<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
AMENDMENT NO.1
ON
FORM 8-K/A
TO
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): July 10, 1995
______________________________________________________________________________
Horizon/CMS Healthcare Corporation
(Exact name of registrant as specified in its charter)
______________________________________________________________________________
DELAWARE 1-9369 91-1346899
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
______________________________________________________________________________
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530, ALBUQUERQUE, NM 87110
(Address of principal executive offices) (Zip Code)
______________________________________________________________________________
Registrant's telephone number, including area code: (505) 881-4961
<PAGE>
At the time of filing of the Current Report on Form 8-K, (the "Initial Form
8-K") to which this Amendment relates, it was impracticable to provide the
required historical and pro forma financial information required by Item 7 of
Form 8-K. This Amendment amends and restates Item 7 of the Initial Form 8-K
as set forth below.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED:
The following historical financial information of Continental
Medical Systems, Inc. ("CMS") and subsidiaries is incorporated
herein by reeference:
(i) audited consolidated balance sheets as of June 30, 1994 and
1993 (incorporated by reference to page 28 of CMS's Amendment No. 1 on Form
10-K/A to its Annual Report on Form 10-K for the year ended June 30, 1994
(the "CMS Form 10-K/A);
(ii) audited consolidated statements of operations for the years
ended June 30, 1994, 1993 and 1992 (incorporated by reference to page 29 of
the CMS Form 10-K/A);
(iii) audited consolidated statements of stockholders' equity for
the years ended June 30, 1994, 1993 and 1992 (incorporated by reference to
page 30 of the CMS Form 10-K/A);
(iv) audited consolidated statements of cash flows for the years
ended June 30, 1994, 1993 and 1992 (incorporated by reference to page 31
of the CMS Form 10-K/A);
(v) notes to the audited consolidated financial statements for the
years ended June 30, 1994, 1993 and 1992 (incorporated by reference to
pages 32-47 of the CMS Form 10-K/A);
(vi) report of Ernst & Young LLP with respect to the consolidated
balance sheet as of June 30, 1994 and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended
(incorporated by reference to page 47 of CMS's Annual Report on Form 10-K
for the year ended June 30, 1994 (the "CMS Form 10-K"));
(vii) report of Price Waterhouse LLP with respect to the consolidated
financial statements as of and for each of the two years in the period
ended June 30, 1993;
(viii) unaudited consolidated balance sheet as of March 31, 1995
(incorporated by reference to page 1 of CMS's Amendment No.1 on Form 10-Q/A
to its Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1995 (the "CMS Form 10-Q/A"));
(ix) unaudited consolidated statements of operations for the nine
months ended March 31, 1995 and 1994 (incorporated by reference to page 2
of the CMS Form 10-Q/A);
(x) unaudited consolidated statement of stockholders' equity for
the nine months ended March 31, 1995 (incorporated by reference to page 3
of the CMS Form 10-Q/A);
(xi) unaudited consolidated statements of cash flows for the nine
months ended March 31, 1995 and 1994 (incorporated by reference to pages 4
and 5 of the CMS Form 10-Q/A); and
(xii) notes to unaudited consolidated financial statements
(incorporated by reference to pages 6-8 of the CMS Form 10-Q/A).
(B) PRO FORMA FINANCIAL INFORMATION:
The following pro forma financial information is filed herewith:
Page
----
Introduction to Unaudited Pro Forma Condensed
Financial Statements........................................ F-1
Unaudited Pro Forma Condensed Balance Sheet
at February 20, 1995........................................ F-2
Unaudited Pro Forma Condensed Statement of
Earnings for the nine months ended February 28, 1995........ F-3
Unaudited Pro Forma Condensed Statement of Earnings
for the year ended May 31, 1994............................. F-4
Unaudited Pro Forma Condensed Statement of Earnings
for the year ended May 31, 1993............................. F-5
Unaudited Pro Forma Condensed Statement of Earnings
for the year ended May 31, 1992............................. F-6
Notes to Unaudited Pro Forma Condensed Financial Statements... F-7
(C) EXHIBITS:
2 Amended and Restated Agreement and Plan of Merger, dated as of
May 23, 1995, by and among Horizon, Merger Sub and CMS
(incorporated by reference to Exhibit 2.3 to Amendment No. 1
to Horizon's Registration Statement on Form S-4 (Registration
No. 33-59561)).
23.1 Consent of Ernst & Young LLP
99.1 Joint Proxy Statement/Prospectus of Horizon and CMS dated June 6,
1995 (as supplemented by the Joint Proxy Statement/Prospectus
Supplement of June 21, 1995) (incorporated by reference to
Horizon's Registration Statement on Form S-4 (Registration
No. 33-59561)).
-1-
<PAGE>
99.2 Press Release of Horizon dated July 10, 1995.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its
behalf of the undersigned, thereunto duly authorized.
