Prospectus relates to 1,813,434 shares (the "Shares") of Common Stock,
par value $0.001 per share (together with the Preferred Stock Purchase Rights
associated therewith, the "Common Stock"), of Integrated Health Services, Inc.
("IHS" or the "Company") which are being offered for sale by certain selling
stockholders (the "Selling Stockholders"). See "Selling Stockholders." The
Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "IHS." On December 16, 1997, the closing price of the Common Stock,
as reported in the NYSE consolidated reporting system, was $30.25 per share.
The Company will not receive any of the proceeds from sales of the Shares
by the Selling Stockholders. The Shares may be offered from time to time by the
Selling Stockholders (and their donees and pledgees) through ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution."
The Selling Stockholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used to effect sales, any commissions paid to broker-dealers
and, if broker-dealers purchase any of the Shares as principals, any profits
received by such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Stockholders may be deemed to be underwriting
commissions. All costs, expenses and fees in connection with the registration of
the Shares will be borne by the Company. Brokerage commissions, if any,
attributable to the sale of the Shares will be borne by the Selling Stockholders
(or their donees and pledgees).
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SEE "RISK FACTORS," WHICH BEGINS ON PAGE 7 OF THIS PROSPECTUS, FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is December 17, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also may be obtained by mail from the
Public Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
materials and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Additionally,
the Commission maintains a Web site on the Internet that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission and that is located at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement together with exhibits may be inspected at the offices of the
Commission as indicated above without charge and copies thereof may be obtained
therefrom upon payment of a prescribed fee.
Private Securities Litigation Reform Act Safe Harbor Statement. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to IHS that
are based on the beliefs of the management of IHS, as well as assumptions made
by and information currently available to the management of IHS. When used in
this Prospectus, the words "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the current views of IHS
with respect to future events and are subject to risks and uncertainties,
including those discussed under "Risk Factors," that could cause actual results
to differ materially from those contemplated in such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. IHS does not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information in the following documents filed by IHS with the Commission
(File No. 1-12306) pursuant to the Exchange Act is incorporated by reference in
this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997;
(d) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997;
(e) The Company's Current Report on Form 8-K dated October 17, 1996
reporting the acquisition of First American Health Care of Georgia, Inc., as
amended by Form 8-K/A filed November 26, 1996 and Amendment No. 1 to Form
8-K/A filed July 11, 1997;
(f) The Company's Current Report on Form 8-K dated October 19, 1996
reporting the execution of the Agreement and Plan of Merger (the "Coram
Merger Agreement") among the Company, IHS Acquisition XIX, Inc. and Coram
Healthcare Corporation ("Coram"), as amended by Form 8-K/A filed April 11,
1997, reporting the termination of the Coram Merger Agreement;
(g) The Company's Current Report on Form 8-K dated May 23, 1997 reporting
the Company's agreement to issue privately an aggregate of $450 million
principal amount of 9 1/2% Senior Subordinated Notes due 2007;
(h) The Company's Current Report on Form 8-K dated May 30, 1997 reporting
(i) the Company's issuance of an aggregate of $450 million principal amount
of 9 1/2% Senior Subordinated Notes due 2007 and (ii) the Company's
acceptance for payment of an aggregate of $114,975,000 principal amount of
its 9 5/8% Senior Subordinated Notes due 2002, Series A and an aggregate of
$99,893,000 principal amount of its 10 3/4% Senior Subordinated Notes due
2004 pursuant to cash tender offers;
(i) The Company's Current Report on Form 8-K dated July 6, 1997 reporting
the execution of the Agreement and Plan of Merger among the Company, IHS
Acquisition XXIV, Inc. and RoTech Medical Corporation
("RoTech");
(j) The Company's Current Report on Form 8-K dated September 9, 1997
reporting the Company's agreement to issue privately an aggregate of $500
million principal amount of its 9 1/4% Senior Subordinated Notes due 2008
(the "9 1/4% Senior Notes");
(k) The Company's Current Report on Form 8-K dated September 15, 1997, as
amended, reporting the Company's $1.75 billion revolving credit and term loan
facility (the "New Credit Facility");
(l) The Company's Current Report on Form 8-K dated September 25, 1997, as
amended, reporting the Company's acquisition of Community Care of America,
Inc. and the Lithotripsy Division of Coram;
(m) The Company's Current Report on Form 8-K dated October 21, 1997, as
amended, reporting the Company's acquisition of RoTech;
(n) The Company's Current Report on Form 8-K dated November 3, 1997, as
amended, reporting the Company's agreement to purchase 139 owned, leased or
managed long-term care facilities, 12 specialty hospitals and certain other
businesses from HEALTHSOUTH Corporation;
(o) The description of the Company's Common Stock contained in Item 1 of
the Company's Registration Statement on Form 8-A dated September 1, 1993; and
(p) The description of the Company's Preferred Stock Purchase Rights
contained in Item 1 of the Company's Registration Statement on Form 8-A dated
September 28, 1995.
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All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the filing of a post-effective amendment which indicates that all
Shares offered have been sold or which deregisters all Shares then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained herein or in a previously filed document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or was deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The information relating to IHS contained in this Prospectus should be read
together with the information in the documents incorporated by reference.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO
INTEGRATED HEALTH SERVICES, INC., 10065 RED RUN BOULEVARD, OWINGS MILLS,
MARYLAND 21117, ATTENTION: MARC B. LEVIN, EXECUTIVE VICE PRESIDENT-INVESTOR
RELATIONS, TELEPHONE: (410) 998-8400.
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THE COMPANY
Integrated Health Services, Inc. ("IHS" or the "Company") is one of the
nation's leading providers of post-acute healthcare services. Post-acute care is
the provision of a continuum of care to patients following discharge from an
acute care hospital. IHS' post-acute care services include subacute care, home
care, skilled nursing facility care and inpatient and outpatient rehabilitation,
hospice and diagnostic services. The Company's post-acute care network is
designed to address the fact that the cost containment measures implemented by
private insurers and managed care organizations and limitations on government
reimbursement of hospital costs have resulted in the discharge from hospitals of
many patients who continue to require medical and rehabilitative care. The
Company's post-acute healthcare system is intended to provide cost-effective
continuity of care for its patients in multiple settings and enable payors to
contract with one provider to provide all of a patient's needs following
discharge from acute care hospitals. The Company believes that its post-acute
care network can be extended beyond post-acute care to also provide "pre-acute"
care, i.e., services to patients which reduce the likelihood of a need for a
hospital stay. IHS' post-acute care network currently consists of approximately
1,900 service locations in 47 states and the District of Columbia.
The Company's post-acute care network strategy is to provide cost-effective
continuity of care for its patients in multiple settings, using geriatric care
facilities as platforms to provide a wide variety of subacute medical and
rehabilitative services more typically delivered in the acute care hospital
setting and using home healthcare to provide those medical and rehabilitative
services which do not require 24-hour monitoring. To implement its post-acute
care network strategy, the Company has focused on (i) expanding the range of
home healthcare and related services it offers to patients directly in order to
provide patients with a continuum of care throughout their recovery, to better
control costs and to meet the growing desire by payors for one-stop shopping;
(ii) developing market concentration for its post-acute care services in
targeted states due to increasing payor consolidation and the increased
preference of payors, physicians and patients for dealing with only one service
provider; and (iii) developing subacute care units. Given the increasing
importance of managed care in the healthcare marketplace and the continued cost
containment pressures from Medicare, Medicaid and private payors, IHS has been
restructuring its operations to enable IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. IHS' strategy is
to become a preferred or exclusive provider of post-acute care services to
managed care organizations and other payors.
In implementing its post-acute care network strategy, the Company has
recently focused on expanding its home healthcare services to take advantage of
healthcare payors' increasing focus on having healthcare provided in the lowest
cost setting possible, recent advances in medical technology which have
facilitated the delivery of medical services in alternative sites and patients'
desires to be treated at home. Consistent with the Company's strategy, the
Company in October 1996 acquired (the "First American Acquisition") First
American Health Care of Georgia, Inc. ("First American"), a provider of home
health services, principally home nursing, in 21 states, primarily Alabama,
California, Florida, Georgia, Michigan, Pennsylvania and Tennessee. IHS in
October 1997 acquired RoTech Medical Corporation ("RoTech"), a provider of home
healthcare products and services, with an emphasis on home respiratory, home
medical equipment and infusion therapy, principally to patients in non-urban
areas (the "RoTech Acquisition"). In October 1997, IHS also acquired (the "Coram
Lithotripsy Acquisition") the lithotripsy division (the "Coram Lithotripsy
Division") of Coram, which provides lithotripsy services and equipment
maintenance in 180 locations in 18 states, in order to expand the mobile
diagnostic treatment and services it offers to patients, payors and other
providers. Lithotripsy is a non-invasive technique that utilizes shock waves to
disintegrate kidney stones. IHS intends to use the home healthcare setting and
the delivery franchise of its home healthcare branch and agency network to (i)
deliver sophisticated care, such as skilled nursing care, home infusion therapy
and rehabilitation, outside the hospital or nursing home; (ii) serve as an entry
point for patients into the IHS post-acute care network; and (iii) provide a
cost-effective site for case management and patient direction.
