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U N I T E D S T A T E S
S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
W A S H I N G T O N, D. C. 2 0 5 4 9
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MAY 19, 1995
NOVACARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation)
<TABLE>
<S> <C>
1-10875 13-3247827
Commission file number (I.R.S. Employer Identification No.)
1016 W. NINTH AVENUE, KING OF PRUSSIA, PA 19406
(Address of principal executive office) (Zip code)
</TABLE>
Registrant's telephone number: (610) 992-7200
(Former name, former address and former fiscal year, if changed since last
report.)
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Page 1 of 10
Index to Exhibits on Page 10
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NOVACARE, INC. AND SUBSIDIARIES
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 3, 1995, NovaCare, Inc., a Delaware corporation (the
"Company"), and NC Resources, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("Resources"), entered into an agreement (the
"Agreement") to sell to HEALTHSOUTH Corporation, a Delaware corporation
("HEALTHSOUTH"), all of the issued and outstanding common stock, $.01 par value
per share, of Rehab Systems Company, a Delaware corporation and a wholly-owned
subsidiary of Resources ("Medical Rehabilitation Hospitals"), for an
aggregate consideration of approximately $235,500,000, including approximately
$215,500,000 of cash and $20,000,000 of assumed indebtedness (the
"Transaction"). Prior to the consummation of the Transaction, Medical
Rehabilitation Hospitals engaged in the business of delivering rehabilitative
healthcare services to the public through 11 rehabilitation hospitals, five
community re-entry centers, five subacute units and two satellite outpatient
facilities. The amount of consideration was arrived at pursuant to
arms-length negotiation between the parties. On May 19, 1995, pursuant to the
Agreement, HEALTHSOUTH acquired the outstanding common stock of Medical
Rehabilitation Hospitals from Resources.
For additional information regarding the Transaction, reference is
made to the Agreement, which is Exhibit 2 to this Current Report on Form 8-K
(which Exhibit 2 is incorporated by reference to Exhibit 2 to NovaCare's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
ITEM 7(b). PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Consolidated Statement
of Operations for the year ended June 30, 1994 and the nine months ended March
31, 1995 and unaudited Pro Forma Consolidated Balance Sheet as of March 31,
1995 are based on the historical consolidated financial statements of the
Company adjusted to give effect to the disposition of the Company's 11
rehabilitation hospitals, five community re-entry centers, five subacute units
and two satellite outpatient facilities. The Pro Forma Condensed Consolidated
Statement of Operations has been prepared assuming the above disposition
occurred as of the beginning of the respective periods presented (i.e. July 1,
1993 for the twelve months ended June 30, 1994 and July 1, 1994 for the nine
months ended March 31, 1995) and the Pro Forma Consolidated Balance Sheet has
been prepared assuming that the disposition occurred as of March 31, 1995.
The Pro Forma Financial Information does not purport to represent
what the Company's results of operations or financial position would have been
had the disposition occurred as of July 1, 1993, July 1, 1994, or March 31,
1995, as the case may be, or to project the Company's results of operations
or financial position for any future period or date, nor does it give effect
to any matters other than those described in the notes thereto. In addition,
in accordance with the Agreement, the final purchase price is subject to
certain closing adjustments. These adjustments have not, as of the filing
date, been agreed to by the parties to the transaction and, accordingly,
are not considered in the Pro Forma Financial Information presented.
The Pro Forma Financial Information should be read in conjunction
with the Company's Consolidated Financial Statements.
2
<PAGE> 3
NOVACARE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1994
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
NOVACARE, INC. MEDICAL PRO FORMA
AND REHABILITATION ADJUSTMENTS
SUBSIDIARIES HOSPITALS (1) PRO FORMA
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues . . . . . . . . . . . . . . . . . . . . $ 789,745 $ 136,801 $ 405 (A) $ 653,349
Cost of services . . . . . . . . . . . . . . . . . . 529,007 96,987 --- 432,020
-------------- --------------- ------------- --------------
Gross profit . . . . . . . . . . . . . . . . . 260,738 39,814 405 221,329
Selling, general & administrative expenses . . . . . 125,098 18,499 --- 106,599
Provision for uncollectible accounts . . . . . . . . 14,453 1,231 --- 13,222
Amortization of excess costs of net assets
acquired . . . . . . . . . . . . . . . . . . . . . 7,225 1,108 --- 6,117
Merger and other nonrecurring expenses . . . . . . . 5,754 --- --- 5,754
-------------- --------------- ------------- --------------
Income from operations . . . . . . . . . . . . . 108,208 18,976 405 89,637
Investment income . . . . . . . . . . . . . . . . . . 5,304 --- --- 5,304
Interest expense . . . . . . . . . . . . . . . . . . (17,077) (1,914) 470 (B) (14,693)
Minority interest . . . . . . . . . . . . . . . . . . (543) (393) --- (150)
-------------- --------------- ------------- --------------
Income before income taxes . . . . . . . . . . . 95,892 16,669 875 80,098
Income taxes . . . . . . . . . . . . . . . . . . . . 37,678 7,049 322 (C) 30,951
-------------- --------------- ------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . $ 58,214 $ 9,620 $ 553 $ 49,147
============== =============== ============= ==============
Net income per common share . . . . . . . . . . . . . $ .90 $ .76
============== ==============
Weighted average number of common shares outstanding 64,663 64,663
============== ==============
</TABLE>
The accompanying notes to pro forma financial information are an integral part
of these statements.