HORIZON/CMS HEALTHCARE CORPORATION
By: /s/ Ernest A. Schofield
-------------------------------------------
Ernest A. Schofield
Senior Vice President and Chief Financial
Officer
Dated: September 25, 1995
-3-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBITS PAGE NUMBER
- ------- ----------------------- -----------
<S> <C> <C>
2 Amended and Restated Agreement and
Plan of Merger, dated as of May 23,
1995, by and among Horizon Healthcare
Corporation, CMS Merger Corporation
and Continental Medical Systems, Inc.
(incorporated by reference to Exhibit
2.3 to Amendment No. 1 to Horizon's
Registration Statement on Form S-4
(Registration No. 33-59561)).
23.1 Consent of Ernst & Young LLP
99.1 Joint Proxy Statement/Prospectus of
Horizon and CMS dated June 6, 1995 (as
supplemented by the Joint Proxy
Statement/Prospectus Supplement of
June 21, 1995) (incorporated by reference
to Horizon's Registration Statement on
Form S-4 (Registration No. 33-59561)).
*99.2 Press Release of Horizon/CMS Healthcare
Corporation dated July 10, 1995.
- -----------------
<FN>
* Filed with the Initial Form 8-K.
</TABLE>
-4-
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed balance sheet at February 28, 1995 gives
effect to (i) the combination of Horizon's historical assets, liabilities and
stockholders' equity at February 28, 1995 with the historical assets,
liabilities and stockholders' equity of CMS as of March 31, 1995 accounted for
as a pooling of interests as if the Merger had occurred on February 28, 1995,
and (ii) as adjusted to give effect to the individually insignificant
acquisitions effected subsequent to February 28, 1995 as if the transactions had
occurred on February 28, 1995. Such adjustments are more fully described in the
notes to the unaudited pro forma condensed financial statements.
The unaudited pro forma condensed statement of earnings for the year ended
May 31, 1994 gives effect to (i) the Merger accounted for as a pooling of
interests, (ii) the merger of Greenery Rehabilitation Group, Inc. (Greenery)
into Horizon, (iii) the acquisition of peopleCARE Heritage Group (peopleCARE)
and (iv) individually insignificant acquisitions effected subsequent to June 1,
1993 by Horizon, as if all such transactions had occurred on June 1,
1993. The unaudited pro forma condensed statement of earnings for the year ended
May 31, 1994 includes historical results of operations as follows: (i) the
results of operations of Horizon for its fiscal year ended May 31, 1994, (ii)
the results of operations of CMS for its fiscal year ended June 30, 1994, (iii)
the results of operations of Greenery for the eight and one-half months ended
February 10, 1994, (iv) the results of operations of peopleCARE for the twelve
months ended April 30, 1994 and (v) the results of operations of the
individually insignificant acquisitions for varying fiscal periods to the extent
not already included in the historical amounts of Horizon. The combined
historical amounts have been adjusted by giving effect to the assumptions and
adjustments included in the accompanying notes to the unaudited pro forma
condensed financial statements.
The unaudited pro forma condensed statement of earnings for the nine months
ended February 28, 1995 gives effect to (i) the Merger accounted for as a
pooling of interests, (ii) the acquisitions of peopleCARE and individually
insignificant acquisitions by Horizon, as if all such transactions had occurred
on June 1, 1994. The unaudited pro forma condensed statement of earnings for the
nine months ended February 28, 1995 includes historical results of operations as
follows: (i) the results of operations of Horizon for the nine months ended
February 28, 1995, (ii) the results of operations of CMS for the nine months
ended March 31, 1995, (iii) the results of peopleCARE for the two months ended
July 31, 1994 and (iv) the results of operations of the individually
insignificant acquisitions for varying interim periods to the extent not already
included in the historical amounts of Horizon. The combined historical amounts
have been adjusted by giving effect to the assumptions and adjustments included
in the accompanying notes to the unaudited pro forma condensed financial
statements.
The unaudited pro forma condensed statements of earnings for the years
ended May 31, 1993 and 1992 gives effect to the Merger accounted for as a
pooling of interests as if the transaction had occurred on June 1, 1992 and
1991, respectively. The unaudited pro forma condensed statements of earnings for
the years ended May 31, 1993 and 1992 include the historical results of
operations as follows (i) the results of operations of Horizon for its fiscal
years ended May 31, 1993 and 1992 and (ii) the results of operations of CMS for
its fiscal years ended June 30, 1993 and 1992.
The following pro forma financial information may not necessarily reflect
the financial condition or results of operations of Horizon or Horizon and CMS
combined, which would have actually resulted had the transactions referred to
above occurred as of the date and for the periods indicated or reflect the
future earnings of Horizon or Horizon and CMS combined. The pro forma financial
information should be read in conjunction with the accompanying notes to the
unaudited pro forma condensed financial statements and the financial statements
of Horizon, CMS, Greenery and peopleCARE.