IHS has also continued to expand its post-acute care network by increasing
the number of facilities it operates or manages. In September 1997, IHS acquired
Community Care of America, Inc. ("CCA"), which develops and operates skilled
nursing facilities in medically underserved rural communities (the
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"CCA Acquisition"). IHS believes that CCA will broaden its post-acute care
network to include more rural markets and will complement its existing home care
locations in rural markets as well as RoTech's business. In addition, in
November 1997, IHS agreed to acquire from HEALTHSOUTH Corporation
("HEALTHSOUTH") 139 owned, leased or managed long-term care facilities and 12
specialty hospitals, as well as a contract therapy business having over 1,000
contracts and an institutional pharmacy business serving approximately 38,000
beds (the "Proposed Facility Acquisition").
The Company provides subacute care through medical specialty units
("MSUs"), which are typically 20 to 75 bed specialty units with physical
identities, specialized medical technology and staffs separate from the
geriatric care facilities in which they are located. MSUs are designed to
provide comprehensive medical services to patients who have been discharged from
acute care hospitals but who still require subacute or complex medical
treatment. The levels and quality of care provided in the Company's MSUs are
similar to those provided in the hospital but at per diem treatment costs which
the Company believes are generally 30% to 60% below the cost of such care in
acute care hospitals. Because of the high level of specialized care provided,
the Company's MSUs generate substantially higher net revenue and operating
profit per patient day than traditional geriatric care services.
The Company presently operates 216 geriatric care facilities (169 owned or
leased and 47 managed), including the facilities acquired in the CCA Acquisition
(of which 19 facilities are being held for sale), and 158 MSUs located within 84
of these facilities. Specialty medical services revenues, which include all MSU
charges, all revenue from providing rehabilitative therapies, pharmaceuticals,
medical supplies and durable medical equipment to all its patients, all revenue
from its Alzheimer's programs and all revenue from its provision of pharmacy,
rehabilitation therapy, home healthcare, hospice care and similar services to
third-parties, constituted approximately 57%, 65% and 70% of net revenues during
the years ended December 31, 1994, 1995 and 1996, respectively. The Company also
offers a wide range of basic medical services as well as a comprehensive array
of respiratory, physical, speech, occupational and physiatric therapy in all its
geriatric care facilities. For the year ended December 31, 1996, approximately
17% of IHS' revenues were derived from home health and hospice care,
approximately 53% were derived from subacute and other ancillary services,
approximately 27% were derived from basic nursing home services and the
remaining approximately 3% were derived from management and other services. On a
pro forma basis after giving effect to the acquisition of First American and the
RoTech Acquisition, for the year ended December 31, 1996, approximately 44% of
IHS' revenues were derived from home health and hospice care, approximately 36%
were derived from subacute and other ancillary services, approximately 18% were
derived from traditional basic nursing home services and the remaining
approximately 2% were derived from management and other services.
Integrated Health Services, Inc. was incorporated in March 1986 as a
Pennsylvania corporation and reorganized as a Delaware corporation in November
1986. IHS' principal executive offices are located at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 and its telephone number is (410) 998-8400. Unless
the context indicates otherwise, the term "IHS" includes Integrated Health
Services, Inc. and its subsidiaries.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed elsewhere in this Prospectus.
RISKS RELATED TO SUBSTANTIAL INDEBTEDNESS
The Company's indebtedness is substantial in relation to its stockholders'
equity. At September 30, 1997, IHS' total long-term debt, including current
portion, accounted for 77.8% of its total capitalization. IHS also has
significant lease obligations with respect to the facilities operated pursuant
to long-term leases, which aggregated approximately $200.3 million at September
30, 1997. For the year ended December 31, 1996 and the nine months ended
September 30, 1997, the Company's rent expense was $77.8 million ($84.5 million
on a pro forma basis after giving effect to the First American Acquisition, the
sale by IHS of a majority interest in its assisted living services subsidiary in
October 1996 (the "ILC Offering"), the sale by IHS of its pharmacy division in
July 1996 (the "Pharmacy Sale"), the CCA Acquisition, the Coram Lithotripsy
Acquisition, the RoTech Acquisition and certain other acquisitions consummated
in 1996 and 1997) and $75.3 million ($81.6 million on a pro forma basis after
giving effect to the CCA Acquisition, the Coram Lithotripsy Acquisition, the
RoTech Acquisition and certain other acquisitions consummated in 1997),
respectively. In addition, IHS is obligated to pay up to an additional $155
million in respect of the acquisition of First American during 2000 to 2004
under certain circumstances, of which $36.1 million has been recorded at
September 30, 1997. The Company's strategy of expanding its specialty medical
services and growing through acquisitions may require additional borrowings in
order to finance working capital, capital expenditures and the purchase price of
any acquisitions. The degree to which the Company is leveraged, as well as its
rent expense, could have important consequences to stockholders, including: (i)
IHS' ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired, (ii) a substantial portion of IHS' cash flow from operations may be
dedicated to the payment of principal and interest on its indebtedness and rent
expense, thereby reducing the funds available to IHS for its operations, (iii)
certain of IHS' borrowings bear, and will continue to bear, variable rates of
interest, which expose IHS to increases in interest rates, and (iv) certain of
IHS' indebtedness contains financial and other restrictive covenants, including
those restricting the incurrence of additional indebtedness, the creation of
liens, the payment of dividends and sales of assets and imposing minimum net
worth requirements. In addition, IHS' leverage may also adversely affect IHS'
ability to respond to changing business and economic conditions or continue its
growth strategy. There can be no assurance that IHS' operating results will be
sufficient for the payment of IHS' indebtedness. If IHS were unable to meet
interest, principal or lease payments, or satisfy financial covenants, it could
be required to seek renegotiation of such payments and/or covenants or obtain
additional equity or debt financing. If additional funds are raised by issuing
equity securities, the Company's stockholders may experience dilution. Further,
such equity securities may have rights, preferences or privileges senior to
those of the Common Stock. To the extent IHS finances its activities with
additional debt, IHS may become subject to certain additional financial and
other covenants that may restrict its ability to pursue its growth strategy and
to pay dividends on the Common Stock. There can be no assurance that any such
efforts would be successful or timely or that the terms of any such financing or
refinancing would be acceptable to IHS. See "-- Risks Related to Capital
Requirements."
In connection with the offering of the 9 1/4% Senior Notes, Standard &
Poors ("S&P") confirmed its B rating of IHS' other subordinated debt
obligations, but with a negative outlook, and assigned the same rating to the 9
1/4% Senior Notes. S&P stated that the Company's speculative-grade ratings
reflect the Company's aggressive transition toward becoming a full-service
alternate-site healthcare provider, and its limited cash flow relative to its
heavy debt burden. S&P noted that IHS would be greatly challenged to control,
integrate and further expand operations that were only a quarter of their
current size just three years ago, and also noted the continuing uncertainty
with regard to the adequacy of reimburse-
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ment from government sponsored programs for the indigent and elderly. S&P also
noted that there is the potential that a large debt-financed acquisition could
lead to a ratings downgrade. In November 1997, S&P placed the Company's senior
credit and subordinated debt ratings on CreditWatch with negative implications
due to the Proposed Facility Acquisition. In connection with the offering of the
9 1/4% Senior Notes, Moody's Investors Service ("Moody's") downgraded to B2 the
Company's other senior subordinated debt obligations, but noted that the outlook
for the rating was stable, and assigned the new rating to the 9 1/4% Senior
Notes. Moody's stated that the rating action reflects Moody's concern about the
Company's continued rapid growth through acquisitions, which has resulted in
negative tangible equity of $114 million, making no adjustment for the $259
million of convertible debt of IHS outstanding. Moody's also stated that the
availability provided by the New Credit Facility and the 9 1/4% Senior Notes
positioned the Company to complete sizable acquisition transactions using solely
debt. Moody's further noted that the rating reflects that there are significant
changes underway in the reimbursement of services rendered by IHS, and that the
exact impact of these changes is uncertain.
