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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
AMENDMENT NO. 1
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: August 31, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-9369
</TABLE>
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HORIZON/CMS HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 91-1346899
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
6001 INDIAN SCHOOL ROAD, N.E., SUITE 530
ALBUQUERQUE, NEW MEXICO 87110
(505) 881-4961
(Address and telephone number of Registrant)
Horizon Healthcare Corporation
(Former name)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _XX_ No ____
Shares of the registrant's Common Stock, $.001 par value, outstanding
exclusive of treasury stock, was 51,074,980 shares at October 10, 1995.
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<PAGE>
HORIZON/CMS HEALTHCARE CORPORATION
INDEX
FORM 10-Q/A AMENDMENT NO. 1 -- FOR THE THREE MONTHS ENDED AUGUST 31, 1995
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NUMBERS
------------
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
August 31, 1995 and May 31, 1995................ 3
Consolidated Statements of Operations
For the three months ended August 31, 1995 and
1994............................................ 4
Consolidated Statements of Cash Flows
For the three months ended August 31, 1995 and
1994............................................ 5
Notes to Consolidated Financial Statements (as
amended)........................................ 6
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HORIZON/CMS HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND MAY 31, 1995
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31 MAY 31
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................................. $ 48,459 $ 40,674
Accounts receivable, net of allowance for doubtful accounts of $32,172 at August 31 and $29,595 at May
31................................................................................................... 338,753 330,313
Estimated Medicare and Medicaid settlements........................................................... 8,408 --
Prepaid and other assets.............................................................................. 80,511 61,650
Deferred income taxes................................................................................. 21,806 21,806
---------- ----------
Total current assets................................................................................ 497,937 454,443
PROPERTY AND EQUIPMENT, net............................................................................. 618,698 614,379
GOODWILL, net........................................................................................... 167,935 168,861
OTHER INTANGIBLE ASSETS, net............................................................................ 41,166 35,879
NOTES RECEIVABLE, excluding current portion............................................................. 44,299 44,619
OTHER ASSETS............................................................................................ 75,895 79,942
---------- ----------
Total assets........................................................................................ $1,445,930 $1,398,123
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt..................................................................... $ 4,993 $ 5,032
Accounts payable...................................................................................... 32,768 33,280
Accrued expenses...................................................................................... 170,693 131,225
Estimated Medicare and Medicaid settlements........................................................... -- 563
---------- ----------
Total current liabilities........................................................................... 208,454 170,100
LONG-TERM DEBT, excluding current portion............................................................... 572,662 532,688
OTHER LIABILITIES....................................................................................... 25,427 24,353
DEFERRED INCOME TAXES................................................................................... 6,271 6,141
MINORITY INTERESTS...................................................................................... 14,490 14,189
STOCKHOLDERS' EQUITY:
Common stock of $.001 par value, authorized 150,000,000 shares, 50,891,098 shares issued with
50,386,209 shares outstanding at August 31 and 50,679,107 shares issued with 50,174,218 shares
outstanding at May 31.............................................................................. 51 51
Additional paid-in capital.......................................................................... 560,189 559,168
Retained earnings................................................................................... 66,335 99,382
Note receivable from sale of common stock........................................................... (2,362) (2,362)
Treasury stock...................................................................................... (5,587) (5,587)
---------- ----------
Total stockholders' equity........................................................................ 618,626 650,652
---------- ----------
Total liabilities and stockholders' equity........................................................ $1,445,930 $1,398,123
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HORIZON/CMS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
AUGUST 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
NET PATIENT CARE REVENUES................................................................................... $427,025 $378,225
OTHER OPERATING REVENUES.................................................................................... 4,382 3,615
-------- --------
Total operating revenues................................................................................ 431,407 381,840
COST OF SERVICES............................................................................................ 328,700 296,374
ADMINISTRATIVE AND GENERAL.................................................................................. 20,447 18,674
FACILITY LEASES............................................................................................. 21,078 19,160
DEPRECIATION AND AMORTIZATION............................................................................... 14,651 13,197
INTEREST EXPENSE............................................................................................ 13,112 12,163
SPECIAL CHARGE.............................................................................................. 63,540 --
-------- --------
Total operating expenses................................................................................ 461,528 359,568
-------- --------
Earnings (loss) before minority interests and income taxes.............................................. (30,121) 22,272
MINORITY INTERESTS.......................................................................................... (1,324) (1,501)
-------- --------
Earnings (loss) before income taxes..................................................................... (31,445) 20,771
INCOME TAXES................................................................................................ (2,520) 8,611
-------- --------
Net earnings (loss)..................................................................................... $(28,925) $ 12,160
-------- --------
-------- --------
Net earnings (loss) per common and common equivalent share.................................................. $ (0.56) $ 0.27
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HORIZON/CMS HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
AUGUST 31, 1995 AND 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................................................................... $(28,925) $ 12,160
-------- --------
Adjustments:
Depreciation and amortization........................................................................... 14,651 13,197
Other................................................................................................... 1,943 (131)
Increase (decrease) in cash from changes in assets and liabilities, excluding effects of acquisitions
and dispositions:
Accounts and settlements receivable................................................................... (17,411) (18,241)