F-1
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AT FEBRUARY 28, 1995
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL POOLING OF COMBINED
------------------ INTERESTS PRO FORMA HISTORICAL ACQUISITION AFTER
HORIZON CMS (3) ADJUSTMENTS (1) COMBINED ACQUISITIONS (2) ADJUSTMENTS (3) ACQUISITIONS
-------- -------- --------------- ---------- ---------------- --------------- ------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.... $ 14,135 $ 23,142 $ -- $ 37,277 $ 3 $-- $ 37,280
Accounts receivable......... 133,659 216,025 (17,796)(a) 331,888 3,151 -- 335,039
Other current assets........ 26,038 44,844 -- 70,882 59 -- 70,941
-------- -------- --------------- ---------- ------- --------------- ------------
Total current assets........ 173,832 284,011 (17,796) 440,047 3,213 -- 443,260
Land, buildings and
equipment, net............. 360,496 240,464 -- 600,960 494 10,056 (a) 611,510
Notes receivable............ 19,690 27,028 -- 46,718 8 -- 46,726
Goodwill.................... 75,182 89,871 -- 165,053 -- 2,716 (a) 167,769
Other long-term assets...... 54,501 78,432 1,207 (b) 131,125 68 -- 131,193
(3,015)(b)
-------- -------- --------------- ---------- ------- --------------- ------------
Total assets.............. $683,701 $719,806 $(19,604) $1,383,903 $3,783 $12,772 $ 1,400,458
-------- -------- --------------- ---------- ------- --------------- ------------
-------- -------- --------------- ---------- ------- --------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities......... $ 51,299 $145,414 $ 15,800 (d) $ 194,717 $2,548 $-- $ 197,265
(17,796)(a)
Long-term debt and capital
lease obligations.......... 215,163 310,895 -- 526,058 -- -- 526,058
Other long-term liabilities
and minority interest...... 19,170 24,539 -- 43,709 22 -- 43,731
Stockholders' equity:
Preferred stock ($.001 par
value, 500,000 shares
authorized, none issued -- -- -- -- -- -- --
Common stock ($.001 par
value, 150,000,000 shares
authorized, 29,027,527
shares issued with
28,523,752 shares
outstanding, 49,369,009
shares pro forma combined
issued................... 29 386 (366)(c) 49 10 (9)(a) 50
Additional paid-in
capital.................. 351,073 194,485 366 (c) 545,924 -- 13,984 (a) 559,908
Retained earnings......... 52,554 46,449 (15,800)(d) 81,395 1,203 (1,203)(a) 81,395
(1,808)(b)
Treasury stock............ (5,587) -- -- (5,587) -- -- (5,587)
Receivables from the sale
of common stock.......... -- (2,362) -- (2,362) -- -- (2,362)
-------- -------- --------------- ---------- ------- --------------- ------------
Total stockholders'
equity................... 398,069 238,958 (17,608) 619,419 1,213 12,772 633,404
-------- -------- --------------- ---------- ------- --------------- ------------
Total liabilities and
stockholders' equity..... $683,701 $719,806 $(19,604) $1,383,903 $3,783 $12,772 $ 1,400,458
-------- -------- --------------- ---------- ------- --------------- ------------
-------- -------- --------------- ---------- ------- --------------- ------------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments.)
F-2
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL POOLING OF COMBINED
------------------ INTERESTS PRO FORMA HISTORICAL ACQUISITION AFTER
HORIZON CMS ADJUSTMENTS (4) COMBINED ACQUISITIONS (5) ADJUSTMENTS (6) ACQUISITIONS
-------- -------- --------------- ---------- ---------------- --------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............ $459,457 $740,724 $ -- $1,200,181 $51,100 $ (33)(g) $1,251,248
-------- -------- --------------- ---------- -------- --------------- ------------
Cost of services.............. 348,507 655,918 (15,189)(a) 989,236 40,364 (35)(g) 1,028,644
(921)(k)
Administrative and general.... 47,163 -- 15,189 (a) 62,352 5,977 (50)(h) 68,279
Interest expense.............. 13,335 26,363 -- 39,698 1,737 641 (i) 43,500
1,424 (l)
Depreciation and
amortization................. 13,063 27,952 911 (b) 41,926 783 682 (m) 43,546
155 (j)
Special charge................ -- 18,443 -- 18,443 -- -- 18,443
-------- -------- --------------- ---------- -------- --------------- ------------
Total operating expenses.... 422,068 728,676 911 1,151,655 48,861 1,896 1,202,412
-------- -------- --------------- ---------- -------- --------------- ------------
Earnings (loss) before
minority interests and
income taxes............... 37,389 12,048 (911) 48,526 2,239 (1,929) 48,836
Minority interests............ -- (5,197) -- (5,197) -- -- (5,197)
-------- -------- --------------- ---------- -------- --------------- ------------
Earnings (loss) before
income taxes............... 37,389 6,851 (911) 43,329 2,239 (1,929) 43,639
Income taxes.................. 14,555 4,955 (365) (b) 19,145 -- 336 (7) 19,481
-------- -------- --------------- ---------- -------- --------------- ------------
Earnings (loss) from
continuing operations...... $ 22,834 $ 1,896 $ (546) $ 24,184 $ 2,239 $ (2,265) $ 24,158
-------- -------- --------------- ---------- -------- --------------- ------------
-------- -------- --------------- ---------- -------- --------------- ------------
Earnings (loss) from
continuing operations per
common and common equivalent
share........................ $ 0.88 $ 0.05 $ 0.51 $ 0.50
-------- -------- ---------- ------------
-------- -------- ---------- ------------
Earnings (loss) from
continuing operations per
common share -- Assuming full
dilution..................... $ 0.88 $ 0.05 $ 0.51 $ 0.50
-------- -------- ---------- ------------
-------- -------- ---------- ------------
Weighted average shares
outstanding:
Primary..................... 25,932 39,016 46,989 48,036
-------- -------- ---------- ------------
-------- -------- ---------- ------------
Fully diluted............... 25,932 39,530 47,266 48,313
-------- -------- ---------- ------------
-------- -------- ---------- ------------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments.)
