<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
AMENDMENT NO. 2
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 29, 1994
---------------------
HORIZON HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-9369 91-1346899
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
6001 INDIAN SCHOOL ROAD, N.E.
SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
(Address of principal executive (Zip Code)
offices)
------------------------
(Registrant's telephone number, including area code) (505) 881-4961
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
(i) See the Index to Financial Statements of the peopleCARE Heritage
Group on page F-2.
(ii) See the Index to Interim Financial Statements of the peopleCARE
Heritage Group on page I-2.
(b) PRO FORMA FINANCIAL INFORMATION.
See the Index to Unaudited Pro Forma Condensed Financial Statements on page
P-2.
(c) EXHIBITS.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of June 9, 1994 by and among the
Company and peopleCARE Heritage Manor Plano, Inc., peopleCARE Heritage Manor Canton,
Inc., peopleCARE Heritage Park, Inc., peopleCARE Heritage Village, Inc., peopleCARE
Winterhaven, Inc., peopleCARE Heritage Place, Inc., peopleCARE Heritage Forest Lane,
Inc., peopleCARE Heritage Oaks, Inc., peopleCARE Heritage Manor Longview, Inc.,
peopleCARE Heritage Gardens Carrollton, Inc., peopleCARE Heritage Estates, Inc.,
peopleCARE Heritage Country Manor, Inc., and peopleCARE Heritage Western Hills, Inc.,
as amended by Amendment No. 1 to Agreement and Plan of Reorganization dated June 30,
1994 (incorporated by reference to Exhibit 2.7 to the Company's Annual Report on Form
10-K for the year ended May 31, 1994).
2.2 Real Estate Contract of Sale dated as of June 9, 1994 by and among White Oaks
Investments, L.P., Four-K Investments, L.P., and the Company, as amended by Amendment
No. 1 to Real Estate Contract of Sale dated June 30, 1994 (incorporated by reference
to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the year ended May
31, 1994).
2.3 Real Estate Contract of Sale and Master Lease Agreement dated June 9, 1994 by and
among White Oaks Investments, L.P., Robert J. Schlegel and the Company, as amended by
Amendment No. 1 to Real Estate Contract of Sale and Master Lease Agreement dated June
30, 1994 (incorporated by reference to Exhibit 10.46 to the Company's Annual Report
on Form 10-K for the year ended May 31, 1994).
2.4 Master Lease Agreement between White Oaks Investment, L.P., and the Company dated
July 31, 1994 (incorporated by reference to Exhibit 10.47 to the Company's Annual
Report on Form 10-K for the year ended May 31, 1994).
23.1 Consent of BDO Seidman.
</TABLE>
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
HORIZON HEALTHCARE CORPORATION
By: ______/s/ ERNEST A. SCHOFIELD_____
Ernest A. Schofield
SENIOR VICE PRESIDENT
Date: June 2, 1995
3
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
F-1
<PAGE>
PEOPLECARE HERITAGE GROUP
CONTENTS
<TABLE>
<S> <C>
Independent auditors' report.................................................. F-3
Combined financial statements:
Combined balance sheets..................................................... F-4
Combined statements of income............................................... F-6
Combined statements of owners' equity....................................... F-7
Combined statements of cash flows........................................... F-8
Summary of accounting policies.............................................. F-9 - F-10
Notes to combined financial statements...................................... F-11 - F-15
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Owners
peopleCARE Heritage Group
Dallas, Texas
We have audited the accompanying combined balance sheets of peopleCARE
Heritage Group as of December 31, 1993 and 1992, and the related combined
statements of income, owners' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of peopleCARE
Heritage Group at December 31, 1993 and 1992, and the combined results of their
operations and their cash flows for each of the years then ended in conformity
with generally accepted accounting principles.
/s/__BDO SEIDMAN______________________
BDO Seidman
February 25, 1994
F-3
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents................................................................ $ 17,701 $ 6,009
Restricted cash (Note 1)................................................................. 3,965 --
Short-term investments (Note 2).......................................................... 9,389 --
Accounts receivable, net of allowance for doubtful accounts of $55 and $35 (Note 1)...... 4,972 2,634
Prepaid expenses and advances............................................................ 578 232
--------- ---------
Total current assets....................................................................... 36,605 8,875
--------- ---------
Investments and other assets
Restricted cash (Note 1)................................................................. 1,742 --
Land for future development.............................................................. 3,045 2,756
Notes receivable from owner/shareholders (Note 5)........................................ 11,080 11,400
Other.................................................................................... 53 --
--------- ---------
Total investments and other assets 15,920 14,156
--------- ---------
Property and equipment (Note 1)
Land..................................................................................... 2,653 2,563
Buildings and improvements............................................................... 39,633 31,299
Furniture and equipment.................................................................. 12,401 9,645
Other.................................................................................... 1,441 258
--------- ---------
56,128 43,765
Less accumulated depreciation............................................................ (9,243) (7,392)
--------- ---------
Net property and equipment................................................................. 46,885 36,373
--------- ---------
$ 99,410 $ 59,404
--------- ---------
--------- ---------
</TABLE>
F-4
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND OWNERS' EQUITY
Current
Accounts payable........................................................................ $ 1,245 $ 866
Accrued expenses (Note 3)............................................................... 2,099 1,255
Current maturities of long-term debt (Note 1)........................................... 1,483 12,144
--------- ----------
Total current liabilities................................................................. 4,827 14,265
--------- ----------
Long-term debt (Note 1)................................................................... 83,815 42,031
Less current maturities (Note 1).......................................................... (1,483) (12,144)
--------- ----------
Total long-term debt...................................................................... 82,332 29,887
--------- ----------
Commitments and contingencies (Notes 1 and 7)
Owners' equity
Common stock............................................................................ 15 13
Contributed capital..................................................................... 1 1
Retained earnings....................................................................... 12,235 15,238
--------- ----------
Total owners' equity...................................................................... 12,251 15,252
--------- ----------
$ 99,410 $ 59,404
--------- ----------
--------- ----------
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-5
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Operating revenues......................................................................... $ 45,860 $ 36,759
--------- ---------
Operating expenses......................................................................... 31,796 24,670
