<PAGE>
====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20569
___________________
FORM 10-K/A
AMENDMENT NO. 2
(Mark One)
(XXX) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1994 or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ______________.
Commission file number 1-9369
____________________
HORIZON HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 91-1346899
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
(Address and zip code of principal executive office)
Registrant's telephone number, including area code: (505) 881-4961
______________________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------
Common Stock, Par Value $.001 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was require to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
At July 27, 1994, the registrant had 22,631,862 shares of Common Stock
outstanding. The aggregate market value on July 27,1994 of the registrant's
Common Stock held by non-affiliates of the registrant was $466,569,439 (based
on the closing price of these shares as quoted on such date on the New York
Stock exchange).
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of the Company
Report of Independent Public Accountants . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (as amended) . . . . . . . 7
</TABLE>
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Horizon Healthcare Corporation:
We have audited the accompanying consolidated balance sheets of Horizon
Healthcare Corporation (a Delaware corporation) and subsidiaries as of May
31, 1994 and 1993, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended May 31, 1994. These consolidated financial statements and the
schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Horizon
Healthcare Corporation and subsidiaries as of May 31, 1994 and 1993, and the
results of their operations and their cash flows for the three years in the
period ended May 31, 1994, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
/S/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
July 22, 1994
2
<PAGE>
HORIZON HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
MAY 31, 1994 and 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 10,963,176 $ 5,928,082
Patient care accounts receivable, net of allowances for doubtful
accounts of approximately $8,158,000 in 1994 and $1,304,000 in 1993 . . 76,861,542 30,626,160
Estimated Medicare and Medicaid settlements . . . . . . . . . . . . . . 6,701,650 605,543
Current portion of notes receivable (Note 2) . . . . . . . . . . . . . 535,282 293,531
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . 17,070,967 6,505,171
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 112,132,617 43,958,487
------------ ------------
NOTES RECEIVABLE, EXCLUDING CURRENT PORTION (Note 2) . . . . . . . . . . 22,436,095 9,010,707
LAND, BUILDINGS AND EQUIPMENT, net (Note 3) . . . . . . . . . . . . . . . 193,426,085 74,096,464
LEASE PURCHASE COSTS, net of accumulated amortization of $3,343,659 in
1994 and $2,476,865 in 1993 . . . . . . . . . . . . . . . . . . . . . . 6,507,501 7,346,071
LEASE, UTILITY AND OTHER DEPOSITS . . . . . . . . . . . . . . . . . . . . 7,428,719 6,201,457
DEFERRED INCOME TAXES (Note 8) . . . . . . . . . . . . . . . . . . . . . 7,271,000 -
GOODWILL, net of accumulated amortization of $234,179 in 1994 and $8,334
in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,672,878 591,667
OTHER INTANGIBLE ASSETS, AT COST, net of accumulated amortization of
$1,807,848 in 1994 and $1,010,018 in 1993 . . . . . . . . . . . . . . . 7,608,840 8,028,478
OTHER ASSETS, AT COST . . . . . . . . . . . . . . . . . . . . . . . . . . 7,967,382 3,936,583
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $406,451,117 $153,169,914
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) . . . . . . . . . . . . . . $ 1,697,615 $ 228,007
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,199,857 6,899,348
Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,679,884 4,876,246
Accrued property and payroll taxes . . . . . . . . . . . . . . . . . . 14,318,467 9,093,591
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,963,715 8,156,626
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 49,052,449 25,060,907
------------ ------------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION (Note 4) . . . . . . . . . . . 76,672,868 22,875,985
DEFERRED INCOME TAXES (Note 8) . . . . . . . . . . . . . . . . . . . . . - 4,453,000
DEFERRED LEASE CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . 20,493,441 -
CONVERTIBLE SUBORDINATED NOTES (Note 5) . . . . . . . . . . . . . . . . . 30,906,150 52,583,658
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 177,124,908 104,973,550
------------ ------------
COMMITMENTS AND CONTINGENCY (Notes 6 and 12)
STOCKHOLDERS' EQUITY (Note 9):
Common stock of $.001 par value. Authorized 30,000,000 shares in 1994
and 1993; 22,738,073 shares issued with 22,409,927 shares outstanding
in 1994 and 11,639,326 shares issued with 11,311,180 shares
outstanding in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 22,738 11,639
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . 200,272,997 35,759,887
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,770,807 13,165,171
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (740,333) (740,333)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 229,326,209 48,196,364
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . $406,451,117 $153,169,914
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE>
HORIZON HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED MAY 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
NET PATIENT CARE REVENUES....... $367,919,384 $228,655,464 $156,943,661
OTHER OPERATING REVENUES........ 7,175,254 3,543,434 2,035,195
------------ ------------ ------------
Total operating revenues...... 375,094,638 232,198,898 158,978,856
------------ ------------ ------------
ROUTINE EXPENSES:
Nursing services.............. 117,708,942 79,011,886 55,418,053
Ancillary services............ 76,448,335 37,552,260 22,547,517
Dietary services.............. 25,470,402 18,148,240 13,048,921
Facility operations and
maintenance.................. 14,865,282 9,894,414 7,130,608
Housekeeping services......... 8,856,498 6,147,561 4,246,632
Laundry services.............. 4,924,198 3,386,197 2,217,566
Administrative and general.... 40,165,213 25,489,292 17,075,904
Other services................ 12,785,294 7,924,375 5,427,557
------------ ------------ ------------
Total routine expenses...... 301,224,164 187,554,225 127,112,758
------------ ------------ ------------
PROPERTY EXPENSES:
Facility leases............... 27,698,886 20,991,873 17,969,042
Interest...................... 6,239,654 4,252,177 2,206,552
Depreciation and amortization. 8,081,432 4,007,398 2,157,252
Other......................... 5,104,866 3,650,951 2,878,252