RISKS ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS AND INTERNAL DEVELOPMENT
IHS' growth strategy involves growth through acquisitions and internal
development and, as a result, IHS is subject to various risks associated with
this growth strategy. The Company's planned expansion and growth require that
the Company expand its home healthcare services through the acquisition of
additional home healthcare providers and that the Company acquire, or establish
relationships with, third parties which provide post-acute care services not
currently provided by the Company, that additional MSUs be established in the
Company's existing facilities and that the Company acquire, lease or acquire the
right to manage for others additional facilities in which MSUs can be
established. Such expansion and growth will depend on the Company's ability to
create demand for its post-acute care programs, the availability of suitable
acquisition, lease or management candidates and the Company's ability to finance
such acquisitions and growth. The successful implementation of the Company's
post-acute healthcare system, including the capitation of rates, will depend on
the Company's ability to expand the amount of post-acute care services it offers
directly to its patients rather than through third-party providers. There can be
no assurance that suitable acquisition candidates will be located, that
acquisitions can be consummated, that acquired facilities and companies can be
successfully integrated into the Company's operations, that MSUs can be
successfully established in acquired facilities or that the Company's post-acute
healthcare system, including the capitation of rates, can be successfully
implemented. The post-acute care market is highly competitive, and the Company
faces substantial competition from hospitals, subacute care providers,
rehabilitation providers and home healthcare providers, including competition
for acquisitions. The Company anticipates that competition for acquisition
opportunities will intensify due to the ongoing consolidation in the healthcare
industry. See "-- Risks Related to Managed Care Strategy" and "-- Competition."
The successful integration of acquired businesses, including First
American, RoTech, CCA and the Coram Lithotripsy Division and, if the Proposed
Facility Acquisition is consummated, the facilities and other businesses
acquired from HEALTHSOUTH, is important to the Company's future financial
performance. The anticipated benefits from any of these acquisitions may not be
achieved unless the operations of the acquired businesses are successfully
combined with those of the Company in a timely manner. The integration of the
Company's recent acquisitions, including, if the Proposed Facility Acquisition
is consummated, the facilities and other businesses acquired from HEALTHSOUTH,
will require substantial attention from management. The diversion of the
attention of management, and any difficulties encountered in the transition
process, could have a material adverse effect on the Company's operations and
financial results. In addition, the process of integrating the various
businesses could cause the interruption of, or a loss of momentum in, the
activities of some or all of these businesses, which could have a material
adverse effect on the Company's operations and financial results. There can be
no assurance that the Company will realize any of the anticipated benefits from
its acquisitions. The acquisition of service companies that are not profitable,
or the acquisition of new facilities that result in significant integration
costs and inefficiencies, could also adversely affect the Company's
profitability.
IHS' current and anticipated future growth has placed, and will continue to
place, significant demands on the management, operational and financial
resources of IHS. IHS' ability to manage its growth
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effectively will require it to continue to improve its operational, financial
and management information systems and to continue to attract, train, motivate,
manage and retain key employees. There can be no assurance that IHS will be able
to manage its expanded operations effectively. See "-- Risks Related to Capital
Requirements."
There can be no assurance that the Company will be successful in
implementing its strategy or in responding to ongoing changes in the healthcare
industry which may require adjustments to its strategy. If IHS fails to
implement its strategy successfully or does not respond timely and adequately to
ongoing changes in the healthcare industry, the Company's business, financial
condition and results of operations will be materially adversely affected.
RISKS RELATED TO MANAGED CARE STRATEGY
Managed care payors and traditional indemnity insurers have experienced
pressure from their policyholders to curb or reduce the growth in premiums paid
to such organizations for healthcare services. This pressure has resulted in
demands on healthcare service providers to reduce their prices or to share in
the financial risk of providing care through alternate fee structures such as
capitation or fixed case rates. Given the increasing importance of managed care
in the healthcare marketplace and the continued cost containment pressures from
Medicare and Medicaid, IHS has been restructuring its operations to enable IHS
to focus on obtaining contracts with managed care organizations and to provide
capitated services. The Company believes that its home healthcare capabilities
will be an important component of its ability to provide services under
capitated and other alternate fee arrangements. However, to date there has been
limited demand among managed care organizations for post-acute care network
services, and there can be no assurance that demand for such services will
increase. Further, IHS has limited experience in providing services under
capitated and other alternate fee arrangements and setting the applicable rates.
Accordingly, there can be no assurance that the fees received by IHS will cover
the cost of services provided. If revenue for capitated services is insufficient
to cover the treatment costs, IHS' operating results could be adversely
affected. As a result, the success of IHS' managed care strategy will depend in
large part on its ability to increase demand for post-acute care services among
managed care organizations, to obtain favorable agreements with managed care
organizations and to manage effectively its operating and healthcare delivery
costs through various methods, including utilization management and competitive
pricing for purchased services. Additionally, there can be no assurance that
pricing pressures faced by healthcare providers will not have a material adverse
effect on the Company's business, results of operations and financial condition.
Further, pursuing a strategy focused on risk-sharing fee arrangements
entails certain regulatory risks. Many states impose restrictions on a service
provider's ability to provide capitated services unless it meets certain
financial criteria, and may view capitated fee arrangements as an insurance
activity, subjecting the entity accepting the capitated fee to regulation as an
insurance company rather than merely a licensed healthcare provider accepting a
business risk in connection with the manner in which it is charging for its
services. The laws governing risk-sharing fee arrangements for healthcare
service providers are evolving and are not certain at this time. If the
risk-sharing activities of IHS require licensure as an insurance company, there
can be no assurance that IHS could obtain or maintain the necessary licensure,
or that IHS would be able to meet any financial criteria imposed by a state. If
the Company were precluded from providing services under risk-sharing fee
arrangements, its managed care strategy would be adversely affected. See "--
Uncertainty of Government Regulation."
RISKS RELATED TO CAPITAL REQUIREMENTS
IHS' growth strategy requires substantial capital for the acquisition of
additional home healthcare and related service providers and geriatric care
facilities and the establishment of new, and expansion of existing, MSUs. The
effective integration, operation and expansion of the existing businesses will
also require substantial capital. The Company expects to finance new
acquisitions from a combination of funds from operations, borrowings under its
bank credit facility and the issuance of debt and equity securities. IHS may
raise additional capital through the issuance of long-term or short-term
indebtedness or the issuance of additional equity securities in private or
public transactions, at such times as manage-
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ment deems appropriate and the market allows. Any of such financings could
result in dilution of existing equity positions, increased interest and
amortization expense or decreased income to fund future expansion. There can be
no assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing businesses and operations can be obtained.
The Company's bank credit facility limits the Company's ability to make
acquisitions, and certain of the indentures under which the Company's
outstanding senior subordinated debt securities were issued limit the Company's
ability to incur additional indebtedness unless certain financial tests are met.
See "-- Risks Related to Substantial Indebtedness."
RISKS RELATED TO RECENT ACQUISITIONS AND THE PROPOSED FACILITY ACQUISITION
IHS has recently completed several major acquisitions, including the
acquisitions of First American, RoTech, CCA and the Coram Lithotripsy Division,
and is still in the process of integrating those acquired businesses. The IHS
Board of Directors and senior management of IHS face a significant challenge in
their efforts to integrate the acquired businesses, including First American,
RoTech, CCA and the Coram Lithotripsy Division and, if the Proposed Facility
Acquisition is consummated, the facilities and other businesses acquired from
HEALTHSOUTH. The dedication of management resources to such integration may
detract attention from the day-to-day business of IHS. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial costs associated with such
activities or that there will not be other material adverse effects of these
integration efforts. Further, there can be no assurance that management's
efforts to integrate the operations of IHS and newly acquired companies will be
successful or that the anticipated benefits of the recent acquisitions will be
fully realized.
IHS has recently expanded significantly its home healthcare operations.