General and administrative................................................................. 1,933 1,402
Interest, net of other income including management fees paid by affiliates of $394 and $284
(Notes 1 and 5)........................................................................... 3,031 2,290
Depreciation............................................................................... 1,903 1,252
--------- ---------
Total Operating Expenses................................................................... 38,663 29,614
--------- ---------
Income Before Taxes on Income.............................................................. 7,197 7,145
Taxes on Income (Notes 4 and 6)............................................................ 95 --
--------- ---------
Net Income................................................................................. $ 7,102 $ 7,145
--------- ---------
--------- ---------
Pro Forma Data (Note 4):
Historical income before taxes on income................................................. $ 7,197 $ 7,145
Pro forma provision for taxes on income.................................................. 2,771 2,746
--------- ---------
Pro Forma Net Income....................................................................... $ 4,426 $ 4,399
--------- ---------
--------- ---------
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-6
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Common Stock
peopleCARE Center of Texas, Inc.......................................................... $ 1 $ 1
peopleCARE Heritage Forest Lane, Inc..................................................... 1 1
peopleCARE Heritage Oaks, Inc............................................................ 1 1
peopleCARE Heritage Management, Inc...................................................... 1 1
peopleCARE Heritage Manor Canton, Inc.................................................... 1 1
peopleCARE Winterhaven, Inc.............................................................. 1 1
peopleCARE Heritage Place, Inc........................................................... 1 1
peopleCARE Heritage Manor Plano, Inc..................................................... 1 1
peopleCARE Heritage Village, Inc......................................................... 1 1
peopleCARE Heritage Park, Inc............................................................ 1 1
peopleCARE Heritage Manor Longview, Inc.................................................. 1 1
peopleCARE Heritage Gardens Carrollton, Inc.............................................. 1 1
peopleCARE Heritage Estates, Inc......................................................... 1 1
peopleCARE Heritage Country Manor, Inc................................................... 1 --
peopleCARE Heritage Western Hills, Inc................................................... 1 --
--------- ---------
Total common stock..................................................................... $ 15 $ 13
--------- ---------
--------- ---------
Contributed Capital
Schlegel Property Company,
Proprietorship & Four-K Investments, L.P............................................... $ 1 $ 1
--------- ---------
--------- ---------
Retained Earnings, beginning of year....................................................... $ 15,238 $ 10,098
Income for the year...................................................................... 7,102 7,145
Distributions............................................................................ (10,105) (2,005)
--------- ---------
Retained Earnings, end of year............................................................. $ 12,235 $ 15,238
--------- ---------
--------- ---------
Total Owners' Equity................................................................... $ 12,251 $ 15,252
--------- ---------
--------- ---------
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-7
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1992 1992
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Operating Activities:
Net income.............................................................................. $ 7,102 $ 7,145
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation.......................................................................... 1,903 1,252
Changes in operating assets and liabilities:
Accounts receivable............................................................... (2,338) (447)
Prepaid expenses and other........................................................ (346) (11)
Accounts payable and accrued expenses............................................. 1,223 (308)
---------- ---------
Cash provided by operating activities..................................................... 7,544 7,631
---------- ---------
Investing Activities:
Property and equipment expenditures..................................................... (11,492) (2,074)
Net repayment of (advances to) owner/shareholders (Note 3).............................. 320 (4,500)
Purhcase of investments................................................................. (9,389) --
---------- ---------
Cash used for investing activities........................................................ (20,561) (6,574)
---------- ---------
Financing Activities:
Common stock issued..................................................................... 2 --
Distributions........................................................................... (10,105) (2,005)
Net proceeds from long-term debt........................................................ 94,000 7,500
Repayment of long-term debt............................................................. (59,188) (6,083)
---------- ---------
Cash provided by (used for) financing activites........................................... 24,709 (588)
---------- ---------
Net increase in cash and cash equivalents................................................. 11,692 469
Cash and cash equivalents, at beginning of year........................................... 6,009 5,540
---------- ---------
Cash and cash equivalents, at end of year................................................. $ 17,701 $ 6,009
---------- ---------
---------- ---------
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-8
<PAGE>
PEOPLECARE HERITAGE GROUP
SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND PRESENTATION
peopleCARE Heritage Group (the Group) is engaged primarily in the operation
of 2,200 nursing and retirement care beds in thirteen deluxe facilities located
throughout the state of Texas. The 1992 combined financial statements of the
Group include the consolidated financial statements of peopleCARE Centers of
Texas, Inc. and its subsidiaries, and peopleCARE Heritage Forest Lane, Inc.,
peopleCARE Heritage Oaks, Inc., peopleCARE Heritage Management, Inc., peopleCARE
Heritage Manor Canton, Inc., peopleCARE Winterhaven, Inc., peopleCARE Heritage
Place, Inc., peopleCARE Heritage Manor Plano, Inc., peopleCARE Heritage Village,
Inc., peopleCARE Heritage Park, Inc., peopleCARE Heritage Manor Longview, Inc.,
peopleCARE Heritage Gardens Carrollton, Inc., peopleCARE Heritage Estates, Inc.,
Four-K Investments, L.P., White Oaks Investments, L.P., and Schlegel Property
Company, a sole proprietorship. The 1993 combined financial statements include
all of the above and peopleCARE Heritage Country Manor, Inc., and peopleCARE
Heritage Western Hills, Inc. All are companies related by common ownership. All
significant intercompany balances and transactions have been eliminated.
The common stock accounts for all corporations listed above are $1 par;
1,000,000 shares authorized; 1,000 shares issued and outstanding for each
corporation.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, the Group considers cash and money
market funds with original maturities of three months or less to be cash
equivalents.
SHORT-TERM INVESTMENTS
Short-term investments include investments in municipal bond funds and
growth oriented equity funds which are carried at cost which approximates market
at December 31, 1993.