------------ ------------ ------------
Total property expenses..... 47,124,838 32,902,399 25,211,098
------------ ------------ ------------
Total operating expenses.... 348,349,002 220,456,624 152,323,856
------------ ------------ ------------
Earnings before income
taxes...................... 26,745,636 11,742,274 6,655,000
INCOME TAXES (Note 8)........... 10,140,000 4,026,000 1,628,000
------------ ------------ ------------
Net earnings.................... $ 16,605,636 $ 7,716,274 $ 5,027,000
============ ============ ============
Net earnings per common and
common equivalent share........ $ 0.99 $ 0.66 $ 0.44
============ ============ ============
Net earnings per common share --
assuming full dilution......... $ 0.91 $ 0.62 $ 0.44
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
<PAGE>
HORIZON HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
PAID-IN TREASURY RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS TOTAL
---------- ------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1991................ 7,601,543 $ 7,602 $20,309,337 $(740,333) $ 421,897 $19,998,503
Common stock offerings, net of
$508,157 issue costs.................. 3,531,000 3,531 14,353,822 - - 14,357,353
Exercise of stock purchase
warrants and options.................. 259,839 259 397,053 - - 397,312
Net earnings........................... - - - - 5,027,000 5,027,000
----------- ------- ------------ --------- ----------- ------------
Balance at May 31, 1992................ 11,392,382 11,392 35,060,212 (740,333) 5,448,897 39,780,168
Exercise of stock purchase warrants,
options and issuance of shares under
the employee stock purchase plan...... 246,944 247 699,675 - - 699,922
Net earnings........................... - - - - 7,716,274 7,716,274
----------- ------- ------------ --------- ----------- ------------
Balance at May 31, 1993................ 11,639,326 11,639 35,759,887 (740,333) 13,165,171 48,196,364
Common stock offerings, net of
$1,365,445 issue cost................. 4,025,000 4,025 58,214,972 - - 58,218,997
Common stock issued in connection with
Greenery merger, net of $410,616
issue cost............................ 2,050,000 2,050 47,487,334 - - 47,489,384
Common stock issued in connection
with purchase of Advanced
Cardiovascular Technology, Inc. ..... 163,976 164 4,099,236 - - 4,099,400
Conversion of 6.75% convertible
subordinated notes, net of $1,897,357
previously capitalized financing costs
and $506,665 conversion costs......... 4,522,500 4,523 51,861,455 - - 51,865,978
Exercise of stock options, warrants
and issuance of shares under the
employee stock purchase plan.......... 337,271 337 2,850,113 - - 2,850,450
Net earnings........................... - - - - 16,605,636 16,605,636
----------- ------- ------------ --------- ----------- ------------
Balance at May 31, 1994................ 22,738,073 $22,738 $200,272,997 $(740,333) $29,770,807 $229,326,209
=========== ======= ============ ========= =========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
<PAGE>
HORIZON HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................. $ 16,605,636 $ 7,716,274 $ 5,027,000
Adjustments to reconcile net earnings to
net cash provided by (used for)
operating activities:
Depreciation and amortization............. 8,081,432 4,007,398 2,157,252
Gain on sale of assets and redemption of
convertible subordinated notes........... (2,142,193) - -
Provision for losses on patient care
receivables.............................. 1,592,704 1,163,977 341,230
Deferred lease credit..................... (522,741) - -
Changes in assets and liabilities:
Patient care and settlement receivables.. (30,038,486) (18,754,962) (1,971,257)
Prepaid and other current assets......... (8,006,449) (3,637,355) (759,386)
Lease, utility and other deposits........ (1,123,338) (3,962,662) 126,060
Accounts payable......................... (1,720,268) 2,998,452 (864,258)
Accrued payroll.......................... (299,037) 2,536,134 738,666
Other current liabilities................ 751,581 4,049,243 4,572,178
Deferred income taxes.................... (417,294) 4,453,000 -
------------ ------------ ------------
Net cash provided by (used for) operating
activities............................... (17,238,453) 569,499 9,367,485
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable investment
securities............................... - (9,191,768) (6,001,525)
Proceeds from sale of marketable
investment securities.................... - 15,193,293 -
Payments received on notes receivable..... 7,065,634 137,706 155,000
Capital expenditures...................... (40,610,438) (53,377,886) (10,300,566)
Proceeds from sale of land, building and
equipment................................ 1,036,546 9,362,582 -
Lease purchase costs expenditures......... (28,411) (3,385,843) (212,245)
Cash used for merger of Greenery
Rehabilitation Group, Inc. .............. (7,763,461) - -
Cash used for other acquisitions.......... (2,964,947) - -
Additions to other intangible assets...... (2,886,988) (6,104,877) (2,140,562)
Change in other assets.................... (3,389,226) (7,548) (1,185,054)
------------ ------------ -------------
Net cash used by investing activities..... (49,541,291) (47,374,341) (19,684,952)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt............ 34,550,062 22,714,561 59,660,000
Repayment of debt......................... (2,898,014) (151,730) (35,828,990)
Repurchase of convertible subordinated
notes.................................... (19,998,675) - -
Proceeds from issuance of common stock.... 60,161,465 699,922 14,754,665
------------ ------------ ------------
Net cash provided by financing activities. 71,814,838 23,262,753 38,585,675
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 5,035,094 (23,542,089) 28,268,208
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR................................... 5,928,082 29,470,171 1,201,963
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR... $ 10,963,176 $ 5,928,082 $ 29,470,171
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AS AMENDED)
FOR THE YEARS ENDED MAY 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Horizon Healthcare Corporation and its subsidiaries (collectively the
Company) is a leading provider of long-term care and specialty health care
services. The Company's long-term care facilities provide skilled nursing
care and basic patient services with respect to daily living and general
medical needs. The Company also provides specialty health care services to
its long-term care facilities and third parties. Such specialty health care
services include licensed specialty hospital services and subacute units,
rehabilitation and other therapies, institutional pharmacy services,
Alzheimer's care, non-invasive medical diagnostic testing services, home
respiratory care services and clinical laboratory services.