During the year ended December 31, 1996 and the nine months ended September 30,
1996 and 1997, home healthcare accounted for approximately 16.3%, 8.1% and
32.1%, respectively, of IHS' total revenues. On a pro forma basis, after giving
effect to the acquisitions of First American (which derives substantially all
its revenues from Medicare), RoTech, CCA and the Coram Lithotripsy Division,
approximately 70.7%, 76.5% and 65.0% of IHS' home healthcare revenues were
derived from Medicare in the year ended December 31, 1996 and the nine months
ended September 30, 1996 and 1997, respectively. On a pro forma basis, after
giving effect to the acquisitions of First American, RoTech, CCA and the Coram
Lithotripsy Division, home nursing services accounted for approximately 64.2%,
67.0% and 55.1%, respectively, of IHS' home healthcare revenues in these
periods. Medicare has developed a national fee schedule for infusion therapy,
respiratory therapy and home medical equipment which provides reimbursement at
80% of the amount of any fee on the schedule. The remaining 20% is paid by other
third party payors (including Medicaid in the case of "medically indigent"
patients) or patients; with respect to home nursing, Medicare generally
reimburses for the cost (including a rate of return) of providing such services,
up to a regionally adjusted allowable maximum per visit and per discipline with
no fixed limit on the number of visits. There generally is no deductible or
coinsurance. As a result, there is no reward for efficiency, provided that costs
are below the cap, and traditional home healthcare services carry relatively low
margins. However, IHS expects that Medicare will implement a prospective payment
system for home nursing services in the next several years, and implementation
of a prospective payment system will be a critical element to the success of
IHS' expansion into home nursing services. Based upon prior legislative
proposals, IHS believes that a prospective payment system would most likely
provide a healthcare provider a predetermined rate for a given service, with
providers that have costs below the predetermined rate being entitled to keep
some or all of this difference. There can be no assurance that Medicare will
implement a prospective payment system for home nursing services in the next
several years or at all. The implementation of a prospective payment system will
require IHS to make contingent payments related to the First American
Acquisition of $155 million over a period of five years. In addition, the
Balanced Budget Act of 1997, enacted in August 1997, reduces the Medicare
national payment limits for oxygen and oxygen equipment used in home respiratory
therapy by 25% in 1998 and 30% (from 1997 levels) in 1999 and each subsequent
year. Approximately 22% of RoTech's total revenues for the year ended July 31,
1997 were derived from the provision of oxygen services to Medicare patients.
The
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inability of IHS to realize operating efficiencies and provide home healthcare
services at a cost below the established Medicare fee schedule could have a
material adverse effect on IHS' home healthcare operations and its post-acute
care network. See "-- Risk of Adverse Effect of Healthcare Reform."
RISKS RELATED TO HISTORICAL FINANCIAL PERFORMANCE OF FIRST AMERICAN
During the year ended December 31, 1995 and the nine months ended September
30, 1996, First American recorded a net loss of $110.4 million and $36.2
million, respectively. Numerous factors have affected First American's
performance and financial condition prior to its acquisition by IHS, including,
among others, high administrative costs and the settlement of claims for
reimbursement of certain overpayments and unallowable reimbursements under
Medicare (which settlement resulted in a reduction to patient service revenues
of $54.6 million for the year ended December 31, 1995 and $10.4 million for the
nine months ended September 30, 1996). In addition, in February 1996, in
response to the stoppage by the Health Care Financing Administration ("HCFA") of
its bi-weekly periodic interim payments ("PIP") to First American, First
American was forced to declare bankruptcy. In March 1996, the bankruptcy court
ordered HCFA to resume PIP payments to First American. However, the bankruptcy
filing and operation of First American in bankruptcy until its acquisition by
IHS adversely affected the business, results of operations and financial
condition of First American. There can be no assurance that these factors or the
First American bankruptcy will not continue to have an adverse effect on First
American's and IHS' business, financial condition and results of operations in
the future. There can be no assurance that the historical losses incurred by
First American will not continue.
RELIANCE ON REIMBURSEMENT BY THIRD PARTY PAYORS
The Company receives payment for services rendered to patients from private
insurers and patients themselves, from the Federal government under Medicare,
and from the states in which it operates under Medicaid. The healthcare industry
is experiencing a trend toward cost containment, as government and other third
party payors seek to impose lower reimbursement and utilization rates and
negotiate reduced payment schedules with service providers. These cost
containment measures, combined with the increasing influence of managed care
payors and competition for patients, has resulted in reduced rates of
reimbursement for services provided by IHS, which has adversely affected, and
may continue to adversely affect, IHS' margins, particularly in its skilled
nursing and subacute facilities. Aspects of certain healthcare reform proposals,
such as cutbacks in the Medicare and Medicaid programs, reductions in Medicare
reimbursement rates and/or limitations on reimbursement rate increases,
containment of healthcare costs on an interim basis by means that could include
a short-term freeze on prices charged by healthcare providers, and permitting
greater state flexibility in the administration of Medicaid, could adversely
affect the Company. See "-- Risk of Adverse Effect of Healthcare Reform." During
the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997, the Company derived approximately 56%, 55%, 60%,
57% and 66%, respectively, of its patient revenues from Medicare and Medicaid.
On a pro forma basis after giving effect to the acquisitions of First American
(which derives substantially all its revenues from Medicare), RoTech, CCA and
the Coram Lithotripsy Division and the ILC Offering,approximately 66.7%, 67.6%
and 64.2% of the Company's patient revenues have been derived from Medicare and
Medicaid during the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997, respectively.
The sources and amounts of the Company's patient revenues derived from the
operation of its geriatric care facilities and MSU programs are determined by a
number of factors, including licensed bed capacity of its facilities, occupancy
rate, the mix of patients and the rates of reimbursement among payor categories
(private, Medicare and Medicaid). Changes in the mix of the Company's patients
among the private pay, Medicare and Medicaid categories can significantly affect
the profitability of the Company's operations. The Company's cost of care for
its MSU patients generally exceeds regional reimbursement limits established
under Medicare. The success of the Company's MSU strategy will depend in part on
its ability to obtain per diem rate approvals for costs which exceed the
Medicare established per diem rate limits and by obtaining waivers of these
limitations. There can be no assurance that the Company will be able to obtain
the waivers necessary to enable the Company to recover its excess costs.
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Managed care organizations and other third party payors have continued to
consolidate to enhance their ability to influence the delivery of healthcare
services. Consequently, the healthcare needs of a large percentage of the United
States population are provided by a small number of managed care organizations
and third party payors. These organizations generally enter into service
agreements with a limited number of providers for needed services. To the extent
such organizations terminate IHS as a preferred provider and/or engage IHS'
competitors as a preferred or exclusive provider, the business of IHS could be
materially adversely affected.
RISK OF ADVERSE EFFECT OF HEALTHCARE REFORM
In addition to extensive existing government healthcare regulation, there
are numerous initiatives on the federal and state levels for comprehensive
reforms affecting the payment for and availability of healthcare services,
including a number of proposals that would significantly limit reimbursement
under Medicare and Medicaid. It is not clear at this time what proposals, if
any, will be adopted or, if adopted, what effect such proposals would have on
the Company's business. Aspects of certain of these healthcare proposals, such
as cutbacks in the Medicare and Medicaid programs, containment of healthcare
costs on an interim basis by means that could include a short-term freeze on
prices charged by healthcare providers, and permitting greater state flexibility
in the administration of Medicaid, could adversely affect the Company. In
addition, there have been proposals to convert the current cost reimbursement
system for home nursing services covered under Medicare to a prospective payment
system. The prospective payment system proposals generally provide for
prospectively established per visit payments to be made for all covered
services, which are then subject to an annual aggregate per episode limit at the
end of the year. Home health agencies that are able to keep their total expenses
per visit during the year below their per episode annual limits will be able to
retain a specified percentage of the difference, subject to certain aggregate
limitations. Such changes could have a material adverse effect on the Company
and its growth strategy. The implementation of a prospective payment system will
require the Company to make contingent payments related to the First American
Acquisition of $155 million over a period of five years. The inability of IHS to
provide home healthcare and/or skilled nursing services at a cost below the
established Medicare fee schedule could have a material adverse effect on IHS'
home healthcare operations, post-acute care network and business generally. The
Balanced Budget Act of 1997, enacted in August 1997, provides, among other
things, for a prospective payment system for home nursing to be implemented for
cost reporting periods beginning on or after October 1, 1999, a reduction in
current cost reimbursement for home healthcare pending implementation of a
prospective payment system, reductions (effective January 1, 1998) in Medicare
reimbursement for oxygen and oxygen equipment for home respiratory therapy and a
shift of the bulk of home health coverage from Part A to Part B of Medicare. The
failure to implement a prospective payment system for home nursing services in
the next several years could adversely affect IHS' post-acute care network
strategy. IHS expects that there will continue to be numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including proposals that will further limit
reimbursement under Medicare and Medicaid. It is not clear at this time what
proposals, if any, will be adopted or, if adopted, what effect such proposals
will have on IHS' business. See "-- Risks Related to Recent Acquisitions and the
Proposed Facility Acquisition" and "-- Reliance on Reimbursement by Third Party
Payors." There can be no assurance that currently proposed or future healthcare
legislation or other changes in the administration or interpretation of
governmental healthcare programs will not have an adverse effect on the Company
or that payments under governmental programs will remain at levels comparable to
present levels or will be sufficient to cover the costs allocable to patients
eligible for reimbursement pursuant to such programs. Concern about the
potential effects of the proposed reform measures has contributed to the
volatility of prices of securities of companies in healthcare and related
industries, including the Company, and may similarly affect the price of the
Common Stock in the future. See "-- Uncertainty of Government Regulation."