F-3
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL POOLING OF IN- COMBINED
-------------------- TERESTS ADJUST- PRO FORMA HISTORICAL ACQUISITION AFTER ACQUI-
HORIZON CMS MENTS (4) COMBINED ACQUISITIONS (5)(8) ADJUSTMENTS (6) SITIONS
-------- ---------- --------------- ---------- ------------------- --------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues....... $375,095 $1,008,281 $ -- $1,383,376 $257,514 $(3,695)(a) $1,619,368
-------- ---------- --------------- ---------- ---------- ------------
(17,429)(b)
1,220 (b)
46 (c)
(1,464)(d)
(200)(g)
---------------
(21,522)
---------------
Cost of services......... 293,863 894,488 (19,943)(a) 1,168,408 204,921 (2,144)(a) 1,353,293
(16,860)(b)
(211)(g)
(821)(k)
Administrative and
general................. 40,165 -- 19,943 (a) 60,108 45,698 (552)(a) 98,929
(1,402)(b)
(4,747)(e)
124 (f)
(300)(h)
Interest expense......... 6,240 38,156 -- 44,396 9,970 1,599 (a) 62,101
2,483 (l)
3,653 (i)
Depreciation and
amortization............ 8,081 38,266 1,902 (b) 48,249 5,139 1,045 (a) 56,196
(163)(b)
1,105 (m)
821 (j)
Special charge........... -- 74,834 -- 74,834 5,881 (5,881)(a) 74,834
-------- ---------- --------------- ---------- ---------- --------------- ------------
Total operating
expenses.............. 348,349 1,045,744 1,902 1,395,995 271,609 (22,251) 1,645,353
-------- ---------- --------------- ---------- ---------- --------------- ------------
Earnings (loss) before
minority interests and
income taxes.......... 26,746 (37,463) (1,902) (12,619) (14,095) 729 (25,985)
Minority interests....... -- (4,730) (4,730) -- -- (4,730)
-------- ---------- --------------- ---------- ---------- --------------- ------------
Earnings (loss) before
income taxes.......... 26,746 (42,193) (1,902) (17,349) (14,095) 729 (30,715)
Income taxes............. 10,140 (7,648) (761)(b) 1,731 (9,202) 4,347 (7) (3,124)
-------- ---------- --------------- ---------- ---------- --------------- ------------
Earnings (loss) from
continuing opera-
tions................. $ 16,606 $ (34,545) $ (1,141) $ (19,080) $ (4,893) $(3,618) $ (27,591)
-------- ---------- --------------- ---------- ---------- --------------- ------------
-------- ---------- --------------- ---------- ---------- --------------- ------------
Earnings (loss) from
continuing operations
per common and common
equivalent share........ $ 0.99 $ (0.92) $ (0.51) $ (0.69)
-------- ---------- ---------- ------------
-------- ---------- ---------- ------------
Earnings (loss) from
continuing operations
per common share --
Assuming full
dilution................ $ 0.91 $ (0.92) $ (0.51) $ (0.69)
-------- ---------- ---------- ------------
-------- ---------- ---------- ------------
Weighted average shares
outstanding:
Primary................ 16,751 37,663 37,078 40,098
-------- ---------- ---------- ------------
-------- ---------- ---------- ------------
Fully diluted.......... 19,724 37,663 40,051 43,071
-------- ---------- ---------- ------------
-------- ---------- ---------- ------------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments.)