Substantially all of these services are within the long-term care market and
accordingly, the Company operates within a single industry segment.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
NET PATIENT CARE REVENUES
Net patient care revenues are recorded at established billing rates or at
the amount realizable under agreements with third-party payors, primarily
Medicaid and Medicare. Revenues under third-party payor agreements in certain
states are subject to examination and retroactive adjustments, and amounts
realizable may change due to periodic changes in the regulatory environment.
Provisions for estimated third-party payor settlements are provided in the
period the related services are rendered. Differences between the amounts
accrued and subsequent settlements are recorded in operations in the year of
settlement.
A significant portion of the Company's revenue is derived from patients
under the Medicaid and Medicare programs. There have been and the Company
expects that there will continue to be a number of proposals to limit
Medicare and Medicaid reimbursement, as well as revenues from certain private
payor sources for long-term care services. The Company cannot predict at this
time whether any of these proposals will be adopted or, if adopted and
implemented, what effect such proposals would have on the Company.
CASH EQUIVALENTS
For purposes of the accompanying consolidated statements of cash flows,
the Company considers its highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Included in cash and cash equivalents at May 31, 1994 is approximately
$4,300,000 of restricted cash related to one of the Company's workers'
compensation programs.
DEPRECIATION
Buildings and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets (buildings - 40 years;
equipment - 3 to 10 years). Maintenance and repairs are charged to expense as
incurred. Major renewals or improvements are capitalized.
7
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LEASE PURCHASE COSTS
Lease purchase costs represent amounts paid by the Company to obtain lease
rights to long-term care facilities and are amortized over the initial and
renewal terms (where applicable) of the leases expected to be renewed.
GOODWILL
Goodwill has resulted from various acquisitions made by the Company. All
acquisitions were accounted for as purchases and the excess of the total
acquisition cost over the fair value of the net assets acquired was recorded
as goodwill. Currently, goodwill is being amortized on the straight-line
basis over 40 years.
The Company maintains separate financial records for each of its acquired
entities and performs periodic strategic and long-range planning for each
entity. The Company evaluates its goodwill annually to determine potential
impairment by comparing the carrying value to the undiscounted future cash
flows of the related assets. The Company modifies the life or adjusts the
value of its goodwill if any impairment is identified.
OTHER INTANGIBLE ASSETS
Costs incurred in obtaining long-term debt financing are amortized over
the term of the related indebtedness, generally using the effective interest
method. Costs to initiate and implement therapy operations and new nursing or
specialty units are amortized on a straight-line basis for periods up to five
years.
DEFERRED LEASE CREDIT
The deferred lease credit represents obligations for above market rate
lease terms on operating leases recorded under purchase accounting. This
credit is amortized over the terms of the related leases to yield level lease
payments, net of discount accretion.
INCOME TAXES
The Company and certain of its subsidiaries file a consolidated Federal
income tax return. Deferred taxes are provided for the income tax effect of
temporary differences in reporting transactions for financial and tax
purposes.
On June 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes." The adoption of
FAS 109 changes the Company's method of accounting for income taxes from the
deferred method (APB 11) to an asset and liability approach. Previously the
Company deferred the past tax effects of temporary differences between
financial reporting and taxable income. The asset and liability approach
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
MARKET VALUE DISCLOSURES
The market value of all financial instruments approximates their carrying
value unless indicated otherwise in the applicable notes to the consolidated
financial statements.
8
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
WORKERS' COMPENSATION
Workers' compensation coverage is effected through deductible insurance
policies and qualified self insurance plans which vary by the states in which
the Company operates. Provisions for estimated settlements are provided in
the period of the related coverage. Differences between the amounts accrued
and subsequent settlements are recorded in operations in the year of
settlement.
EARNINGS PER SHARE
Earnings per share is calculated based upon the weighted-average number of
common shares and common equivalent shares outstanding during each period.
Common equivalent shares include stock purchase warrants and options.
Earnings per common and common equivalent share are based upon 16,751,078
shares in 1994, 11,711,911 shares in 1993 and 11,401,537 shares in 1992.
Earnings per common share-assuming full dilution is based upon 19,724,461
shares in 1994 and 16,275,875 shares in 1993, including the effect of the
convertible subordinated notes. In 1992, the computation of earnings per
common share - assuming full dilution was anti-dilutive.
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been
reclassified to conform to the 1994 presentation.