UNCERTAINTY OF GOVERNMENT REGULATION
The Company and the healthcare industry generally are subject to extensive
federal, state and local regulation governing licensure and conduct of
operations at existing facilities, construction of new facilities, acquisition
of existing facilities, additions of new services, certain capital expenditures,
the quality
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of services provided and the manner in which such services are provided and
reimbursement for services rendered. Changes in applicable laws and regulations
or new interpretations of existing laws and regulations could have a material
adverse effect on licensure, eligibility for participation, permissible
activities, operating costs and the levels of reimbursement from governmental
and other sources. There can be no assurance that regulatory authorities will
not adopt changes or new interpretations of existing regulations that could
adversely affect the Company. The failure to maintain or renew any required
regulatory approvals or licenses could prevent the Company from offering
existing services or from obtaining reimbursement. In certain circumstances,
failure to comply at one facility may affect the ability of the Company to
obtain or maintain licenses or approvals under Medicare and Medicaid programs at
other facilities. In addition, in the conduct of its business the Company's
operations are subject to review by federal and state regulatory agencies. In
the course of these reviews, problems are from time to time identified by these
agencies. Although the Company has to date been able to resolve these problems
in a manner satisfactory to the regulatory agencies without a material adverse
effect on its business, there can be no assurance that it will be able to do so
in the future.
Recently effective provisions of the regulations adopted under the Omnibus
Budget Reconciliation Act of 1987 ("OBRA") have implemented stricter guidelines
for annual state surveys of long-term care facilities and expanded remedies
available to HCFA to enforce compliance with the detailed regulations mandating
minimum healthcare standards and may significantly affect the consequences to
the Company if annual or other HCFA facility surveys identify noncompliance with
these regulations. Remedies include fines, new patient admission moratoriums,
denial of reimbursement, federal or state monitoring of operations, closure of
facilities and termination of provider reimbursement agreements. These
provisions eliminate the ability of operators to appeal the scope and severity
of any deficiencies and grant state regulators the authority to impose new
remedies, including monetary penalties, denial of payments and termination of
the right to participate in the Medicare and/or Medicaid programs. The Company
believes these new guidelines may result in an increase in the number of
facilities that will not be in "substantial compliance" with the regulations
and, as a result, subject to increased disciplinary actions and remedies,
including admission holds and termination of the right to participate in the
Medicare and/or Medicaid programs. In ranking facilities, survey results
subsequent to October 1990 are considered. As a result, the Company's
acquisition of poorly performing facilities could adversely affect the Company's
business to the extent remedies are imposed at such facilities.
In September 1997, President Clinton, in an attempt to curb Medicare fraud,
imposed a moratorium on the certification under Medicare of new home healthcare
companies, which moratorium is expected to last approximately six months, and
implemented rules requiring home healthcare providers to reapply for Medicare
certification every three years. In addition, HCFA will double the number of
detailed audits of home healthcare providers it completes each year and increase
by 25% the number of home healthcare claims it reviews each year. IHS cannot
predict what effect, if any, these new rules will have on IHS' business and the
expansion of its home healthcare operations.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark Bills,"
which prohibit, with limited exceptions, financial relationships between
ancillary service providers and referring physicians, and the federal
"anti-kickback law," which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. The Office of Inspector General of the
Department of Health and Human Services, the Department of Justice and other
federal agencies interpret these fraud and abuse provisions liberally and
enforce them aggressively. Members of Congress have proposed legislation that
would significantly expand the federal government's involvement in curtailing
fraud and abuse and increase the monetary penalties for violation of these
provisions. In addition, some states restrict certain business relationships
between physicians and other providers of healthcare services. Many states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs (including Medi-
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care and Medicaid), asset forfeitures and civil and criminal penalties. These
laws vary from state to state, are often vague and have seldom been interpreted
by the courts or regulatory agencies. The Company seeks to structure its
business arrangements in compliance with these laws and, from time to time, the
Company has sought guidance as to the interpretation of such laws; however,
there can be no assurance that such laws ultimately will be interpreted in a
manner consistent with the practices of the Company.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain acquisitions
or capital expenditures in excess of defined levels and determine that a need
exists for certain new bed additions, new services and the acquisition of such
medical equipment or capital expenditures or other changes prior to beds and/or
services being added. Many states have placed a moratorium on granting
additional certificates of need or otherwise stated their intent not to grant
approval for new beds. To the extent certificates of need or other similar
approvals are required for expansion of the Company's operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays in, and the expenses associated with, obtaining
such approvals.
The Company is unable to predict the future course of federal, state or
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "-- Risk of Adverse Effect of Healthcare Reform."
COMPETITION
The healthcare industry is highly competitive and is subject to continuing
changes in the provision of services and the selection and compensation of
providers. The Company competes on a local and regional basis with other
providers on the basis of the breadth and quality of its services, the quality
of its facilities and, to a more limited extent, price. The Company also
competes with other providers in the acquisition and development of additional
facilities and service providers. The Company's current and potential
competitors include national, regional and local operators of geriatric care
facilities, acute care hospitals and rehabilitation hospitals, extended care
centers, retirement centers and community home health agencies, other home
healthcare companies and similar institutions, many of which have significantly
greater financial and other resources than the Company. In addition, the Company
competes with a number of tax-exempt nonprofit organizations which can finance
acquisitions and capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to the Company. New service introductions
and enhancements, acquisitions, continued industry consolidation and the
development of strategic relationships by IHS' competitors could cause a
significant decline in sales or loss of market acceptance of IHS' services or
intense price competition or make IHS' services noncompetitive. Further,
technological advances in drug delivery systems and the development of new
medical treatments that cure certain complex diseases or reduce the need for
healthcare services could adversely impact the business of IHS. There can be no
assurance that IHS will be able to compete successfully against current or
future competitors or that competitive pressures will not have a material
adverse effect on IHS' business, financial condition and results of operations.
IHS also competes with various healthcare providers with respect to attracting
and retaining qualified management and other personnel. Any significant failure
by IHS to attract and retain qualified employees could have a material adverse
effect on its business, results of operations and financial condition.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
IHS' Third Restated Certificate of Incorporation and By-laws, as well as
the Delaware General Corporation Law (the "DGCL"), contain certain provisions
that could have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from attempting to acquire, control of
IHS. These provisions could limit the price that certain investors might be
willing to pay in the future for shares of Common Stock. Certain of these
provisions allow IHS to issue, without stockholder approval, preferred stock
having voting rights senior to those of the Common Stock. Other provisions
impose various procedural and other requirements that could make it more
difficult for stockholders to effect
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certain corporate actions. In addition, the IHS Stockholders' Rights Plan, which
provides for discount purchase rights to certain stockholders of IHS upon
certain acquisitions of 20% or more of the outstanding shares of Common Stock,
may also inhibit a change in control of IHS. As a Delaware corporation, IHS is
subject to Section 203 of the DGCL, which, in general, prevents an "interested
stockholder" (defined generally as a person owning 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) for three years following the date such person became
an interested stockholder unless certain conditions are satisfied.
POSSIBLE VOLATILITY OF STOCK PRICE
There may be significant volatility in the market price of the Common
Stock. Quarterly operating results of IHS, changes in general conditions in the
economy, the financial markets or the healthcare industry, or other developments
affecting IHS or its competitors, could cause the market price of the Common
Stock to fluctuate substantially. In addition, in recent years the stock market
and, in particular, the healthcare industry segment, has experienced significant
price and volume fluctuations. This volatility has affected the market price of
securities issued by many companies for reasons unrelated to their operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class action litigation has often been
initiated against such company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect upon IHS' business, operating results and financial
condition.