F-4
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
FOR THE YEAR ENDED MAY 31, 1993
<TABLE>
<CAPTION>
HISTORICAL POOLING OF
------------------ INTERESTS PRO FORMA
HORIZON CMS ADJUSTMENTS (4) COMBINED
-------- -------- --------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenues.............................................................. $232,199 $904,159 $ -- $1,136,358
-------- -------- --------------- ----------
Cost of services................................................................ 186,709 790,172 (16,795)(a) 960,086
Administrative and general...................................................... 25,489 -- 16,795 (a) 42,284
Interest expense................................................................ 4,252 22,747 -- 26,999
Depreciation and
amortization.................................................................... 4,007 29,735 172 (b) 33,914
Special charge.................................................................. -- 14,556 -- 14,556
-------- -------- --------------- ----------
Total operating
expenses........................................................................ 220,457 857,210 172 1,077,839
-------- -------- --------------- ----------
Earnings before minority interests and income taxes............................. 11,742 46,949 (172) 58,519
Minority interests.............................................................. -- (6,663) -- (6,663)
-------- -------- --------------- ----------
Earnings before income taxes................................................ 11,742 40,286 (172) 51,856
Income taxes.................................................................... 4,026 17,563 (69) (b) 21,520
-------- -------- --------------- ----------
Earnings from continuing operations............................................. $ 7,716 $ 22,723 $ (103) $ 30,336
-------- -------- --------------- ----------
-------- -------- --------------- ----------
Earnings from continuing operations per common and common equivalent share...... $ 0.66 $ 0.59 $ 0.94
-------- -------- ----------
-------- -------- ----------
Earnings from continuing operations per common share -- Assuming full
dilution....................................................................... $ 0.62 $ 0.59 $ 0.89
-------- -------- ----------
-------- -------- ----------
Weighted average shares outstanding:
Primary....................................................................... 11,712 38,051 32,248
-------- -------- ----------
-------- -------- ----------
Fully diluted................................................................. 16,276 38,290 36,941
-------- -------- ----------
-------- -------- ----------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments)
F-5
<PAGE>
HORIZON HEALTHCARE CORPORATION AND SUBSIDIARIES AND
CONTINENTAL MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF EARNINGS
FOR THE YEAR ENDED MAY 31, 1992
<TABLE>
<CAPTION>
HISTORICAL POOLING OF PRO
------------------ INTERESTS FORMA
HORIZON CMS ADJUSTMENTS (4) COMBINED
-------- -------- --------------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenues.............................................................. $158,979 $684,761 $ -- $843,740
-------- -------- --------------- --------
Cost of services................................................................ 130,884 612,056 (15,394)(a) 727,546
Administrative and general...................................................... 17,076 -- 15,394 (a) 32,470
Interest expense................................................................ 2,207 6,216 8,423
Depreciation and amortization................................................... 2,157 17,766 30 (b) 19,953
-------- -------- --------------- --------
Total operating expenses.................................................... 152,324 636,038 30 788,392
-------- -------- --------------- --------
Earnings before minority interests and income taxes......................... 6,655 48,723 (30) 55,348
Minority interests.............................................................. -- (6,771) -- (6,771)
-------- -------- --------------- --------
Earnings before income taxes................................................ 6,655 41,952 (30) 48,577
Income taxes.................................................................... 1,628 14,861 (12) (b) 16,477
-------- -------- --------------- --------
Earnings from continuing operations......................................... $ 5,027 $ 27,091 $ (18) $ 32,100
-------- -------- --------------- --------
-------- -------- --------------- --------
Earnings from continuing operations per common and common equivalent share...... $ 0.44 $ 0.73 $ 1.02
-------- -------- --------
-------- -------- --------
Earnings from continuing operations per common share -- Assuming full
dilution....................................................................... $ 0.44 $ 0.72 $ 1.00
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding:
Primary....................................................................... 11,402 37,169 31,462
-------- -------- --------
-------- -------- --------
Fully diluted................................................................. 12,778 37,403 32,964
-------- -------- --------
-------- -------- --------
</TABLE>
(See Notes to Unaudited Pro Forma Condensed Financial
Statements for explanations of adjustments)
F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
I. (1) The Merger Agreement provides that each share of CMS Common Stock will
be converted into .5397 shares of Horizon Common Stock.
(2) Other income, principally interest and merger expenses of CMS which have
been reported separately on CMS' historical statements of operations, have
been reclassified to operating revenues and cost of services, respectively
for purposes of presentation in the unaudited pro forma statements of
earnings.
(3) Notes receivable from officers at February 28, 1995 relating to the sale
of 2,362 shares of CMS Common Stock has been separately stated as a
component of stockholders' equity in CMS's historical amounts.
(4) The pro forma combined earnings per share amounts for all periods
presented are based on the weighted average shares outstanding for Horizon
plus CMS weighted average shares outstanding multiplied by the Exchange
Ratio.
(5) The pro forma after acquisitions earnings per share amounts for the nine
months ended February 28, 1995 and the year ended May 31, 1994 reflect
additional weighted average shares of 1,047 and 3,020, respectively,
relating to the issuance of Horizon Common Stock in connection with
individually insignificant acquisitions.