(2) NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Variable rate note receivable (6.125% at May 31, 1994)
from a related party; interest payable semi-annually;
principal payable December 2008; unsecured..................... $13,000,000 $ -
Variable rate note receivable (6.5% at May 31, 1994); interest
payable monthly; principal payable $3,000,000 in August 2002
and $3,000,000 in August 2004; secured by real property........ 6,000,000 6,000,000
12% notes receivable; payable in monthly installments of
$22,115, including interest; final payment of approximately
$2,033,000 due July 2002; secured by real property............. 2,135,708 2,144,238
Other notes receivable bearing interest at 7.5% to 11%;
unsecured...................................................... 1,835,669 1,160,000
----------- ----------
Notes receivable............................................... 22,971,377 9,304,238
Less current portion............................................ 535,282 293,531
----------- ----------
Notes receivable, excluding current portion.................... $22,436,095 $9,010,707
=========== ==========
</TABLE>
9
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment is stated at cost and consists of the
following:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . $ 21,604,733 $ 7,292,524
Buildings . . . . . . . . . . . . . . . . . . . . 144,212,532 53,986,811
Equipment . . . . . . . . . . . . . . . . . . . . 39,377,400 18,720,473
------------ -----------
205,194,665 79,999,808
Less accumulated depreciation . . . . . . . . . . 11,768,580 5,903,344
------------ -----------
Land, buildings, and equipment, net . . . . . . . $193,426,085 $74,096,464
============ ===========
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1993
---------- -----------
<S> <C> <C>
Revolving credit drawn on credit agreement; interest due
monthly; principal due March 1997; secured as discussed
below . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,250,000 $16,500,000
11.5% mortgage notes; payable in monthly installments of
$95,185, including interest; principal due December 2000;
secured by related property . . . . . . . . . . . . . . . 9,388,873 -
10.5% mortgage note; payable in monthly installments of
$51,549, including interest; principal due January 2004;
secured by related property . . . . . . . . . . . . . . . . 5,385,134 -
10.1% mortgage note; payable in monthly installments of
approximately $30,000, including interest; principal due
May 2017; secured by related property . . . . . . . . . . . 3,218,218 -
7.25% note payable; payable in monthly installments of
approximately $28,800, including interest; principal due
December 2008; secured by related property . . . . . . . . 3,105,000 -
10% mortgage note; payable in monthly installments of
$27,555, including interest; principal due December 2002
with renewal provisions extending the due date no later
than December 2012; secured by related property . . . . . . 2,961,947 2,993,003
Note payable; payable in monthly installments of $32,237,
including interest at LIBOR plus 1.5% (6.8125% at
May 31, 1994); principal due May 1997; secured by related
property . . . . . . . . . . . . . . . . . . . . . . . . . 2,800,000 -
12% revenue bonds; payable in monthly installments of
approximately $28,000, including interest; principal due
December 2015; secured by related property . . . . . . . . 2,265,000 -
Other long-term debt bearing interest ranging from 7% to
13.125%; secured by related land, buildings and equipment . 4,996,311 3,610,989
----------- -----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 78,370,483 23,103,992
Less current portion . . . . . . . . . . . . . . . . . . . . 1,697,615 228,007
----------- -----------
Long-term debt, excluding current portion . . . . . . . . . $76,672,868 $22,875,985
=========== ===========
</TABLE>
10
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On May 27, 1994, the Company completed a $100,000,000 revolving credit
loan agreement which replaced the revolving loan agreement outstanding at
May 31, 1993. This credit agreement bore interest at either prime plus up to
.25% or at the LIBOR rate plus 1.25% to 2.00%. The weighted average
interest rate on amounts outstanding under the credit agreement was 6.92%
at May 31, 1994. The credit agreement (a) requires the Company to maintain
certain financial ratios, (b) restricts the Company's ability to make
capital expenditures beyond certain specified amounts, (c) prohibits
transactions with affiliates not at arm's length, (d) allows the Company to
make only permitted investments, (e) restricts certain indebtedness, liens,
dispositions of property and issuances of securities and (f) prohibits a
change in control or a fundamental change in the business of the Company
except under certain limited circumstances. The credit facility also
restricts the payment of dividends by the Company to an amount which shall
not exceed 25% of the Company's net income for the prior fiscal year, and
any such payment is subject to continued compliance by the Company with the
financial ratio covenants contained in the credit agreement. The credit
agreement further provides that an event of default under certain of the
Company's and its subsidiaries' obligations which would result in a material
adverse effect will constitute an event of default under the credit
agreement. Certain subsidiaries of the Company have guaranteed the
obligations of the Company under the credit agreement. The credit agreement
expires on March 10, 1997, and is secured by a pledge of the stock of all
subsidiaries of the Company and certain accounts receivable of the Company.
Subsequent to May 31, 1994, the Company increased the credit agreement
to $150,000,000. The terms of the increased agreement are substantially
the same as the existing agreement, except certain accounts receivable of the
Company were taken as additional collateral.
The approximate aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31:
-------------------
<S> <C>
1995 . . . . . . . . . . . . . $ 1,697,615
1996 . . . . . . . . . . . . . 2,466,662
1997 . . . . . . . . . . . . . 47,244,224
1998 . . . . . . . . . . . . . 1,065,921
1999 . . . . . . . . . . . . . 563,343
Thereafter . . . . . . . . . 25,332,718
-----------
$78,370,483
===========
</TABLE>
(5) CONVERTIBLE SUBORDINATED NOTES
On February 14, 1992, the Company issued $57,500,000 of 6.75%
convertible subordinated notes (the Notes) due February 1, 2002. The Notes
were convertible at any time prior to maturity into shares of common stock of
the Company at a conversion price of $12.00 per share, subject to adjustment
in certain events. Interest on the Notes was payable semi-annually on each
February 1 and August 1, commencing August 1, 1992. During the year ended May
31, 1992, the Company repurchased $3,230,000 of Notes at approximately 80% of
par value, resulting in a gain of $475,000, net of allocable deferred
financing costs of approximately $140,000. During the third quarter of 1994,
the remaining $54,270,000 of Notes were converted into the Company's common
stock at the conversion price stated above. In connection therewith,
approximately $1,900,000 of deferred financing costs and $506,000 of
conversion costs were offset against additional paid-in capital at the time
of conversion.