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RECENT DEVELOPMENTS
PROPOSED FACILITY ACQUISITION
On November 3, 1997, IHS and HEALTHSOUTH entered into an agreement pursuant
to which IHS agreed to acquire from HEALTHSOUTH 139 owned, leased or managed
long-term care facilities, 12 specialty hospitals, a contract therapy business
having over 1,000 contracts and an institutional pharmacy business serving
approximately 38,000 beds. The businesses being acquired, which had annual
revenues of approximately $925 million for the 12 months ended August 31, 1997,
were acquired by HEALTHSOUTH in its recent acquisition of Horizon/CMS Healthcare
Corporation.
Under the terms of the agreement, IHS will pay $1.15 billion in cash and
assume approximately $100 million in debt. IHS will fund the purchase price with
available cash from term loan borrowings under the New Credit Facility and the
sale of the 9 1/4% Senior Notes and borrowings under the revolving credit
portion of the New Credit Facility. On a pro forma basis after giving effect to
the acquisition of these businesses from HEALTHSOUTH, the RoTech Acquisition and
the Coram Lithotripsy Acquisition, IHS' total debt, including current portion,
accounted for approximately 74% of its total pro forma capitalization as of
September 30, 1997. Consummation of the transaction, which is expected to close
by December 31, 1997, is subject to, among other things, receipt of required
regulatory approvals, consent of IHS' senior lenders and other customary
conditions. IHS has deposited with HEALTHSOUTH $50 million, which amount will be
credited against the purchase price at the closing or retained by HEALTHSOUTH
under certain circumstances if the transaction is not consummated.
There can be no assurance that this transaction will close on these terms,
on different terms or at all.
NEW CREDIT FACILITY
On September 15, 1997, the Company entered into a $1.75 billion revolving
credit and term loan facility with Citibank, N.A., as Administrative Agent, and
certain other lenders (the "New Credit Facility") to replace its existing $700
million revolving credit facility. The New Credit Facility consists of a $750
million term loan facility (the "Term Facility") and a $1 billion revolving
credit facility, including a $100 million letter of credit subfacility and a $10
million swing line subfacility (the "Revolving Facility"). The Term Facility,
all of which was borrowed on September 17, 1997, matures on September 30, 2004
and will be amortized beginning December 31, 1998 as follows: 1998 -- $7.5
million; each of 1999, 2000, 2001 and 2002 -- $7.5 million (payable in equal
quarterly installments); 2003 -- $337.5 million (payable in equal quarterly
installments); and 2004 -- $375 million (payable in equal quarterly
installments). Any unpaid balance will be due on the maturity date. The Term
Facility bears interest at a rate equal to, at the option of IHS, either (i) in
the case of Eurodollar loans, the sum of (x) one and three-quarters percent or
two percent (depending on the ratio of the Company's Debt (as defined in the New
Credit Facility) to earnings before interest, taxes, depreciation, amortization
and rent, pro forma for any acquisitions or divestitures during the measurement
period (the "Debt/EBITDAR Ratio")) and (y) the interest rate in the London
interbank market for loans in an amount substantially equal to the amount of
borrowing and for the period of borrowing selected by IHS or (ii) the sum of (a)
the higher of (1) Citibank, N.A.'s base rate or (2) one percent plus the latest
overnight federal funds rate plus (b) a margin of one-half percent or
three-quarters of one percent (depending on the Debt/EBITDAR Ratio). The Term
Facility can be prepaid at any time in whole or in part without penalty.
The Revolving Facility will reduce to $800 million on September 30, 2001
and $500 million on September 30, 2002, with a final maturity on September 15,
2004; however, the $100 million letter of credit subfacility and $10 million
swing line subfacility will remain at $100 million and $10 million,
respectively, until final maturity. The Revolving Facility bears interest at a
rate equal to, at the option of IHS, either (i) in the case of Eurodollar loans,
the sum of (x) between three-quarters of one percent and one and three-quarters
percent (depending on the Debt/EBITDAR Ratio) and (y) the interest rate in the
London interbank market for loans in an amount substantially equal to the amount
of borrowing and for the period of borrowing selected by IHS or (ii) the sum of
(a) the higher of (1) Citibank, N.A.'s
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base rate or (2) one percent plus the latest overnight federal funds rate plus
(b) a margin of between zero percent and one-half percent (depending on the
Debt/EBITDAR Ratio). Amounts repaid under the Revolving Facility may be
reborrowed prior to the maturity date.
The New Credit Facility limits IHS' ability to incur indebtedness or
contingent obligations, to make additional acquisitions, to sell or dispose of
assets, to create or incur liens on assets, to pay dividends, to purchase or
redeem IHS' stock and to merge or consolidate with any other person. In
addition, the New Credit Facility requires that IHS meet certain financial
ratios, and provides the banks with the right to require the payment of all
amounts outstanding under the facility, and to terminate all commitments under
the facility, if there is a change in control of IHS or if any person other than
Dr. Robert N. Elkins, IHS' Chairman and Chief Executive Officer, or a group
managed by Dr. Elkins, owns more than 40% of IHS' stock. The New Credit Facility
is guaranteed by all of IHS' subsidiaries (other than inactive subsidiaries) and
secured by a pledge of all of the stock of substantially all of IHS'
subsidiaries.
The New Credit Facility replaced the Company's $700 million revolving
credit facility (the "Prior Credit Facility"). As a result, the Company recorded
an extraordinary loss on extinguishment of debt of approximately $2.4 million
(net of related tax benefit of approximately $1.5 million) in the third quarter
of 1997 resulting from the write-off of deferred financing costs of $3.9 million
related to the Prior Credit Facility.
RECENT ACQUISITIONS
RoTech Acquisition. On October 21, 1997, IHS acquired RoTech through merger
of a wholly-owned subsidiary of IHS into RoTech (the "RoTech Merger"), with
RoTech becoming a wholly-owned subsidiary of IHS. RoTech provides home
healthcare products and services, with an emphasis on home respiratory, home
medical equipment and infusion therapy, primarily to patients in non-urban
areas. RoTech currently operates 613 home health locations in 35 states and
approximately 26 primary care physicians practices. According to RoTech's
filings with the Commission, RoTech had revenues of $422.7 million, earnings
before interest, taxes, depreciation and amortization ("EBITDA") of $108.2
million and net income of $30.8 million for the fiscal year ended July 31, 1997.
Under the terms of the RoTech Merger, holders of RoTech common stock
("RoTech Common Stock") received for each share of RoTech Common Stock 0.5806 of
a share of Common Stock of the Company (the "Exchange Ratio"), having a market
value of $19.16 based on the $33.00 closing price of the Common Stock on October
21, 1997, the effective date of the RoTech Merger. Options to purchase RoTech
Common Stock ("RoTech Options") were converted at the closing into options to
purchase Common Stock of the Company based on the Exchange Ratio. IHS issued
approximately 15,598,400 shares of Common Stock in the RoTech Merger, and
reserved for issuance approximately 1,841,700 shares of Common Stock issuable
upon exercise of RoTech Options. In addition, RoTech's outstanding $110 million
of convertible subordinated debentures (the "RoTech Debentures") became
convertible into approximately 2,433,000 shares of Common Stock of the Company
at a conversion price of $45.21 per share of Common Stock. At October 20, 1997,
IHS had outstanding 26,852,396 shares of Common Stock. At September 30, 1997,
IHS had outstanding options and warrants to purchase approximately 9,000,000
shares of Common Stock, and had reserved for issuance 7,989,275 shares upon
conversion of $258,750,000 principal amount of outstanding convertible
debentures. The RoTech Merger consideration aggregated approximately $514.8
million, substantially all of which will be recorded as goodwill. The
transaction will be treated as a purchase for accounting and financial reporting
purposes.
IHS repaid the $199.7 million of RoTech bank debt assumed in the
transaction with the proceeds of the term loans under its New Credit Facility.
Under the terms of the indenture under which the RoTech Debentures were issued,
RoTech was obligated to offer to repurchase the RoTech Debentures at a purchase
price equal to 100% of the aggregate principal amount thereof immediately
following the RoTech Merger. Holders of $107,836,000 principal amount of the
RoTech Debentures accepted the repurchase offer; $2,164,000 principal amount of
RoTech Debentures, convertible into approximately 47,865 shares of Common Stock,
remains outstanding. IHS used the proceeds of the term loans under its New
Credit Facility and the proceeds from the sale of the 9 1/4% Senior Notes to
make a capital contribution to RoTech in the amount necessary to enable RoTech
to finance the repurchase of the RoTech Debentures.