The Financial Accounting Standards Board (FASB) recently issued SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities", which
will be effective for years beginning after December 15, 1993. Pursuant to SFAS
115, the Groups' short-term investments would be classified as
available-for-sale securities. As such, net unrealized holding gains and losses
would be excluded from earnings and reported as a separate component of owners'
equity until realized.
OPERATING REVENUES
Operating revenues are recorded at the Group's established billing rates for
residents and third-party payers.
The Group receives payments for services provided to certain residents under
the State of Texas Medicaid program. Revenues for these residents are recorded
at the rates allowed under the Texas Index of Level of Effort (TILE) program
developed by the Texas Department of Human Services implemented on April 1,
1989. Approximately 36% of the Group revenues were derived from funds provided
by Medicaid in 1993 and 1992.
The Group receives payments for services provided to certain residents under
the Federal Medicare Program. The Group derived approximately 10% of its revenue
from 10 Medicare certified facilities in 1993 and approximately 4% of its
revenues from 3 Medicare certified facilities in 1992.
The Group's management periodically evaluates its accounts receivable
balances for collectibility. Management believes the allowance for doubtful
accounts adequately provides for any expected losses.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets over periods ranging from five to forty years.
INCOME TAXES
The Group is principally comprised of companies that are not subject to
federal income taxes (i.e., S corporations, limited partnerships and a sole
proprietorship). For those companies, income taxes are the liability of the
stockholders, proprietor or partner and not of the Group.
F-9
<PAGE>
The pro forma data in the combined statements of income reflect provisions
for combined federal and state income taxes as if the Group were treated as a
"C" corporation for all periods presented in accordance with SFAS 109,
"Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
F-10
<PAGE>
PEOPLECARE HERITAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. LONG-TERM DEBT AND RESTRICTED CASH
Long-term debt at December 31, 1993 and 1992 is summarized as follows:
<TABLE>
<CAPTION>
1993 1992
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
SouthTrust Bank of Alabama, N.A. and R.E.M.I.C. (a)................... $ 73,941 $ 13,949
Bank One (b).......................................................... 9,874 7,500
Great West Life....................................................... -- 512
Bank of Nova Scotia................................................... -- 20,070
--------- ----------
Total............................................................... 83,815 42,031
Less current maturities............................................. (1,483) (12,144)
--------- ----------
Long-term debt.................................................... $ 82,332 $ 29,887
--------- ----------
--------- ----------
</TABLE>
During the year, the Group refinanced all of its existing debt with
SouthTrust Bank of Alabama, N.A. (SouthTrust) and Bank One. Terms of long-term
debt are as follows:
(a) In November and December 1993, the Group entered into two separate
credit agreements with SouthTrust comprised of a $25,000,000 term note and a
R.E.M.I.C. consisting of six separate term notes totalling $49,000,000 which
are included in a mortgage loan pool. The notes are collateralized by
substantially all of the assets of the related nursing homes and have
certain covenants related to debt service coverage, debt service reserve
funds, advances or loans to Pavestone Group (Note 3) and minimum capital
expenditures for the nursing homes, among others. The notes consist of the
following at December 31, 1993:
<TABLE>
<CAPTION>
NURSING HOME BALANCE
(PEOPLECARE...) TERM NOTES OUTSTANDING
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Heritage Park................................................ $ 25,000,000 $ 25,000,000
Heritage Gardens.............................................
Heritage Manor Longview......................................
Heritage Estates.............................................
Heritage Country Manor.......................................
Heritage Village............................................. 49,000,000 48,941,375
Heritage Oaks................................................
Heritage Winterhaven.........................................
Heritage Place...............................................
Heritage Forest Lane.........................................
Heritage Manor Canton........................................
-------------- --------------
$ 74,000,000 $ 73,941,375
-------------- --------------
-------------- --------------
</TABLE>
The $25,000,000 term note bears interest at SouthTrust's prime rate plus 3/4
percent (6.75 percent at December 31, 1993) with monthly principal and interest
payments of $174,276 based on an amortization period of twenty-five years. The
balance of the note is due January 1, 1999.
The remaining $49,000,000 in South Trust term notes are a part of a mortgage
loan pool. The notes bear interest at a fixed rate of 9.09 percent with monthly
principal and interest payments totalling $418,624 based on an amortization
period of twenty-five years. The term notes have cross-default and
cross-collateralization provisions with balloon payments due in October 2003.
(b) In August 1993, the Group entered into a debt agreement with Bank One
for $10,000,000 secured by substantially all of the assets of peopleCARE
Heritage Western Hills and peopleCARE Heritage Manor Plano. The agreement has
certain covenants related to debt service coverage, minimum earnings, and net
worth, among others. The debt bears interest at Bank One's prime rate or the
F-11
<PAGE>
PEOPLECARE HERITAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. LONG-TERM DEBT AND RESTRICTED CASH (CONTINUED)
LIBOR rate plus 2.25 percent (5.1875 percent at December 31, 1993) with monthly
principal and interest payments of $87,111 based on an amortization period of
fifteen years. The balance of the note is due August 31, 1998.
Maturities of long-term debt are as follows at December 31, 1993:
<TABLE>
<S> <C>
1994....................................................... $ 1,483,000
1995....................................................... 1,591,000
1996....................................................... 1,691,000
1997....................................................... 1,832,000
1998....................................................... 8,761,000
Thereafter................................................. 68,457,375
-----------
$83,815,375
-----------
-----------
</TABLE>
As of December 31, 1993, the Group has $5,706,709 of restricted cash.
Restricted cash of $2,965,000 serves as collateral for an irrevocable standby
letter of credit issued to the benefit of the trustee for the investors in the
mortgage loan pool described in (a) above. The cash will be released to the
Group upon achieving a debt service coverage, as defined by the agreement, of
1.0 to 1.5 for three consecutive calendar quarters beginning with the quarter
ended December 31, 1993. Restricted cash of $1,000,000 serves as additional
collateral to the $25,000,000 term note. The cash is held in escrow by South
Trust and will be released to the Group upon achieving a debt service coverage ,
as defined in the agreement, of 1.0 to 1.5 for two consecutive calendar quarters
beginning with the quarter ended December 31, 1993. Management believes the
Group will achieve the required debt service coverage requirements within the
year ended December 31, 1994 and the cash is therefore classified as current.