In connection with the merger of Greenery Rehabilitation Group, Inc.
(Greenery) into the Company (discussed in Note 7), the Company assumed the
obligations under Greenery's 6.5% convertible subordinated notes and 8.75%
convertible senior subordinated notes, in the aggregate principal amount of
$26,631,000 and $28,150,000, respectively, at February 11, 1994. These
obligations were recorded at their fair market value under purchase
accounting, resulting in a discount on the 6.5% convertible subordinated
notes of $2,663,100.
11
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The 6.5% convertible subordinated notes are due June 2011 and are
convertible into common stock of the Company at a price of $69.32 per
share. These notes may be redeemed in whole or in part at 103.25% of par
declining annually to par on June 15, 1996, plus accrued interest.
Commencing June 15, 1996, the Company is obligated to retire 5% of the issue
amount annually to maturity.
The 8.75% convertible senior subordinated notes are due 2015 and are
convertible into common stock of the Company at a price of $54.00 per
share. The Company may redeem the notes, in whole or in part at 106.125% of
par declining annually to par on April 1, 2000, plus accrued interest.
Commencing April 1, 2000, the Company is required to retire 5% of the
original issue amount annually to maturity. The notes are senior to the 6.5%
debentures, but will be subordinated to any future senior indebtedness.
During the fourth quarter of 1994, the Company repurchased $15,520,000
of the 6.5% convertible subordinated notes and $7,243,750 of the 8.75%
convertible senior subordinated notes. The Company recorded a gain of
approximately $734,000, net of the write-off of $1,552,000 debt discount
recorded under purchase accounting and income taxes of approximately
$480,000.
The market value of the outstanding convertible subordinated notes at
May 31, 1994 and 1993 was approximately $27,500,000 and $66,200,000,
respectively. The market value is a function of both the conversion feature
and the debt instrument. It is impracticable to allocate the market value
between those two components. The market value is not representative of the
amounts that would be currently required to retire the debt obligation.
(6) LEASE COMMITMENTS
The Company has noncancelable operating leases primarily for facilities
and equipment. Certain leases provide for purchase and renewal options of 5
to 15 years, contingent rentals primarily based on operating revenues, and
the escalation of lease payments coincident with increases in certain
economic indexes. Contingent rent expense for the years ended May 31, 1994,
1993 and 1992 was approximately $1,060,000, $680,000 and $554,000,
respectively.
Future minimum payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,:
--------------------
<S> <C>
1995 . . . . . . . . . . . . . 38,160,000
1996 . . . . . . . . . . . . . 35,977,000
1997 . . . . . . . . . . . . . 35,480,000
1998 . . . . . . . . . . . . . 32,338,000
1999 . . . . . . . . . . . . . 27,040,000
Thereafter . . . . . . . . . . 131,940,000
------------
Total minimum lease payments . $300,935,000
============
</TABLE>
The Company is contingently liable for annual lease payments of
approximately $3,000,000 for leases on facilities sold. In addition, the
Company is contingently liable for annual lease payments of approximately
$4,100,000 for leases on managed facilities.
For the year ended May 31, 1994, the Company leased eight facilities
from an affiliate of two director nominees of the Company. The aggregate
lease expense for these facilities for the year ended May 31, 1994 was
approximately $5,501,000. Future minimum lease commitments related to these
facilities was approximately $169,541,000 at May 31, 1994.
12
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Company leases its corporate office space from an
affiliate of certain officers and directors. The lease is classified as an
operating lease and provides for minimum annual rents of $360,000. The
remaining lease term is approximately one year.
(7) FACILITY ACQUISITIONS AND DISPOSITIONS (AS AMENDED)
During 1993 and 1994, the Company implemented its strategic business
plan by purchasing or leasing long-term care facilities and related
specialty services businesses in targeted geographic areas.
In 1993, the Company purchased eight facilities as follows: two each in
Kansas and Texas, and one in each of the following states: Ohio, New
Mexico, Michigan and Nevada. The Company also entered into operating leases
for twelve facilities as follows: three each in Texas and Michigan, two in
Wisconsin, and one each in Ohio, New Mexico, Montana, and Nevada. Also
during 1993, the Company began managing three additional facilities in
Colorado, Wisconsin, and Oklahoma, and sold its long-term care facilities
and retirement apartment complexes in Missouri at no material gain or loss.
Finally, the Company purchased an 80% interest in two rehabilitation
companies during 1993 in Texas and Nevada.
On February 11, 1994, the Company completed its previously announced
merger of Greenery into the Company. Pursuant to the merger, the Company
exchanged approximately 2,050,000 shares of its common stock, valued at
approximately $48,000,000, for all of the outstanding shares of Greenery
common stock, resulting in the recording of goodwill of approximately
$43,200,000. This merger added the operations of 17 rehabilitation and
skilled nursing facilities and 3 managed facilities to the Company's
current operations. In addition, the Company had other acquisitions during
1994 which in the aggregate were insignificant.