17
<PAGE>
Coram Lithotripsy Acquisition. IHS acquired, effective September 30, 1997,
substantially all of the assets of Coram's Lithotripsy Division, which operates
20 mobile lithotripsy units and 13 fixed-site machines in 180 locations in 18
states. The Coram Lithotripsy Division also provides maintenance services to its
own and third-party equipment. Lithotripsy is a non-invasive technique that
utilizes shock waves to disintegrate kidney stones.
IHS paid approximately $131.0 million in cash for the Coram Lithotripsy
Division, including the payment of $1.0 million of intercompany debt to Coram.
The Coram Lithotripsy Division had revenues of $49.0 million and EBITDA of $28.8
million (before minority interest) for the year ended December 31, 1996 and
revenues of $23.9 million and EBITDA of $14.3 million (before minority interest)
for the six months ended June 30, 1997.
IHS has assumed Coram's agreements with its lithotripsy partners, which
contemplate that IHS will acquire the remaining interest in each partnership at
a defined price in the event that legislation is passed or regulations are
adopted or interpreted that would prevent the physician partners from owning an
interest in the partnership and using the partnership's lithotripsy equipment
for the treatment of his or her patients. Coram has represented to IHS that its
partnership arrangements with physicians in its lithotripsy business are in
compliance with current law.
Within the last three years, HCFA released a proposed rule defining the
rate at which ambulatory surgery centers and certain hospitals would be
reimbursed for the technical component of a lithotripsy procedure. This proposed
rule has not been finalized. IHS cannot predict what the final rate for such
reimbursement will be or what effect, if any, the adoption of this proposed rule
would have on lithotripsy revenue and whether this decreased reimbursement rate
will be applied to lithotripsy procedures performed at hospitals, where a
majority of IHS' lithotripsy machines are currently utilized.
CCA Acquisition. On September 25, 1997, the Company acquired, through a
cash tender offer and subsequent merger, CCA for a purchase price of
approximately $34.3 million in cash. In addition, in connection with the CCA
Acquisition IHS repaid approximately $58.5 million of indebtedness assumed in
the CCA Acquisition (including restructuring fees of $4.9 million) with the
proceeds of the term loans under its New Credit Facility and assumed
approximately $27.0 million of indebtedness. CCA develops and operates skilled
nursing facilities in medically underserved rural communities. CCA currently
operates 54 licensed long-term care facilities with 4,450 licensed beds (of
which 19 facilities are being held for sale), one rural healthcare clinic, two
outpatient rehabilitation centers (one of which is being held for sale), one
child day care center and 124 assisted living units within seven of the
facilities which CCA operates. CCA currently operates in Alabama, Colorado,
Florida, Georgia, Iowa, Kansas, Louisiana, Maine, Missouri, Nebraska, Texas and
Wyoming. According to CCA's filings with the Commission, CCA had revenues of
$127.5 million, EBITDA of $2.1 million and a net loss of $18.9 million for the
year ended December 31, 1996 and revenues of $65.5 million, EBITDA of $4.0
million and a net loss of $2.4 million for the six months ended June 30, 1997.
Dr. Robert N. Elkins, Chairman of the Board and Chief Executive Officer of IHS,
beneficially owned approximately 21.0% of CCA's outstanding common stock
(excluding warrants owned by IHS to purchase approximately 13.5% of CCA's common
stock).
OTHER ACQUISITIONS AND DIVESTITURES
The Company continues to acquire and lease additional geriatric care
facilities, enter into new management agreements, acquire rehabilitation, home
healthcare and related service companies and implement its strategy of expanding
the range of related services it offers directly to its patients in order to
serve the full spectrum of patients' post-acute care needs. See "Risk Factors --
Risks Associated with Growth Through Acquisitions and Internal Development."
From January 1 through October 31, 1997, IHS has, in addition to the
acquisitions described above, acquired nine home healthcare companies, five
mobile diagnostic companies and two rehabilitation companies and a home infusion
company. The total cost for these acquisitions was approximately $115.1 million.
In July 1997, IHS sold its remaining 37% interest in its assisted living
services subsidiary pursuant to a cash tender offer. IHS recognized a gain of
approximately $4.6 million during the third quarter of 1997 as a result of this
transaction. IHS has reached agreements-in-principle to purchase three mobile
diagnostic companies
18
<PAGE>
for approximately $8.2 million, eight home health companies for approximately
$52.4 million, a rehabilitation company for approximately $11.1 million and a
lithotripsy company for approximately $11.2 million. IHS has also agreed in
principle to assume leases of three skilled nursing facility companies for $73.1
million. There can be no assurance that any of these pending acquisitions will
be consummated on the proposed terms, on different terms or at all.
In developing its post-acute healthcare system, IHS continuously evaluates
whether owning and operating businesses which provide certain ancillary
services, or contracting with third parties for such services, is more
cost-effective. As a result, the Company is continuously evaluating its existing
operations to determine whether to retain or divest operations. To date, IHS has
divested its pharmacy division and its assisted living services division, and
may divest additional divisions or assets in the future.
SALE OF 9 1/4% SENIOR SUBORDINATED NOTES DUE 2008
On September 11, 1997, IHS sold privately an aggregate of $500 million
principal amount of its 9 1/4% Senior Subordinated Notes due 2008 to Smith
Barney Inc., Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Citicorp Securities, Inc. (the "9 1/4% Initial
Purchasers"). The 9 1/4% Senior Notes were subsequently resold by the 9 1/4%
Initial Purchasers pursuant to Rule 144A under the Securities Act. IHS used
approximately $319.5 million of the net proceeds to repay all amounts
outstanding under the Company's Prior Credit Facility. The Company intends to
use the remaining approximately $166.9 million of net proceeds for general
corporate purposes, including working capital.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information as of October 27, 1997
(except as otherwise indicated) and as adjusted to reflect the sale of the
Common Stock in the offering, as to the security ownership of the Selling
Stockholders. Except as set forth below, none of the Selling Stockholders has
held any position or office or had any other material relationship with the
Company or any of its predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
AMBULATORY PHARMACEUTICAL SERVICES, INC.(1)
Gigi Jordan .............................. 473,510 473,510 0
APS AMERICA, INC.(2)
Raymond A. Mirra, Jr. .................. 21,730 21,730 0
James Kuo .............................. 14,683 14,683 0
Edward Kramm ........................... 15,270 15,270 0
Sirrom Capital Corporation ............... 7,047 7,047 0
ARCADIA SERVICES, INC.(3)
Dale G. Rands ........................... 356 356 0
Joseph F. Galvin ........................ 356 356 0
Stuart Sinai ........................... 356 356 0
Ronald H. Riback ........................ 356 356 0
James C. Foresman ........................ 356 356 0
Lawrence N. Dudek ........................ 178 178 0
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
Phillip J. Shefferly .............................. 178 178 0
David B. Gunsberg ................................. 178 178 0
David J. Gould and Laura M. Gould, joint tenants
with rights of survivorship ...................... 178 178 0
Howard Zoller and Beth Zoller, joint tenants with
rights of survivorship .......................... 178 178 0
Michael J. Eizelman and Shelley E. Eizelman, joint
tenants with rights of survivorship ............. 178 178 0
Robert J. Sandler ................................. 713 713 0
Herbert J. Graebner .............................. 139,564 139,564 0
Barbara Brewer .................................... 6,303 6,303 0
Leonard E. Bellinson, Trustee for Leonard E.