II. EXPLANATION OF PRO FORMA ADJUSTMENTS:
PRO FORMA BALANCE SHEETS
(1) POOLING OF INTERESTS ADJUSTMENTS
(a) To conform CMS's financial statements to that of Horizon. This
adjustment combines the net amount of estimated Medicare and Medicaid
settlements for Horizon and CMS into one line item, classified in current
liabilities.
(b) To record the effect of conforming Horizon's accounting policies
regarding deferred pre-opening costs to CMS's accounting policies. The
cumulative effect through February 28, 1995 related to conforming this
accounting policy was to increase accumulated amortization of deferred
pre-opening costs by $3,015, increase deferred income taxes by $1,207 and
decrease retained earnings by $1,808.
(c) To record the issuance of 20,867 shares of Horizon Common Stock, par
value $.001 per share, upon conversion of the 38,664 shares of CMS Common Stock,
par value $.01 per share.
(d) Certain non-recurring adjustments estimated to approximate $15,800 will
be recorded in connection with the Merger. These adjustments include
approximately $9,200 for the settlement of obligations under existing
employment agreements with the chief executive officer of CMS as follows:
$5,500 related to the settlement of existing future bonus rights; and
$3,700 related to termination payments payable following a change in control
of CMS. The remaining approximate $6,600 represents expenses directly
related to effecting the Merger. These costs have been accrued in the
unaudited pro forma combined balance sheet as of February 28, 1995. All of
these costs are expected to be charged against income of the combined
company immediately upon closing of the Merger, which is currently
expected to be in Horizon's first quarter of fiscal year 1996.
Accordingly, the effects of these costs have not been reflected in the
unaudited pro forma condensed statements of earnings. The impact of these
adjustments on earnings from continuing operations for the nine months
ended February 28, 1995 is expected to be $11,900, net of income taxes.
Including these adjustments, earnings from continuing operations per
share-primary and fully diluted for the nine months ended February 28,
1995 would have been $0.25 on a pro forma combined after acquisitions
basis.
(2) HISTORICAL ACQUISITIONS
The unaudited pro forma condensed balance sheet at February 28, 1995
includes the historical aggregated balance sheets of insignificant acquisitions
by Horizon subsequent to February 28, 1995.
F-7
<PAGE>
(3) HISTORICAL INSIGNIFICANT ACQUISITIONS ADJUSTMENTS
(a) Adjustments for $10,056 and $2,716 have been recorded to land, buildings
and equipment and goodwill, respectively, in the Horizon and combined balance
sheets as of February 28, 1995 to record the value of assets purchased and the
excess purchase price related to the insignificant acquisitions by Horizon
completed after February 28, 1995. In addition, adjustments of $(9), $13,984 and
$(1,203) have been recorded to common stock, additional paid-in capital and
retained earnings, respectively, to eliminate the acquired entities' equity and
record the issuance of 761,719 shares of Horizon Common Stock, respectively.
PRO FORMA STATEMENTS OF EARNINGS
(4) POOLING OF INTERESTS ADJUSTMENTS
(a) Adjustments have been recorded to conform CMS's financial statement
presentation to that of Horizon. Amounts reclassified represent historical
administrative and general expense which has been classified by CMS as cost of
services expense.
(b) To record the effect of conforming Horizon's accounting policies
regarding deferred pre-opening costs to CMS's accounting policies. The
following summarizes the effect of conforming this accounting policy for each
period presented:
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended Year Ended Year Ended
February 28, 1995 May 31, 1994 May 31, 1993 May 31, 1992
----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase depreciation and
amortization expense $(911) $(1,902) $(172) $(30)
Decrease in income taxes 365 761 69 12
----------------- ------------ ------------ ------------
Decrease in earnings from $(546) $(1,141) $(103) $(18)
continuing operations ----------------- ------------ ------------ ------------
----------------- ------------ ------------ ------------
Effect on Horizon historical
earning per share -
assuming full dilution $(0.01) $(0.03) - -
----------------- ------------ ------------ ------------
----------------- ------------ ------------ ------------
</TABLE>
(5) The unaudited pro forma condensed statement of earnings for the nine months
ended February 28, 1995 includes the historical results of operations of
peopleCARE prior to its acquisition on July 29, 1994 and the results of
operations of individually insignificant acquisitions by Horizon for the
appropriate periods prior to each individual acquisition.
The unaudited pro forma condensed statement of earnings for the year ended
May 31, 1994 includes the historical results of operations of Greenery prior to
its acquisition on February 10, 1994, the historical results of operations of
peopleCARE for the twelve months ended April 30, 1994 and the results of
operations of individually insignificant acquisitions by Horizon for appropriate
twelve month periods.