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NOVACARE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
NOVACARE, INC. MEDICAL PRO FORMA
AND REHABILITATION ADJUSTMENTS
SUBSIDIARIES HOSPITALS (1) PRO FORMA
---------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues . . . . . . . . . . . . . . . . . . . . $ 703,909 $ 110,645 $ 190 (A) $ 593,454
Cost of services . . . . . . . . . . . . . . . . . . 501,276 79,342 --- 421,934
---------------- --------------- ------------- -------------
Gross profit . . . . . . . . . . . . . . . . . 202,633 31,303 190 171,520
Selling, general & administrative expenses . . . . . 115,663 14,591 --- 101,072
Provision for uncollectible accounts . . . . . . . . 11,725 1,063 --- 10,662
Amortization of excess costs of net assets
acquired . . . . . . . . . . . . . . . . . . . . . 8,413 1,197 --- 7,216
Merger and other nonrecurring expenses . . . . . . . 1,000 --- --- 1,000
---------------- --------------- ------------- -------------
Income from operations . . . . . . . . . . . . . 65,832 14,452 190 51,570
Investment income . . . . . . . . . . . . . . . . . . 1,969 15 -- 1,954
Interest expense . . . . . . . . . . . . . . . . . . (18,764) (3,910) 4,649 (B) (10,205)
Minority interest . . . . . . . . . . . . . . . . . . (379) (323) --- (56)
---------------- --------------- ------------- -------------
Income before income taxes . . . . . . . . . . . 48,658 10,234 4,839 43,263
Income taxes . . . . . . . . . . . . . . . . . . . . 19,770 4,298 1,957 (C) 17,429
---------------- --------------- ------------- -------------
Net income . . . . . . . . . . . . . . . . . . . . . $ 28,888 $ 5,936 $ 2,882 $ 25,834
================ =============== ============= =============
Net income per common share . . . . . . . . . . . . . $ .44 $ .40
================ =============
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . 65,081 65,081
================ =============
</TABLE>
The accompanying notes to pro forma financial information are an integral part
of these statements.
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NOVACARE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
NOTES TO PRO FORMA INFORMATION
(1) In accordance with SEC guidance, no additional investment income was
assumed to be generated from the excess proceeds (i.e. cash proceeds less
payment of amounts due on short- and long-term debt) nor was any additional
operating income assumed with respect to additional acquisitions that may
have occurred had the Company chosen to utilize the excess proceeds in that
manner. The pro forma adjustments related to the disposition of the
Medical Rehabilitation Hospitals are as follows:
(A) The adjustment to net revenues for the year ended June 30,
1994 and the nine months ended March 31, 1995 represents the
estimated financial impact on the Medicare contractual
allowance associated with the reduction and redistribution of
the Company's corporate expenses.
(B) The reduction in interest expense for the year ended June 30,
1994 and the nine months ended March 31, 1995 results from the
assumed repayment of debt under a revolving credit facility
of $0 and $3,555, respectively and the assumed elimination of
reverse repurchase agreements of $470 and $1,094, respectively.
(C) The pro forma income taxes represent the amount of income tax
expense which would have been incurred on the pro forma income
before income taxes.