Bellinson Trust Dated 3/1/82 .................... 145,261 145,261 0
Lawrence S. Jackier Irrevocable Trust U/A/D 9/1/94. 356 356 0
Conbet Associates ................................. 16,807 16,807 0
Beth Elaine Lowenstein Trust U/A/D 7/30/92 ........ 8,403 8,403 0
Rita M. Lord .................................... 6,303 6,303 0
Jill Bader ....................................... 12,605 12,605 0
Charles Bader .................................... 12,605 12,605 0
James C. Foresman and Cheryl A. Busbey, Co-Trustees
of the Douglas E. Busbey Trust ................. 356 356 0
Robert M. Egren ................................. 485 485 0
Morris Rochlin .................................... 12,120 12,120 0
Nicholas J. Pyett ................................. 970 970 0
Lawrence S. Jackier, Trustee for Schlussel, Lifton,
Simon, Rands, Galvin & Jackier ................... 357 357 0
Cameron D. Hosner ................................. 10,714 10,714 0
James L. Bellinson .............................. 34,542 34,542 0
Gregory G. Glaesmer .............................. 4,363 4,363 0
Gerald Vargo .................................... 970 970 0
Arcadia Bidco Corporation ........................ 41,348 41,348 0
Mark E. Schlussel ................................. 356 356 0
Donald B. Lifton ................................. 356 356 0
Joel M. Shere .................................... 178 178 0
Daniel D. Swanson ................................. 178 178 0
Carol Simon ....................................... 356 356 0
CoreStates Bank, N.A., as Escrow Agent ............ 71,777 71,777 0
Stephen P. Griggs(4) .............................. 1,363,545 750,000 613,545
</TABLE>
- ----------
(1) The shares offered hereby represent shares received in exchange for the
stock of Ambulatory Pharmaceutical Services, Inc. pursuant to the Stock
Purchase Agreement dated as of August 29, 1997.
(2) The shares offered hereby represent shares received in exchange for the
stock of APS America, Inc. pursuant to the Stock Purchase Agreement dated as
of August 29, 1997.
(3) The shares offered hereby represent shares received in exchange for the
stock of Arcadia Services, Inc. ("Arcadia") pursuant to the Agreement and
Plan of Reorganization dated as of July 24, 1997. Of the shares of Common
Stock being registered hereunder, 71,777 are currently being held in escrow
to secure indemnification obligations, accounts receivable with respect to a
litigated matter and merger consideration adjustments pursuant to the
Agreement and Plan of Reorganization. Merger consideration adjustments may
be based on a review of the working capital and long-term liabilities of
Arcadia as of the closing date, all on the terms set forth in the Agreement
and Plan of Reorganization.
(4) The shares offered hereby consist of shares issuable upon exercise of a
warrant (the "Warrant") issued to Mr. Griggs in connection with his entering
into an employment agreement with RoTech upon consummation of the RoTech
Acquisition. Of the 1,363,545 shares beneficially owned by Mr. Griggs, 1,261
are beneficially owned by his wife, 8,402 are beneficially owned by L&G of
Orlando, Inc., 110,372 shares are owned by Mr. Griggs, 493,510 shares are
issuable upon the exercise of options to purchase Common Stock at an average
exercise price of $23.98 per share and 750,000 shares are issuable upon
20
<PAGE>
exercise of the Warrant. The Warrant is exercisable at a price of $33.16 per
share of Common Stock (equal to the average closing sales price of the
Common Stock on the NYSE for the 15 business days prior to the closing date
of the RoTech Acquisition) and becomes exercisable at the rate of 20% per
year beginning on October 21, 1998 (subject to acceleration upon Mr. Griggs'
death or the occurrence of a change in control of IHS).
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
On August 29, 1997, the Company acquired all of the outstanding stock of
Ambulatory Pharmaceutical Services, Inc. ("Ambulatory"), a New Jersey
corporation which provides infusion services, including blood fractions services
and chronic infusion therapies. The purchase price was $34.25 million, including
$16.125 million paid through the issuance of 473,510 shares of the Company's
Common Stock (the "Ambulatory Shares"). The Ambulatory Shares are being offered
hereby.
On August 29, 1997, the Company acquired all of the outstanding stock of
APS America, Inc. ("APS"), a Delaware corporation which provides infusion
services, including blood fractions services and chronic infusion therapies. The
purchase price was $2.0 million, which was paid through the issuance of 58,730
shares of the Company's Common Stock (the "APS Shares"). The APS Shares are
being offered hereby.
On August 29, 1997, the Company acquired through merger all of the
outstanding stock of Arcadia Services, Inc. ("Arcadia"), a Michigan corporation
which provides home health care services, medical staffing services and clerical
and light industrial staffing services. The merger consideration was $18.7
million, which was paid though the issuance of 531,194 shares of the Company's
Common Stock (the "Arcadia Shares"). The Arcadia Shares are being offered
hereby.
On October 21, 1997, the Company acquired all of the outstanding stock of
RoTech. See "Recent Developments -- Recent Acquisitions -- RoTech Acquisition."
In connection with the acquisition of RoTech, the Company issued to Stephen P.
Griggs, President of RoTech, warrants to purchase 750,000 shares of Common
Stock. These shares of Common Stock are being offered hereby.
21
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the registration
of the Shares offered hereby will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of Shares will be borne by the
Selling Stockholders (or their donees and pledgees).
Sales of Shares may be effected from time to time in transactions (which
may include block transactions) on the New York Stock Exchange, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, or at
negotiated prices. The Selling Stockholders have advised the Company that they
have not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities. The
Selling Stockholders may effect such transactions by selling Common Stock
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of Common Stock for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Stockholders and any broker-dealers that act in connection with the sale of the
Common Stock might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Liabilities
under the federal securities laws cannot be waived.
The Ambulatory Group has agreed not to sell in excess of 70,000 shares of
Common Stock during any thirty day period and to effect sales solely through
Smith Barney Inc. The APS Group has agreed not to sell in excess of 30,000
shares of Common Stock during any thirty day period and to effect sales solely
through Smith Barney Inc. The Arcadia Group has agreed not to sell in excess of
100,000 shares of Common Stock during any thirty day period and to effect sales
solely through Smith Barney Inc.
Because the Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the Shares, such Selling
Stockholder, any selling broker or dealer and any "affiliated purchasers" may be
subject to Regulation M under the Securities Exchange Act of 1934, as amended,
which Regulation would prohibit, with certain exceptions, any such person from
bidding for or purchasing any security which is the subject of such distribution
until his participation in that distribution is completed. In addition,
Regulation M under the Exchange Act prohibits, with certain exceptions, any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of Common Stock in connection with this offering.
The Selling Stockholders may be entitled under agreements entered into with
the Company to indemnification against liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby have been passed upon for the Company by Fulbright & Jaworski
L.L.P., New York, New York. At October 31, 1997, partners of Fulbright &
Jaworski L.L.P. owned an aggregate of 300 shares of Common Stock.
EXPERTS
The consolidated financial statements of Integrated Health Services, Inc.
and subsidiaries as of December 31, 1995 and 1996 and for each of the years in
the three-year period ended December 31, 1996 have been incorporated by
reference in this Prospectus and elsewhere in the Registration State-
22
<PAGE>
ment in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing. The report of KPMG Peat Marwick
LLP refers to changes in accounting methods, in 1995, to adopt Statement of
Financial Accounting Standards No. 121 related to impairment of long-lived
assets and, in 1996, from deferring and amortizing pre-opening costs of Medical
Specialty Units to recording them as expenses when incurred.
The consolidated financial statements of First American Health Care of
Georgia, Inc. as of December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995, have been incorporated by reference
in this Prospectus and in the Registration Statement from IHS' Current Report on
Form 8-K/A, as amended (dated October 17, 1996 and filed with the Commission on
July 11, 1997) in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP contains an explanatory paragraph regarding the uncertainty
with respect to certain contingent payments which may be payable under a
settlement agreement with the Health Care Financing Administration.
The consolidated financial statements of Community Care of America, Inc. as
of December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996 have been incorporated by reference in this Prospectus
and in the Registration Statement from IHS' Current Report on Form 8-K (dated
September 25, 1997) in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to the change in accounting method in
1996 to adopt Statement of Financial Accounting Standards No. 121 relating to
the impairment of long-lived assets.
The financial statements of RoTech Medical Corporation as of July 31, 1996
and 1997 and for each of the years in the three year period ended July 31, 1997
incorporated in this Prospectus and in the Registration Statement by reference
from IHS' Current Report on Form 8-K (dated October 21, 1997) have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
===================================================== ====================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION 1,813,434
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES SHARES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER INTEGRATED HEALTH
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE SERVICES, INC.
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
</TABLE>
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
COMMON STOCK
PAGE
-----
<S> <C>
Available Information .................. 2
Incorporation of Certain Documents by
Reference .......................... 3
The Company ............................. 5
Risk Factors ............................. 7
-------------------
Recent Developments ...................... 16 PROSPECTUS
-------------------
Use of Proceeds .......................... 19
Selling Stockholders .................... 19
Plan of Distribution .................... 22
Legal Matters .......................... 22
Experts ................................ 22
DECEMBER 17, 1997
===================================================== ====================================================
</TABLE>