(6) ACQUISITION ADJUSTMENTS:
GREENERY ACQUISITION ADJUSTMENTS
Horizon completed the Greenery merger and related transactions on February
10, 1994. As a result, the historical financial statements of Horizon for the
year ended May 31, 1994 include approximately three and one-half months of
Greenery operations. Following are adjustments recorded to reflect the effects
of the Greenery merger and related transactions for the approximate eight and
one-half month period ended February 10, 1994 as if the Greenery merger had
occurred on June 1, 1993:
(a) In connection with the Greenery merger, Horizon purchased three
facilities previously leased by Health and Rehabilitation Properties Trust
("HRP") to Greenery and incurred additional debt related to a Greenery-owned
facility to raise additional cash. In addition, certain assets for which a write
down of approximately $3,100 was recorded by Greenery during the eight and
one-half months ended February 10, 1994 were sold, along with two office
buildings owned and operated by Greenery. Greenery also recorded a $775 loss on
the sale of one facility to HRP and expenses of $2,006 related to severance pay
and other Greenery merger costs in preparation for the Greenery merger during
the eight and one-half months ended February 10, 1994. The impact of the above,
as well as the additional
F-8
<PAGE>
depreciation and amortization expense for the allocation of excess purchase
price to buildings and equipment and goodwill (assuming a 40-year amortization
period for goodwill), on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
EIGHT AND ONE-HALF
MONTHS ENDED
FEBRUARY 10, 1994
------------------
<S> <C>
Operating revenues.............................................................. $(3,695)
-------
Cost of services, net of facility leases........................................ (2,144)
Administrative and general...................................................... (552)
Interest........................................................................ 1,599
Depreciation and amortization................................................... 1,045
Non-recurring write down to net realizable value of assets sold to M&P and HRP
and other Greenery merger related costs and losses............................. (5,881)
-------
Total operating expenses...................................................... (5,933)
-------
Increase in earnings before income taxes...................................... $ 2,238
-------
-------
</TABLE>
(b) Pursuant to the Greenery merger, Greenery's obligations under three
facility leases with HRP were assumed by the former majority owners of Greenery,
and Horizon entered into a management agreement with such former majority owners
for such facilities. The impact on earnings before income taxes was as follows:
<TABLE>
<CAPTION>
EIGHT AND ONE-HALF
MONTHS ENDED
FEBRUARY 10, 1994
------------------
<S> <C>
Operating revenues.............................................................. $(17,429)
--------
Costs of services............................................................... (16,860)
Administrative and general...................................................... (1,402)
Depreciation and amortization................................................... (163)
--------
Total operating expenses...................................................... (18,425)
--------
Net increase in earnings before income taxes.................................. 996
Pro forma management revenues................................................... 1,220
--------
Increase in earnings before income taxes...................................... $ 2,216
--------
--------
</TABLE>
(c) Interest income has been increased to reflect the impact of Horizon
financing the $20,000 sale to M&P of certain Greenery assets, including among
other assets, the office buildings discussed in (a) above and interest bearing
notes receivable, as follows:
<TABLE>
<CAPTION>
EIGHT AND ONE-HALF
MONTHS ENDED
FEBRUARY 10, 1994
------------------
<S> <C>
Interest on Horizon's $20,000 note receivable................................... $ 851
Less interest on notes receivable sold.......................................... (805)
------
$ 46
------
------
</TABLE>
(d) Operating revenues have been reduced by $1,464 to eliminate consulting
fee revenues between Horizon and Greenery.
(e) As a result of the Greenery merger, the corporate offices of Greenery
were closed and specifically identified duplicate corporate administrative and
general expenses at Greenery totaling $4,747 for the eight and one-half months
ended February 10, 1994 have been eliminated.
(f) Horizon has entered into a management agreement with a director of
Greenery for a term of seven years at an annual rate of $175 ($124 for eight and
one-half months).
F-9
<PAGE>
PEOPLECARE ACQUISITION ADJUSTMENT
Horizon completed the peopleCARE acquisition on July 29, 1994. As a result,
the historical financial statements of Horizon for the nine months ended
February 28, 1995 include approximately seven months of peopleCARE operations.
Following are adjustments recorded to reflect the effects of the peopleCARE
acquisition and related transactions for the twelve month period ended May 31,
1994 and two month period ended July 29, 1994 as if the peopleCARE acquisition
had occurred on June 1, 1993 and June 1, 1994, respectively. The adjustments for
the peopleCARE acquisition consist of the following:
(g) The historical financial information reported for peopleCARE includes
certain de minimis amounts which were not acquired or assumed by Horizon in
connection with this acquisition. Therefore, adjustments have been recorded to
eliminate interest and other operating revenues of $200 and $33 for the year
ended May 31, 1994 and the nine months ended February 28, 1995, respectively,
and cost of services expense of $211 and $35 for the year ended May 31, 1994 and
the nine months ended February 28, 1995, respectively, associated with the
predecessor entity operations which were not acquired by Horizon.
(h) Adjustments of $300 and $50 have been recorded to eliminate
distributions to peopleCARE's prior owners for the year ended May 31, 1994 and
the nine months ended February 28, 1995, respectively.