The Company has accounted for all acquisitions using the purchase
method. The following unaudited condensed pro forma combined statements of
operations reflects the combined results of operations for the years ended
May 31, 1994 and 1993 as if the Greenery and other significant acquisitions
and dispositions during 1994 and 1993 had been consummated on June 1, 1992:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Total operating revenues . . . . . . . . . . . . . . . . . . $483,131,000 $413,146,000
Total operating expenses . . . . . . . . . . . . . . . . . . 472,263,000 412,651,000
------------ ------------
Operating income . . . . . . . . . . . . . . . . . . . . . 10,868,000 495,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 4,239,000 168,000
------------ ------------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $ 6,629,000 $ 327,000
============ ============
Net earnings per common and common equivalent share . . . $ .36 $ .02
========= =========
Net earnings per common share - assuming full dilution . . $ .36 $ .02
========= =========
</TABLE>
The statement of operations of Greenery for the twelve months ended June
30, 1993 includes a $20,272,000 non-recurring expense related to the
write-off of certain capital costs. This non-recurring expense was reduced to
$11,788,000 in the pro forma statement of operations in order to eliminate
the effect of that portion of the non-recurring expense applicable to
Greenery assets sold to a related party prior to the merger. If this net
non-recurring expense of $11,788,000 were eliminated from the pro forma
statement of operations for the year ended May 31, 1993, pro forma net
earnings for that period would have been approximately $8,106,000 (assuming a
34% tax rate), or $.59 per common and common equivalent share and $.57 per
common share - assuming full dilution.
13
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES
On June 1, 1993, the Company adopted Statement of Financial Accounting
Standards (FAS 109) No. 109 "Accounting for Income Taxes" through
retroactive restatement of its financial statements from June 1, 1990. FAS
109 requires an asset and liability approach for financial accounting and
reporting of income taxes. This statement recognizes (a) the amount of
taxes payable or refundable for the current year and (b) deferred tax
liabilities and assets for the future tax consequences of events that have
been recognized in the consolidated financial statements or tax returns.
In accordance with FAS 109, the income tax expense (benefit) for the year
ended May 31, 1994 is equal to the sum of deferred tax expense (benefit)
and income taxes currently payable or refundable. Deferred tax expense
(benefit) results from changes in deferred tax liabilities or assets.
Deferred tax liabilities and assets are recognized for the estimated future
tax effects attributable to temporary differences between the bases of assets
and liabilities for tax and financial statement purposes. Income tax
expense consists of:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . $ 7,388,000 $2,593,000 $1,256,000
State . . . . . . . . . . . . 1,273,000 721,000 372,000
----------- ---------- ----------
8,661,000 3,314,000 1,628,000
----------- ---------- ----------
Deferred:
Federal . . . . . . . . . . . 1,270,000 854,000 --
State . . . . . . . . . . . . 209,000 (142,000) --
----------- ---------- ----------
1,479,000 712,000 --
----------- ---------- ----------
Total . . . . . . . . . . . $10,140,000 $4,026,000 $1,628,000
=========== ========== ==========
</TABLE>
The implementation of FAS 109 in fiscal year 1994 and the related
restatement of prior years' consolidated financial statements had the
following effect on reported net income in prior years:
<TABLE>
<CAPTION>
1993 1992
-------- -----
<S> <C> <C>
Decrease in net earnings . . . . . . . . . . $ 67,000 $ --
Decrease in net earnings per share . . . . . -- --
</TABLE>
Actual tax expense differs from the "expected" tax expense (computed by
applying the U.S. federal corporate income tax rate of 35 percent from
January 1, 1993 forward and 34 percent for all other periods) as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax
expense . . . . . . . . . . . $ 9,361,000 $4,110,000 $2,263,000
Adjustments in income taxes
resulting from:
Net effect of targeted
jobs credits . . . . . . . (80,000) (358,000) (885,000)
State income tax expense,
net of federal income
tax benefit . . . . . . . . 955,000 457,000 244,000
Change in valuation
allowance on deferred
tax assets . . . . . . . . -- (257,000) --
----------- ---------- ----------
Other . . . . . . . . . . . (96,000) 74,000 6,000
----------- ---------- ----------
$10,140,000 $4,026,000 $1,628,000
=========== ========== ==========
</TABLE>
14
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred tax asset/(liability) are as follows:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Components of the deferred tax asset:
Self-insured reserves................... $ 3,002,000 $ 2,103,000
Allowance for doubtful accounts......... 3,650,000 454,000
Accrued payroll and related benefits.... 592,000 --
Net operating loss...................... 5,739,000 --
Deferred lease credit................... 10,137,000 --
Other................................... 1,336,000 173,000
------------ -----------
24,456,000 2,730,000
------------ -----------
Components of the deferred tax liability:
Buildings and equipment, related basis
differences, deferred gain and
depreciation............................. (9,706,000) (6,462,000)
Third party retrospective settlements..... (1,254,000) --
Difference between reporting income/loss
from partnership investments for
financial and income tax reporting....... (955,000) (319,000)
IRC Section 481 adjustment for change in
method of accounting from cash to
accrual.................................. (637,000) --
Greenery 6.5% convertible subordinated
note discount............................ (1,086,000) --
Other..................................... (496,000) (402,000)
------------ -----------
(14,134,000) (7,183,000)
Valuation allowance on deferred tax
assets................................... (3,051,000) --
------------ -----------
Total..................................... $ 7,271,000 $(4,453,000)
============ ===========
</TABLE>
As the result of business combinations during the year ended May 31, 1994,
a net deferred income tax asset of $14,724,000 and a related valuation
allowance of $3,051,000 was recorded.
As of May 31, 1994, the Company had regular tax net operating loss
carryforwards of approximately $13,799,000, which are currently subject to
separate return year limitations and expire in the years 2007 through 2008.
In addition, the Company also had an alternative minimum tax credit
carryforward of $231,000 at May 31, 1994, which is available for utilization
indefinitely.
(9) CAPITAL STOCK
COMMON STOCK
In October 1993, the Company completed a common stock offering of
4,025,000 shares. Net proceeds of approximately $58 million were used to
repay outstanding debt under the revolving credit loan agreement and to fund
acquisitions.