The remaining $1,741,709 of restricted cash is a required debt service
reserve fund maintained at SouthTrust equal to approximately three months debt
service payments. The cash is to be held in custody by SouthTrust for the term
of the SouthTrust notes, is restricted as to withdrawal or use, and is currently
invested in cash equivalents.
2. SHORT-TERM INVESTMENTS
Short-term investments consist of the following at December 31, 1993.
<TABLE>
<S> <C>
Municipal Bond Fund......................................... $4,038,826
Equity Funds................................................ 5,350,000
----------
Total................................................. $9,388,826
----------
----------
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31,:
<TABLE>
<CAPTION>
1993 1992
------------- -------------
<S> <C> <C>
Payroll..................................................... $ 992,151 $ 481,263
Real estate taxes........................................... 701,934 576,414
Interest.................................................... 397,222 103,960
Other....................................................... 7,471 93,663
------------- -------------
Total................................................. $ 2,098,778 $ 1,255,300
------------- -------------
------------- -------------
</TABLE>
4. INCOME TAXES
At December 31, 1993, the Group was composed principally of entities that
are not subject to federal income taxes (i.e., S corporations, limited
partnerships and a sole proprietorship). As the tax
F-12
<PAGE>
PEOPLECARE HERITAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
liabilities for the S corporations, the sole proprietorship and the limited
partnerships are the responsibility of the stockholders, proprietor or partners,
income taxes are not provided for those entities in the accompanying financial
statements. The remaining C corporations within the Group had no significant
operations, assets or related income taxes ($95,000 in income taxes) in 1993.
The pro forma data in the combined statements of income reflect provisions
for combined federal and state income taxes as if the Group were treated as a
"C" corporation for all periods presented.
Pro forma federal and state income taxes consist of the following at
December 31:
<TABLE>
<CAPTION>
1993 1992
------------- -------------
<S> <C> <C>
Current
Federal....................................................... $ 2,115,000 $ 2,034,000
State......................................................... 280,000 269,000
------------- -------------
2,395,000 2,303,000
------------- -------------
Deferred
Federal....................................................... 332,000 391,000
State......................................................... 44,000 52,000
------------- -------------
376,000 443,000
------------- -------------
Total....................................................... $ 2,771,000 $ 2,746,000
------------- -------------
------------- -------------
</TABLE>
The pro forma deferred tax provision results primarily from the use of
accelerated methods of depreciation for income tax purposes.
5. RELATED PARTY TRANSACTIONS
Management fees of $162,000 and $232,000 were paid to the Group in 1993 by
Pavestone Group and peopleCARE Canada, an affiliated group of nursing homes in
Canada, respectively.
At December 31, notes receivable from owner/shareholder consist of
non-interest bearing advances for the purpose of investment in entities not in
the healthcare industry. The notes are due on demand, however, management does
not anticipate collection of the notes in the period ended December 31, 1994.
6. SUPPLEMENTAL CASH FLOW INFORMATION
During 1993 and 1992 the Group paid interest of approximately $2,693,000 and
$2,320,000, respectively. Income taxes paid in 1993 were approximately $95,000.
Noncash financing activities during the year ended December 31, 1993,
consisted of debt issuance costs of $1,212,000 and $5,707,000 in restricted cash
withheld by the lender in connection with the refinancing activity described in
Note 1.
7. COMMITMENTS AND CONTINGENCIES
From time to time, in the normal course of business, the Group is a party to
various matters of litigation. Management is of the opinion that the eventual
resolution of these matters will not have a material adverse effect on the
Group.
The Group occupies its office facility under an operating lease agreement
expiring in August 1996 with annual rentals of $65,000.
F-13
<PAGE>
INDEX TO INTERIM COMBINED FINANCIAL STATEMENTS OF
PEOPLECARE HERITAGE GROUP (UNAUDITED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Interim Combined Financial Statements of peopleCARE Heritage Group (Unaudited)
Introduction to Interim Combined Financial Statements (Unaudited)........................................ I-2
Combined Balance Sheets (Unaudited)...................................................................... I-3
Combined Balance Sheets (Unaudited) Continued............................................................ I-4
Combined Statements of Income (Unaudited)................................................................ I-5
Combined Statements of Owners' Equity (Unaudited)........................................................ I-6
Combined Statements of Cash Flows (Unaudited)............................................................ I-7
</TABLE>
I-1
<PAGE>
PEOPLECARE HERITAGE GROUP
INTERIM COMBINED FINANCIAL STATEMENTS (UNAUDITED)
The combined financial statements included in this section for peopleCARE
Heritage Group are unaudited, pursuant to certain Rules and Regulations of the
Securities and Exchange Commission, but include all adjustments known to be
necessary for a fair statement of the results for the periods presented. All
such adjustments are of a normal recurring nature. The combined financial
statements, however, are not necessarily indicative of results which may be
expected for the full year. These unaudited combined financial statements should
be read in conjunction with the audited combined financial statements and
related notes thereto as of December 31, 1993 and 1992, included elsewhere in
this filing.