(i) The peopleCARE acquisition purchase price included the payment of
$55,616 in cash, which was funded from Horizon's line of credit, for title to
seven facilities. This acquisition also called for Horizon to enter into a
capital lease for six facilities formerly owned by peopleCARE. As a result,
interest expense has been adjusted as follows for the year ended May 31, 1994
and the nine months ended February 28, 1995, respectively:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MAY 31, 1994 FEBRUARY 28, 1995
------------ -----------------
<S> <C> <C>
Increase in line of credit sufficient to retire outstanding peopleCARE debt
during the period ($49,716 for the period June 1, 1993 through September 30,
1993 and $55,716 for the period October 1, 1993 through May 31, 1994)
Interest at 7.25%............................................................. $ 3,840 $ 672
Increase in capital lease obligations of $48,700.
Interest expense amortized based on an interest rate of 9.09%................. 4,403 734
Less historical peopleCARE interest expense..................................... (4,590) (765)
------------ ------
Increase in interest expense................................................ $ 3,653 $ 641
------------ ------
------------ ------
</TABLE>
F-10
<PAGE>
(j) Adjustments have been recorded to depreciation and amortization expense
to reflect the purchase of seven facilities and capital lease of six facilities
in connection with the peopleCARE acquisition for the year ended May 31, 1994
and the nine months ended February 28, 1995, respectively, as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MAY 31, 1994 FEBRUARY 28, 1995
------------ -----------------
<S> <C> <C> <C>
Purchase price allocated to equipment........................................... $ 5,500
Depreciable life in years....................................................... 10
-------
$ 550 $ 91
Purchase price allocated to buildings........................................... $86,240
Depreciable life in years....................................................... 40
-------
2,156 370
Purchase price allocated to noncompete agreements............................... $ 250
Amortizable life in years....................................................... 3
-------
83 14
Less historical peopleCARE depreciation expense................................. (1,968) (320)
------------ ------
Increase in depreciation and amortization expense........................... $ 821 $ 155
------------ ------
------------ ------
</TABLE>
INDIVIDUALLY INSIGNIFICANT ACQUISITIONS AND ACQUISITIONS ADJUSTMENTS
Horizon has completed various individually insignificant transactions in the
period from June 1, 1994 to March 1, 1995. As a result, the historical financial
statements of Horizon for the nine months ended February 28, 1995 include
varying periods of operations related to these acquisitions. The following are
adjustments recorded to reflect the results of operations of these acquisitions
to the extent not included in Horizon's historical results of operations for the
periods ended February 28, 1995 and May 31, 1994 as if such acquisitions had
occurred on June 1, 1994 and June 1, 1993, respectively. The adjustments for the
insignificant acquisitions consist of the following:
(k) Adjustments for ($821) and ($921) have been recorded to eliminate
historical lease expense for the purchase of leases for the year ended May 31,
1994 and the nine months ended February 28, 1995, respectively.
(l) Adjustments for $2,483 and $1,424 have been recorded to reflect
interest expense on long-term debt incurred to fund acquisitions for the year
ended May 31, 1994 and the nine months ended February 28, 1995, respectively.
(m) Adjustments for $1,105 and $682 have been recorded to depreciation and
amortization to reflect the additional costs associated with the purchased
entities for the year ended May 31, 1994 and the nine months ended February 28,
1995, respectively.
(7) INCOME TAXES:
An effective tax rate of 39.5% has been applied to all entities and to all
periods except with respect to historical CMS for which the actual historical
effective tax rate has been maintained.
(8) GREENERY:
Administrative and general expenses included in the original pro forma
condensed consolidated financial statements prepared to reflect Horizon's
acquisition of Greenery have been amended to reflect certain adjustments to the
Greenery historical period from October 1, 1993 through the acquisition date,
February 11, 1994. The pro forma financial statements were first amended eight
months following the acquisition to properly reflect as a reduction to net
income in the unaudited pre-acquisition period adjustments that Horizon made to
predecessor company reserves that had not previously been reflected in income.
The reduction to income associated with these adjustments totaled $7,777,
pre-tax, and $4,705 net of tax. Further adjustments were recorded related to
errors discovered in the original Greenery purchase accounting and the
resolution of a pre-acquisition contingency totaling $7,710 and $471,
respectively, pre-tax, and $4,665 and $285, respectively, net of taxes. All such
adjustments have been properly reflected in each of the accompanying pro forma
condensed statements of earnings for the year ended May 31, 1994.
F-11
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference into this Current
Report on Form 8-K/A and the further incorporation by reference into the
Registration Statements on Form S-3 (Registration No. 33-80660), Form S-4
(Registration No. 33-84682), Form S-8 (Registration No. 33-84502), and
Form S-8 (Registration No. 33-61697) of Horizon/CMS Healthcare
Corporation of our report dated August 9, 1994, with respect to the
consolidated financial statements and schedules of Continental Medical
Systems, Inc. included in its Annual Report on Form 10-K (as amended by
Amendment No. 1 on Form 10K/A) for the year ended June 30, 1994, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Harrisburg, Pennsylvania
September 25, 1995