As discussed in Note 5, the Company converted $54,270,000 of its 6.75%
convertible subordinated notes into 4,522,500 shares of the Company's common
stock during the third quarter of 1994. The conversion price was $12 per
share.
As discussed in Note 7, the Company issued 2,050,000 new shares of common
stock during February 1994 in connection with the Greenery merger.
15
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Company acquired Advanced Cardiovascular Technology,
Inc., a non-invasive medical diagnostic company in April 1994. In connection
with this acquisition, the Company issued 163,976 new shares of common stock
at $25 per share. The terms of the acquisition provide for the issuance of up
to 204,985 additional shares of common stock if certain earning levels are
achieved by March 31, 1997. Of these contingent shares, 159,985 were issued
into escrow at closing and remained in escrow at May 31, 1994. This
contingent consideration has not been recorded as of May 31, 1994.
PREFERRED STOCK
There are 500,000 authorized but unissued shares of preferred stock, par
value $.001.
STOCK PURCHASE WARRANTS
The Company had 152,666 stock purchase warrants outstanding at May 31,
1994 for the purchase of common stock. These warrants are exercisable at
$2.50 and expire on June 30, 1995.
STOCK BENEFIT PLANS
The Company has adopted a nonqualified employee stock option plan and
directors stock option plan which provides for the Company to grant to
certain key employees and outside directors the option to purchase common
shares of the Company's stock at market value of the stock at the option
grant date. Accordingly, no compensation is recorded in the accompanying
consolidated financial statements for the options granted.
All options granted under the employee plan and directors plan expire ten
years after grant, are nontransferable and are exercisable only while the
individual is employed by the Company or is a current member of the Board of
Directors subject to certain exceptions for death or disability. One-third
of each option will be exercisable on each of the first, second and third
anniversary dates following the date of grant.
The following information is a summary of the stock option activity under
the employee and directors plans:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding at beginning
of year......................... 1,015,109 808,553 456,005
Granted.......................... 905,750 450,400 493,400
Exercised........................ (208,751) (128,745) (109,172)
Canceled and other adjustments... (37,397) (115,099) (31,680)
------------ ------------ ------------
Options outstanding at end of
year............................ 1,674,711 1,015,109 808,553
============ ============ ============
Options exercisable at end of
year............................ 467,371 279,226 191,083
============ ============ ============
Option price range............... $1.38-$26.13 $1.38-$14.63 $1.38-$10.25
============ ============ ============
</TABLE>
The Company also has an employee stock purchase plan (the "Plan"). The
Plan allows substantially all full-time employees to contribute up to five
percent of their compensation for the purchase of the Company's common stock
at 85 percent of market value at the date of purchase. As of May 31, 1994,
16,020 shares of the Company's stock had been purchased under the Plan.
16
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition and in connection with the Greenery merger, the Company issued
to one of the Company's directors a five year option to purchase 125,000
shares of the Company's common stock at $17 per share.
The total number of shares allocated, granted and outstanding pursuant to
the Company's employee and directors stock option plans and employee stock
purchase plan together with other shares issued or allocated for issuance to
employees and directors pursuant to option, incentive or similar plans, may
not exceed 10 percent of the total number of shares outstanding to all
stockholders at the time of the allocation or grant.
(10) EMPLOYEE BENEFITS
In 1993, the Company established a deferred compensation plan for selected
employees that work full-time and have been employed by the Company for more
than one year. This plan, which is not required to be funded by the Company,
allows eligible employees to defer portions of their current compensation up
to 10%. The Company then matches up to 4% of the employee's deferred
compensation. Employee contributions are vested immediately. Employer
contributions vest on a graduating basis, with full vesting achieved at the
end of six years.
The Company also has a 401(k) savings plan available to substantially all
employees who have been with the Company for more than six months. Employees
may defer up to 20% of their salary, subject to the maximum permitted by law.
The Company may, at its discretion, match a portion of the employee's
contribution. Employee contributions are vested immediately. Employer
contributions vest on a graduating basis, with full vesting achieved at the
end of five years.
In addition, the Company also has a profit-sharing plan to which it may
make contributions at its discretion. Although it has not expressed any
intent to do so, the Company may terminate any of the above plans at any
time.
Greenery had additional employee benefit plans in place prior to the
merger. The Company is currently in the process of merging these plans into
the Company's existing employee benefit plans.
(11) SUPPLEMENTARY INFORMATION RELATING TO CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the purposes of the consolidated statements of cash flows, the
following are considered non-cash items:
1994
----
a) The conversion of the $54,270,000 of convertible subordinated notes
into the Company's common stock,
b) The issuance of 2,050,000 shares of common stock for the purchase of
Greenery's net assets,
c) The issuance of 163,976 shares of common stock for the purchase of
Advanced Cardiovascular Technology's net assets, and
d) The acquisition of three facilities through assumption of long-term
debt totaling $13,300,000.
1993
----
Net assets of approximately $17,500,000 were sold for cash proceeds of
approximately $9,360,000 and notes receivable of $8,150,000.
17
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash paid for interest for the years ended May 31, 1994, 1993 and 1992 was
approximately $5,650,000, $4,387,000 and $1,871,000, respectively.
Cash paid for income taxes for the years ended May 31, 1994, 1993 and 1992
was approximately $7,893,000, $4,187,000 and $500,000, respectively.
(12) COMMITMENTS
LETTERS OF CREDIT
The Company was contingently liable for letters of credit aggregating
$8,550,684 at May 31, 1994. The letters of credit were used in lieu of lease
deposits for facilities operated by the Company and for deposits under
various workers' compensation programs.