I-2
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED BALANCE SHEETS
APRIL 30, 1994 AND 1993
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
1994 1993
(000'S) (000'S)
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................................ $ 15,397 $ 2,969
Restricted cash.......................................................................... 4,370 350
Short-term investments................................................................... 9,389 --
Accounts receivable, net of allowance for doubtful accounts of $17,241 and $32,374 as of
April 30, 1994 and 1993, respectively................................................... 6,051 2,985
Prepaid expenses and advances............................................................ 548 583
--------- ---------
Total current assets................................................................... 35,755 6,887
Investments and Other Assets:
Restricted cash.......................................................................... 1,167 337
Land for future development.............................................................. 3,045 2,504
Notes receivable from owner/shareholders................................................. 11,480 11,298
--------- ---------
Total investments and other assets..................................................... 15,692 14,139
Property and Equipment:
Land..................................................................................... 2,653 2,569
Buildings and improvements............................................................... 41,031 34,099
Furniture and equipment.................................................................. 12,598 9,908
Other.................................................................................... 223 237
--------- ---------
56,505 46,813
Less accumulated depreciation............................................................ (9,800) (7,856)
--------- ---------
Net property and equipment............................................................. 46,705 38,957
--------- ---------
$ 98,152 $ 59,983
--------- ---------
--------- ---------
</TABLE>
I-3
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED BALANCE SHEETS (CONTINUED)
APRIL 30, 1994 AND 1993
UNAUDITED
LIABILITIES AND OWNERS' EQUITY
<TABLE>
<CAPTION>
1994 1993
(000'S) (000'S)
--------- ---------
<S> <C> <C>
Current Liabilities:
Accounts payable......................................................................... $ 1,886 $ 1,268
Accured expenses......................................................................... 1,547 828
Current maturities of long-term debt..................................................... 1,591 13,056
--------- ---------
Total current liabilities.............................................................. 5,024 15,152
Long-Term Debt............................................................................. 83,334 45,021
Less current maturities.................................................................... (1,591) (13,056)
--------- ---------
Total long-term debt................................................................... 81,743 31,965
Commitments and Contingencies
Owners' Equity:
Common stock............................................................................. 15 13
Contributed capital...................................................................... 1 1
Retained earnings........................................................................ 11,369 12,852
--------- ---------
Total owners' equity................................................................... 11,385 12,866
--------- ---------
$ 98,152 $ 59,983
--------- ---------
--------- ---------
</TABLE>
I-4
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED STATEMENTS OF INCOME
FOR THE FOUR MONTHS ENDED APRIL 30, 1994 AND 1993
UNAUDITED
<TABLE>
<CAPTION>
1994 1993
(000'S) (000'S)
--------- ---------
<S> <C> <C>
OPERATING REVENUES............................................................. $ 17,765 $ 13,198
--------- ---------
OPERATING EXPENSES............................................................. 12,953 8,971
GENERAL AND ADMINISTRATIVE..................................................... 714 841
INTEREST....................................................................... 2,195 636
DEPRECIATION................................................................... 551 486
--------- ---------
Total operating expenses............................................... 16,413 10,934
Income before taxes on income.......................................... 1,352 2,264
TAXES ON INCOME -- --
--------- ---------
Net income................................................................... $ 1,352 $ 2,264
--------- ---------
--------- ---------
PRO FORMA DATA:
Historical income before taxes on income..................................... $ 1,352 $ 2,264
Pro forma provision for taxes on income...................................... 521 872
--------- ---------
Pro forma net income................................................... $ 831 $ 1,392
--------- ---------
--------- ---------
</TABLE>
I-5
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
FOR THE FOUR MONTHS ENDED APRIL 30, 1994 AND 1993
UNAUDITED
<TABLE>
<CAPTION>
1994 1993
(000'S) (000'S)
--------- ---------
<S> <C> <C>
COMMON STOCK:
peopleCARE Centers of Texas, Inc............................................. $ 1 $ 1
peopleCARE Heritage Forest Lane, Inc......................................... 1 1
peopleCARE Heritage Oaks, Inc................................................ 1 1
peopleCARE Heritage Management, Inc.......................................... 1 1
peopleCARE Heritage Manor Canton, Inc........................................ 1 1
peopleCARE Winterhaven, Inc.................................................. 1 1
peopleCARE Heritage Place, Inc............................................... 1 1
peopleCARE Heritage Manor Plano, Inc......................................... 1 1
peopleCARE Heritage Village, Inc............................................. 1 1
peopleCARE Heritage Park, Inc................................................ 1 1
peopleCARE Heritage Manor Longview, Inc...................................... 1 1
peopleCARE Heritage Gardens Carrollton, Inc.................................. 1 1
peopleCARE Heritage Estates, Inc............................................. 1 1
peopleCARE Heritage Country Manor, Inc....................................... 1 --
peopleCARE Heritage Western Hills, Inc....................................... 1 --
--------- ---------
Total common stock......................................................... $ 15 $ 13
--------- ---------
--------- ---------
CONTRIBUTED CAPITAL:
Schlegel Property Company,
Proprietorship & Four-K
Investments, L.P........................................................... $ 1 $ 1
--------- ---------
--------- ---------
RETAINED EARNINGS, beginning of period......................................... $ 12,235 $ 15,238
Income for the period........................................................ 1,352 2,264
Distributions................................................................ (2,218) (4,650)
--------- ---------
RETAINED EARNINGS, end of period............................................... $ 11,369 $ 12,852
--------- ---------
--------- ---------
TOTAL OWNERS' EQUITY........................................................... $ 11,385 $ 12,866
--------- ---------
--------- ---------
</TABLE>
I-6
<PAGE>
PEOPLECARE HERITAGE GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 1994 AND 1993
UNAUDITED
<TABLE>
<CAPTION>
1994 1993
(000'S) (000'S)
--------- ---------
<S> <C> <C>
Operating Activities:
Net income............................................................................... $ 1,352 $ 2,264
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation........................................................................... 551 486
Changes in operating assets and liabilities:
Accounts receivable................................................................ (1,079) 351
Prepaid expenses and other......................................................... 30 351
Accounts payable and accrued expenses.............................................. 89 (25)
--------- ---------
Cash provided by operating activities...................................................... 943 3,427
--------- ---------
Investing Activities:
Property and equipment expenditures...................................................... (147) (3,997)
Net (advances to) repayment of owner/shareholders........................................ (400) 102
--------- ---------
Cash used for investing activities......................................................... (547) (3,895)
--------- ---------
Financing Activities:
Distributions............................................................................ (2,218) (4,650)
Net proceeds from long-term debt......................................................... -- 3,078
Repayment of long-term debt.............................................................. (482) (1,000)
--------- ---------
Cash used for financing activities......................................................... (2,700) (2,572)
--------- ---------
Net decrease in cash and cash equivalents.................................................. (2,304) (3,040)
Cash and cash equivalents, at beginning of period.......................................... 17,701 6,009
--------- ---------
Cash and cash equivalents, at end of period................................................ $ 15,397 $ 2,969
--------- ---------
--------- ---------
</TABLE>
I-7
<PAGE>
PEOPLECARE HERITAGE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
APRIL 30, 1994 AND 1993
(UNAUDITED)
(1) BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
peopleCARE Heritage Group (the "Company") without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
the disclosure contained in the combined financial statements are adequate to
make the information presented not misleading. In the opinion of management, all
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows for the periods presented have been made and are of
a normal recurring nature.