5
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NOVACARE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
NOVACARE, INC. MEDICAL PRO FORMA
AND REHABILITATION ADJUSTMENTS
SUBSIDIARIES HOSPITALS (1) (2) PRO FORMA
----------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . $ 30,413 $ 7,943 $ 58,579 (A) $ 81,049
Marketable securities . . . . . . . . . . . . . 24,983 --- --- 24,983
Accounts receivable, net . . . . . . . . . . . 235,913 26,391 --- 209,522
Other current assets . . . . . . . . . . . . . 47,133 6,991 --- 40,142
----------------- -------------- --------------- --------------
Total current assets . . . . . . . . . . . 338,442 41,325 58,579 355,696
Marketable securities . . . . . . . . . . . . . . . . 22,795 --- --- 22,795
Property and equipment, net . . . . . . . . . . . . . 88,123 38,029 --- 50,094
Excess cost of net assets acquired, net . . . . . . . 422,975 61,233 --- 361,742
Other assets . . . . . . . . . . . . . . . . . . . . 45,965 11,160 (238) (B) 34,567
----------------- -------------- --------------- --------------
$ 918,300 $ 151,747 $ 58,341 $ 824,894
================= ============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
financing arrangements . . . . . . . . . . $ 42,115 $ 1,086 $ (24,743) (C) $ 16,286
Accounts payable and accrued expenses . . . . . 65,121 11,898 6,986 (D) 60,209
Income taxes payable . . . . . . . . . . . . . 558 15 38,678 (E) 39,221
----------------- -------------- --------------- --------------
Total current liabilities . . . . . . . . . 107,794 12,999 20,921 115,716
Long-term debt and financing arrangements net
of current portion . . . . . . . . . . . . . . . . 345,662 18,070 (132,178) (C) 195,414
Deferred income . . . . . . . . . . . . . . . . . . . 608 608 --- ---
Other liabilities . . . . . . . . . . . . . . . . . . 10,486 281 --- 10,205
Minority interest . . . . . . . . . . . . . . . . . . 1,820 1,461 --- 359
----------------- -------------- --------------- --------------
Total liabilities . . . . . . . . . . . . . . . 466,370 33,419 (111,257) 321,694
----------------- -------------- --------------- --------------
Commitments and contingencies . . . . . . . . . . . . --- --- --- ---
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . 653 1 1 (F) 653
Additional paid-in capital . . . . . . . . . . 249,739 122,155 122,155 (F) 249,739
Retained earnings . . . . . . . . . . . . . . . 205,113 (3,828) 47,442 (F) 256,383
----------------- -------------- --------------- --------------
455,505 118,328 169,598 506,775
Less: Common stock in treasury . . . . . . . . . . . (2,317) --- --- (2,317)
Deferred compensation . . . . . . . . . . . . . (459) --- --- (459)
Valuation allowance on securities
available on sale . . . . . . . . . . . . . . (799) --- --- (799)
----------------- -------------- --------------- --------------
Total stockholders' equity . . . . . . . . . . . . . 451,930 118,328 169,598 503,200
----------------- -------------- --------------- --------------
$ 918,300 $ 151,747 $ 58,341 $ 824,894
================= ============== =============== ==============
</TABLE>
The accompanying notes to pro forma financial information are an integral part
of these statements.
6
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NOVACARE, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(In thousands)
NOTES TO PRO FORMA INFORMATION
(1) In accordance with the Agreement with HEALTHSOUTH certain assets
and liabilities, predominately consisting of intracompany balances
by and among other subsidiaries, were retained by the Company. These
balances were, for presentation purposes, considered to be transferred to
the other subsidiaries of the Company prior to the completion of the
sale. Accordingly, the amounts presented represent those assets and
liabilities transferred or disposed of in accordance with the Agreement.
(2) The pro forma adjustments described in detail below represent certain
adjustments required to provide additional information as to how the
Transaction may have affected the historical balance sheet of the Company
had the Transaction occurred as of March 31, 1995. The adjustments are
as follows:
(A) Adjustment to increase cash for consideration paid in connection
with the sale of the Medical Rehabilitation Hospitals to HEALTHSOUTH
offset by the payment of debt further described in (B).
(B) The adjustment reflects expenses incurred and paid prior to closing
for costs associated with the sale of the Medical Rehabilitation
Hospitals.
(C) The pro forma adjustment to debt reflects the repayment by the
Company of amounts outstanding under the revolving credit facility
and reverse repurchase agreements.
(D) Adjustment to accrue investment advisory fees and other costs not
yet paid in association with the sale.
(E) Adjustment to reflect the tax impact of the gain on the transaction.
(F) Adjustment to record the sale, including the corresponding gain on
the sale, of all of the issued and outstanding shares of capital
stock of the Medical Rehabilitation Hospitals to HEALTHSOUTH.
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NOVACARE, INC. AND SUBSIDIARIES
(c) EXHIBITS
Exhibit Number Description
-------------- -----------
2 Stock Purchase Agreement dated as of February 3, 1995
by and among NovaCare, Inc., NC Resources, Inc. and
HEALTHSOUTH Corporation (incorporated by reference
to Exhibit 2 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995)
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NOVACARE, INC. AND SUBSIDIARIES
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
NOVACARE, INC.
----------------------------
(REGISTRANT)
JUNE 5, 1995 BY/s/ WILLIAM J. MCGINNIS
- ------------ ----------------------------
WILLIAM J. MCGINNIS
VICE PRESIDENT
AND CHIEF ACCOUNTING OFFICER
<PAGE> 10
NOVACARE, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBITS
Exhibit Number Description
- -------------- -----------
2 Stock Purchase Agreement dated as of February 3, 1995 by
and among NovaCare, Inc., NC Resources, Inc. and
HEALTHSOUTH Corporation (incorporated by reference to
Exhibit 2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995)
10