EMPLOYMENT AGREEMENTS
Under annual employment agreements with two of the officers/stockholders,
the Company is committed to pay minimum annual salaries totaling $700,000,
subject to certain covenants. In addition, the employment agreements provide
for annual retirement benefits and disability benefits equal to a maximum of
50 percent of each officer's base salary. The retirement benefits vest in
equivalent increments over 10 years and the disability benefits terminate
upon retirement or age 65. Further, an annual death benefit is payable to the
surviving spouse or minor children equal to one-half the vested retirement
benefit at the time of the officer's death. Amounts recorded for the annual
retirement and disability benefits have been included in other accrued
liabilities in the accompanying consolidated financial statements. The
Company's management believes the implementation of Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" will not have a material impact on the results of operations or
financial position of the Company.
In addition and in connection with the Greenery merger, the Company has
entered into a seven year consulting agreement with one of the Company's
directors for which the Company has agreed to pay annual consulting fees of
$175,000.
LIFE INSURANCE PREMIUMS
In fiscal 1994, the Company agreed to fund life insurance premiums for two
of its officers. To date such advances total approximately $563,000 and are
reflected in other assets. These advances will be repaid to the Company by
the officers' estates upon the earlier of cancellation of the policies or
death of the officers.
PURCHASE COMMITMENTS
Under the terms of one of the Company's facility lease agreements, the
Company has the option to purchase the facility and the lessor has the option
to require the Company to purchase the facility should the Company fail to
exercise the purchase option for $5.5 million at the end of the lease term
(August 1, 1998).
MANAGEMENT AGREEMENT
In connection with the Greenery merger, the Company has committed to
manage three Connecticut facilities for an affiliate of two director nominees
of the Company. The Company is committed to manage these facilities for up to
five years, subject to the affiliate's right to terminate sooner at any time
with 90 days notice.
18
<PAGE>
HORIZON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the management agreement, the affiliate acquired from
the Company the leasehold improvements of these facilities for approximately
$903,000. A receivable for this amount is recorded by the Company in other
assets at May 31, 1994.
(13) SUBSEQUENT EVENTS
In June 1994, the Company entered into agreements to acquire substantially
all of the assets of peopleCARE Heritage Group, a 13 facility long-term care
company located in Texas. Under the terms of the agreements, the Company
will pay $56 million in cash and issue approximately $10 million in common
stock to acquire fee simple title to seven facilities and leasehold rights to
the remaining six facilities, including purchase options on the leased
facilities. The cash portion of the purchase price is expected to be funded
through the increased credit agreement discussed in Note 4. Subject to
regulatory approval, the Company anticipates completing the acquisition and
commencing operations August 1, 1994.
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's unaudited quarterly financial information, including the
retroactive restatement impact on net earnings of adopting FAS No. 109
"Accounting for Income Taxes," follows (in thousands, except per share data):
<TABLE>
<CAPTION>
EARNINGS PER EARNINGS PER
TOTAL COMMON AND COMMON
OPERATING NET COMMON SHARE - ASSUMING
REVENUES EARNINGS EQUIVALENT SHARE FULL DILUTION
--------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
Quarter ended:
August 31, 1993................. $ 74,968 $ 2,816 $.24 $.21
November 30, 1993............... 78,931 3,500 .26 .22
February 28, 1994............... 88,602 4,484 .24 .23
May 31, 1994.................... 132,594 5,806 .25 .25
-------- ------- ---- ----
$375,095 $16,606 $.99 $.91
======== ======= ==== ====
Quarter ended:
August 31, 1992................. $ 46,719 $ 1,512 $.13 $.13
November 30, 1992 (restated).... 52,699 1,887 .16 .15
February 28, 1993 (restated).... 60,920 1,990 .17 .16
May 31, 1993 (restated)......... 71,861 2,327 .20 .18
-------- ------- ---- ----
$232,199 $ 7,716 $.66 $.62
======== ======= ==== ====
</TABLE>
19
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K/A Amendment No. 2, into the
Company's previously filed Registration Statements File #33-84976, File
#33-80660, File #33-84502 and File #33-84682.
/S/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
April 7, 1995
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 2 to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 10th day of April, 1995.
HORIZON HEALTHCARE CORPORATION
By /s/ Ernest A. Schofield
-------------------------------------
Ernest A. Schofield
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 2 to this report has been signed below by the following persons
in the capacities and on the dates indicated. Each person whose individual
signature appears below hereby authorizes Neal M. Elliott and Klemett L.
Belt, Jr. or either of them, as attorneys-in-fact with full power of
substitution, to execute in the name and on behalf of each person,
individual, and in each capacity stated below, and to file, any and all
amendments to this report.
SIGNATURES TITLE DATE
---------- ------ -----
Neal M. Elliott* Chairman of the Board of April 10, 1995
- ----------------------- Directors, President and Chief
Neal M. Elliott Executive Officer (Principal
Executive Officer)
/s/ Klemett L. Belt, Jr. Executive Vice President, April 10, 1995
- ----------------------- and Director
Klemett L. Belt, Jr.
/s/ Ernest A. Schofield Senior Vice President, April 10, 1995
- ----------------------- Chief Financial Officer
Ernest A. Schofield (Principal Accounting
and Financial Officer)
Frank M. McCord* Director April 10, 1995
- -----------------------
Frank M. McCord
Raymond N. Noveck* Director April 10, 1995
- -----------------------
Raymond N. Noveck
Michael A. Jeffries* Director April 10, 1995
- -----------------------
Michael A. Jeffries
Charles H. Gonzales* Director April 10, 1995
- -----------------------
Charles H. Gonzales
*By: /s/ Klemett L. Belt, Jr.
--------------------------
Klemett L. Belt, Jr.
Attorney-in-Fact