These consolidated financial statements should be read in conjunction with
the Company's combined financial statements and the notes thereto included this
filing. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
(2) ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
On January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, (SFAS No. 115) "Accounting for Certain
Investments in Debt and Equity Securities". Pursuant to SFAS No. 115, the
Company accounts for its investments as available-for-sale securities. The net
unrealized gains and losses on the investments are not material to the financial
condition or results of operations and, thus, have not been reflected in the
stockholders' equity section in the accompanying combined balance sheet of the
Company.
(3) SUBSEQUENT EVENTS
On July 29, 1994, the Company was acquired by Horizon Healthcare Corporation
("Horizon"). Consideration received for the acquisition included the issuance of
449,438 shares of Horizon common stock, valued at approximately $10,000,000,
assumption of capital lease obligations of approximately $48,600,000 for six
facilities, and cash payment of approximately $56,000,000 for fee simple title
to seven facilities. This acquisition was accounted for using the purchase
method.
I-8
<PAGE>
ITEM 7(B)__PRO FORMA FINANCIAL INFORMATION
Administrative and general expenses included in the original pro forma
condensed consolidated financial statements prepared to reflect Horizon's
acquisition of Greenery have been revised in this amendment to reflect certain
adjustments to the Greenery historical period from October 1, 1993 through the
acquisition date, February 11, 1994. These adjustments 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. Furthermore, the effective tax rate
of 39% used to estimate combined federal and state taxes in the original pro
forma condensed consolidated statement of earnings for the twelve months ended
May 31, 1994 has been amended to reflect a 39.5% effective tax rate. All such
adjustments have been properly reflected in the accompanying condensed statement
of earnings for the year ended May 31, 1994.
P-1
<PAGE>
INDEX TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Statements
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements.......................... P-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet................................................. P-4
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet........................................ P-5
Unaudited Pro Forma Condensed Consolidated Statement of Earnings......................................... P-6
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Earnings................................ P-7
</TABLE>
P-2
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On July 29, 1994, the Company acquired the assets and leased the facilities
described in Item 2 above from the peopleCARE Corporations (the peopleCARE
Transaction).
The Unaudited Pro Forma Condensed Consolidated Balance Sheet at May 31, 1994
presents the Company's historical assets, liabilities and stockholders' equity
at May 31, 1994, as adjusted to give effect to the peopleCARE Transaction as if
it occurred on May 31, 1994. Such adjustments are more fully described in the
notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet.
The Unaudited Pro Forma Condensed Consolidated Statement of Earnings for the
year ended May 31, 1994 gives effect to (i) the merger of Greenery
Rehabilitation Group, Inc. (Greenery) into the Company (the Merger) on February
10, 1994, including the transactions with Health and Rehabilitation Properties
Trust (HRP) and M&P Partners Limited Partnership (M&P) described in the
accompanying notes and (ii) the peopleCARE Transaction, as if the Merger and
related transactions and the peopleCARE Transaction occurred on June 1, 1993.
The Unaudited Pro Forma Condensed Consolidated Statement of Earnings includes
(i) historical results of operations of the Company for its fiscal year ended
May 31, 1994, (ii) the results of operations of Greenery for the approximate
eight and one-half months ended February 10, 1994 and (iii) the results of
operations of peopleCARE for the twelve months ended April 30, 1994. The
combined historical amounts have been adjusted to give effect to the assumptions
and adjustments included in the accompanying notes to the Unaudited Pro Forma
Condensed Consolidated Statement of Earnings.
The following pro forma financial information may not be indicative of the
results of operations of the Company that would have actually resulted had the
Merger and related transactions and the peopleCARE Transaction occurred as of
the date and for the periods indicated, or of future results of operations of
the Company. The pro forma financial information should be read in conjunction
with the accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements.
P-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
AT MAY 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PEOPLECARE AFTER
-------------------- ACQUISITION PEOPLECARE
HORIZON PEOPLECARE ADJUSTMENTS (1) ACQUISITION
-------- ---------- ---------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............. $ 10,963 $29,156 $(29,156)(a) $ 10,963
Accounts receivable................... 76,862 6,051 (132)(a) 82,781
Other current assets.................. 24,308 548 (269)(a) 24,587
-------- ---------- -------- ----------
Total current assets................ 112,133 35,755 (29,557) 118,331
Land, buildings and equipment, net.... 193,426 46,951 48,718(c) 303,510
36,085(b)
(21,670)(a)
Notes receivable...................... 22,436 9,180 (9,180)(a) 22,436
Other long-term assets................ 78,456 6,266 (6,266)(a) 78,706
250(b)
-------- ---------- -------- ----------
Total assets........................ $406,451 $98,152 $ 18,380 $522,983
-------- ---------- -------- ----------
-------- ---------- -------- ----------
Liabilities and stockholders' equity:
Current liabilities................... $ 49,053 $ 3,434 $ (1,236)(a) 51,251
Long-term debt and capital lease
obligations.......................... 107,579 83,334 (83,334)(a) 211,913
55,616(b)
48,718(c)
Deferred lease credit................. 20,493 -- -- 20,493
Stockholders' equity.................. 229,326 11,384 (11,384)(a) 239,326
10,000(b)
-------- ---------- -------- ----------
Total liabilities and stockholders'
equity............................. $406,451 $98,152 $ 18,380 $522,983
-------- ---------- -------- ----------
-------- ---------- -------- ----------
</TABLE>
(NOTES ON FOLLOWING PAGE)
P-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(1) The Company acquired substantially all of the operations of peopleCARE
by purchasing seven facilities and entering into lease agreements for six
others. Following are adjustments to record the peopleCARE operations acquired:
(a) The historical peopleCARE financial statements reflect certain
assets and liabilities that were not acquired or assumed by the Company in
connection with the acquisition. The following assets and liabilities not
acquired or assumed have been eliminated from the historical amounts:
<TABLE>
<S> <C>
Total assets of predecessor entity............................... $ 98,152
Assets not acquired:
Cash and cash equivalents...................................... (29,156)
Accounts receivable............................................ (132)
Other current assets........................................... (269)
Notes receivable............................................... (9,180)
Land, buildings and equipment, net............................. (21,670)
Other long-term assets......................................... (6,266)
---------
peopleCARE assets acquired..................................... 31,479
Total liabilities of predecessor entity.......................... 86,768
Liabilities not assumed:
Current liabilities............................................ (1,236)
Long-term debt................................................. (83,334)
---------
peopleCARE liabilities assumed................................. 2,198
---------
Net book value of peopleCARE assets acquired..................... $ 29,281
---------
---------
</TABLE>
In addition, the historical stockholder's equity of the predecessor
entity of $11,384 has been eliminated.
(b) The Company acquired the peopleCARE operations in exchange for cash
and common stock of the Company. The purchase price exceeds the net book
value of the acquired operations. This excess has been allocated pursuant to
purchase accounting as follows:
<TABLE>
<S> <C>
Cash.............................................................. $ 55,616
Issuance of stock of the Company.................................. 10,000
---------
Total purchase price.............................................. 65,616
Net book value of peopleCARE assets acquired...................... 29,281
---------
Excess purchase price over net book value of assets acquired...... $ 36,335
---------
---------
Allocation of excess purchase price:
Land, buildings and equipment................................... $ 36,085
Other long-term assets.......................................... 250
---------
Total excess purchase price allocated............................. $ 36,335
---------
---------
</TABLE>
The cash consideration was funded with a draw on the Company's line of
credit.
(c) The lease agreements into which the Company entered for six
additional facilities are accounted for as capital leases. Accordingly,
adjustments have been made to capitalize the leases by recording $48,718 to
land, buildings and equipment, net, and to long-term debt.
P-5
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF EARNINGS
FOR THE YEAR ENDED MAY 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GREENERY MERGER PRO FORMA PRO FORMA
HISTORICAL AND RELATED BEFORE PEOPLECARE AFTER
-------------------- TRANSACTIONS PEOPLECARE HISTORICAL ACQUISITION PEOPLECARE
HORIZON GREENERY ADJUSTMENTS (1) ACQUISITION PEOPLECARE ADJUSTMENTS (2) ACQUISITION
--------- --------- --------------- ------------ ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $ 375,095 $ 129,358 $ (3,695)(a) $ 483,131 $ 50,427 $ (200)(a) $ 533,358
--------- --------- ------------ ----------- ------- ------------
(17,429)(b)
1,220(b)
46(c)
(1,464)(f)
---------------
$ (21,322)
---------------
---------------
Cost of services........ 293,863 109,157 (2,144)(a) 384,016 35,780 (211)(a) 419,585
(16,860)(b)
Administrative and
general................ 40,165 32,228 (552)(a) 65,816 1,806 (300)(d) 67,322
(1,402)(b)
(4,747)(d)
124(e)
Interest................ 6,240 3,473 1,599(a) 11,312 4,590 3,653(b) 19,555
Depreciation and
amortization........... 8,081 2,156 1,045(a) 11,119 1,968 821(c) 13,908
(163)(b)
Non-recurring items..... -- 5,881 (5,881)(a) -- -- -- --
--------- --------- --------------- ------------ ----------- ------- ------------
Total operating
expenses............. 348,349 152,895 (28,981) 472,263 44,144 3,963 520,370
Earnings (loss) before
income taxes......... 26,746 (23,537) 7,659 10,868 6,283 (4,163) 12,988
Income taxes............ 10,140 (9,297) 3,450 4,293(g) 95 742 5,130(g)
--------- --------- --------------- ------------ ----------- ------- ------------
Net earnings (loss)... $ 16,606 $ (14,240) $ 4,209 $ 6,575 $ 6,188 $ (4,905) $ 7,858
--------- --------- --------------- ------------ ----------- ------- ------------
--------- --------- --------------- ------------ ----------- ------- ------------
Earnings per common and
common equivalent
share.................. $ 0.99 $ 0.36(3) $ 0.42(3)
--------- ------------ ------------
--------- ------------ ------------
Earnings per common
share -- Assuming full
dilution............... $ 0.91 $ 0.36(3) $ 0.42(3)
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
(NOTES ON FOLLOWING PAGE)
P-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS
(1) The Company completed the Greenery Merger and related transactions on
February 10, 1994. As a result, the historical financial statements of the
Company 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 Merger and related transactions for the approximate eight and
one-half month period ended February 10, 1994.
(a) In connection with the Merger, the Company purchased three
facilities previously leased by 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 to M & P, 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 Merger costs
in preparation for the Merger during the eight and one-half months ended
February 10, 1994. The impact of the above, as well as the additional
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.......................................................... (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 Merger related costs and losses............................ (5,881)
-------
Total operating expenses................................................ (5,933)
-------
Net increase in earnings before income taxes............................ $ 2,238
-------
-------
</TABLE>
(b) Pursuant to the Merger, HRP canceled three facility leases with
Greenery. Such leases were assumed by the former majority owners of Greenery
and the Company entered into a management agreement for such facilities. The
impact on earnings before income taxes is as follows:
<TABLE>
<CAPTION>
EIGHT AND ONE-HALF
MONTHS ENDED
FEBRUARY 10, 1994
------------------
<S> <C>
Operating Revenues........................................................ $ (17,429)
--------
Cost 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
--------
Net increase in earnings before income taxes.......................... $ 2,216
--------
--------
</TABLE>
P-7
<PAGE>
(c) Interest income will be increased to reflect the impact of the
Company financing the $20,000 sale to M&P of certain Greenery assets,
including among the 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 the Company's $20,000 note receivable......................... $ 851
Less interest on notes receivable sold.................................... (805)
------
$ 46
------
------
</TABLE>
(d) As a result of the 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 will be eliminated.
(e) The Company will enter 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) Operating revenues will be reduced by $1,464 to eliminate consulting
fee revenues between the Company and Greenery.
(g) An effective tax rate of 39.5% is used to estimate combined federal
and state taxes for the twelve months ended May 31, 1994.
(2) The peopleCARE Transaction adjustments consist of the following:
(a) The historical financial information reported for peopleCARE include
certain de minimis amounts which were not acquired or assumed by the Company
in connection with the acquisition. Therefore, adjustments have been
recorded to eliminate interest and other operating revenues of $200 and cost
of services expense of $211 associated with the predecessor entity
operations which were not acquired by the Company.
(b) The acquisition purchase price included the payment of $55,616 in
cash to be funded from the Company's line of credit. In connection with the
acquisition, the Company entered into leases on six facilities formerly
owned by peopleCARE. The leases will be accounted for by the Company as
capital leases. As a result, interest expense has been adjusted as follows
for the year ended May 31, 1994:
<TABLE>
<S> <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
Increase in capital lease obligations of $48,700
Interest expense amortized based on an interest rate of 9.09%.... 4,403
Less historical peopleCARE interest expense........................ (4,590)
---------
Increase in interest expense................................... $ 3,653
---------
---------
</TABLE>
P-8
<PAGE>
(c) An adjustment has 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 as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MAY 31, 1994
------------
<S> <C> <C>
Purchase price allocated to equipment......................................... $ 5,500
Depreciable life in years..................................................... 10
---------
$ 550
Purchase price allocated to buildings......................................... $ 86,240
Depreciable life in years..................................................... 40
---------
2,156
Purchase price allocated to non compete agreements............................ $ 250
Amortizable life in years..................................................... 3
---------
83
Less historical peopleCARE depreciation expense............................... (1,968)
------------
Increase in depreciation and amortization expense........................... $ 821
------------
------------
</TABLE>
(d) An adjustment of $300 has been recorded to eliminate distributions
to the prior owners.
(3) The calculation of pro forma weighted average number of shares
outstanding is as follows:
<TABLE>
<CAPTION>
MAY 31, 1994
--------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF SHARES FOR NUMBER OF SHARES FOR
EARNINGS PER COMMON EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE-ASSUMING FULL
SHARE DILUTION
--------------------- ---------------------
<S> <C> <C>
Prior to the Greenery merger and peopleCARE acquisition.... 16,136 19,110
Shares issued in connection with the Greenery merger....... 2,050 2,050
------- -------
Pro Forma before peopleCARE acquisition.................. 18,186 21,160
Shares issued in connection with the peopleCARE
transaction............................................... 449 449
------- -------
Pro Forma after Greenery merger and peopleCARE
acquisition............................................. 18,635 21,609
------- -------
------- -------
</TABLE>
P-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization dated as of June 9, 1994 by and among the Company and
peopleCARE Heritage Manor Plano, Inc., peopleCARE Heritage Manor Canton, Inc., peopleCARE
Heritage Park, Inc., peopleCARE Heritage Village, Inc., peopleCARE Winterhaven, Inc.,
peopleCARE Heitage Place, Inc., peopleCARE Heritage Forest Lane, Inc., peopleCARE Heritage
Oaks, Inc., peopleCARE Heritage Manor Longview, Inc., peopleCARE Heritage Gardens
Carrollton, Inc., peopleCARE Heritage Estates, Inc., peopleCARE Heritage Country Manor,
Inc., and peopleCARE Heritage Western Hills, Inc., as amended by Amendment No. 1 to
Agreement and Plan of Reorganization dated June 30, 1994 (incorporated by reference to
Exhibit 2.7 to the Company's Annual Report on Form 10-K for the year ended May 31, 1994).
2.2 Real Estate Contract of Sale dated as of June 9, 1994, by and among White Oaks Investments,
L.P., Four-K Investments, L.P., and the Company, as amended by Amendment No. 1 to Real
Estate Contract of Sale dated June 30, 1994 (incorporated by reference to Exhibit 10.45 to
the Company's Annual Report on Form 10-K for the year ended May 31, 1994).
2.3 Real Estate Contract of Sale and Master Lease Agreement dated June 9, 1994 by and among
White Oaks Investments, L.P., Robert J. Schlegel and the Company, as amended by Amendment
No. 1 to Real Estate Contract of Sale and Master Lease Agreement dated June 30, 1994
(incorporated by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K
for the year ended May 31, 1994).
2.4 Master Lease Agreement between White Oaks Investment, L.P., and the Company dated July 31,
1994 (incorporated by reference to Exhibit 10.47 to the Company's Annual Report on Form
10-K for the year ended May 31, 1994).
23.1 Consent of BDO Seidman.
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Horizon Healthcare Corporation
Albuquerque, New Mexico
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File #33-80660), Form S-4 (File #33-84682) and Form S-8
(File #33-84502) of Horizon Healthcare Corporation (Horizon) of our report dated
February 25, 1994, relating to the combined financial statements of PeopleCare
Heritage Group appearing in Horizon's Current Report on Form 8-K/A Amendment No.
2 dated June 2, 1995.
/s/__BDO SEIDMAN______________________
BDO Seidman
Dallas, Texas
June 2, 1995