Other assets.......................................................................................... (19,521) (15,290)
Deferred income taxes................................................................................. 130 (150)
Accounts payable and accrued expenses................................................................. 38,956 (1,653)
Other liabilities..................................................................................... 1,074 1,469
-------- --------
Total adjustments......................................................................................... 19,822 (20,799)
-------- --------
Net cash used in operating activities..................................................................... (9,103) (8,639)
-------- --------
Cash flows from investing activities:
Payments pursuant to acquisition agreements, net of cash acquired......................................... (1,081) (80,791)
Cash proceeds from sale of property and equipment......................................................... -- 3,900
Other intangible assets................................................................................... (5,981) (3,860)
Acquisition of property and equipment..................................................................... (11,434) (13,903)
Notes receivable.......................................................................................... 660 1,923
Other investing activities................................................................................ (479) (3,016)
-------- --------
Net cash used in investing activities..................................................................... (18,315) (95,747)
-------- --------
Cash flows from financing activities:
Long-term debt borrowings................................................................................. 106,874 105,285
Long-term debt repayments................................................................................. (66,559) (38,696)
Deferred financing costs.................................................................................. (1,829) (1,550)
Issuance of common stock.................................................................................. 1,211 1,362
Capital contributions by minority interests............................................................... 446 320
Distributions to minority interests....................................................................... (1,629) (808)
-------- --------
Net cash provided by financing activities................................................................. 38,514 65,913
-------- --------
Net increase (decrease) in cash and cash equivalents........................................................ 11,096 (38,473)
Cash and cash equivalents, beginning of period.............................................................. 40,674 65,825
Effect of pooling of interests restatement (Note 2)......................................................... (3,311) --
-------- --------
Cash and cash equivalents, end of period.................................................................... $ 48,459 $ 27,352
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HORIZON/CMS HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AS AMENDED)
AUGUST 31, 1995
(UNAUDITED)
(1) BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
Horizon/CMS Healthcare Corporation and its subsidiaries (collectively the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they are unaudited and certain information and footnote
disclosures normally included in the Company's annual consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, as permitted under the applicable rules and
regulations. 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 consolidated financial statements and the notes thereto included
in the Company's 1995 Annual Report on Form 10-K (as amended by Form 10-K/A
Amendment No. 1) filed with the Securities and Exchange Commission. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year.
(2) ACQUISITIONS
The stockholders of the Company and Continental Medical Systems, Inc.
("CMS") approved the merger of one of the Company's wholly-owned subsidiaries
with CMS (the "CMS Merger"). Under the terms of the merger agreement, CMS
stockholders received .5397 (the "Exchange Rate") of a share of the Company's
common stock for each outstanding share of CMS's common stock. Accordingly, the
Company issued approximately 20.9 million shares of its common stock, valued at
approximately $393.9 million based on the closing price of the Company's common
stock on July 10, 1995, for all the outstanding shares of CMS's common stock.
Additionally, outstanding options to acquire CMS's common stock were converted
at the Exchange Rate to options to acquire approximately 3.8 million shares of
the Company's common stock. CMS is one of the largest providers of comprehensive
medical rehabilitation programs and services in the country with a significant
presence in each of the rehabilitation industry's three principal sectors --
inpatient rehabilitation care, outpatient rehabilitation care and contract
therapy. The merger qualified as a tax-free reorganization and has been
accounted for as a pooling of interests. Accordingly, the Company's historical
financial information has been restated to include CMS's financial results. The
consolidated balance sheet as of May 31, 1995, and the consolidated statements
of earnings and cash flows for the quarters ended August 31, 1995 and 1994 have
been restated to reflect the combination. In connection with the CMS Merger, the
Company changed its name to Horizon/CMS Healthcare Corporation.
The accompanying consolidated balance sheet as of May 31, 1995, gives effect
to the combination of the Company's historical assets, liabilities and
stockholders' equity as of May 31, 1995, with the historical assets, liabilities
and stockholders' equity of CMS as of June 30, 1995, the fiscal year end of CMS
prior to the CMS Merger. The accompanying consolidated statement of operations
for the three months ended August 31, 1994, includes the results of operations
of the Company for the three months ended August 31, 1994, and the results of
operations of CMS for the three months ended September 30, 1994. The duplication
of reporting CMS's June 1995 operating results of $4.1 million in fiscal year
1995 and in the three months ended August 31, 1995, has been adjusted for by a
charge to retained earnings. Appropriate adjustments have also been made in the
statement of cash flows for the three months ended August 31, 1995.
6
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HORIZON/CMS HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS (CONTINUED)
Separate results of the Company and CMS for the periods presented prior to
the consummation of the CMS Merger and in total for the periods are as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
------------------
1995 1994
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<S> <C> <C>
Total operating revenues:
The Company, prior to the CMS Merger..................... $ 59,065 $137,704
CMS...................................................... 83,684 244,136
The Company, subsequent to the CMS Merger................ 288,658 --
-------- --------
$431,407 $381,840
-------- --------
-------- --------
Net earnings (loss):
The Company, prior to the CMS Merger..................... $ 2,280 $ 6,399
CMS...................................................... 4,122 5,761
The Company, subsequent to the CMS Merger................ (35,327) --
-------- --------
($28,925) $ 12,160
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</TABLE>
In September 1995 the Company purchased fee simple title to two skilled
nursing centers in Idaho for approximately $10.0 million. The two centers
operate a total of 224 beds. Also in September 1995, the Company acquired Home
Respiratory Services, Inc., an Oklahoma home respiratory service provider with
approximately $900,000 in annual revenues, in exchange for approximately 119,000
shares of the Company's common stock valued at approximately $2.5 million. Also
in September 1995, the Company acquired Cardio-Diagnostic Services, Inc., a
Texas non-invasive diagnostic services provider with approximately $3.2 million
in annual revenues, in exchange for 122,000 shares of the Company's common stock
valued at approximately $2.65 million. Finally, on September 1, 1995, the
Company purchased the remaining 20% minority interest in Nevada Rehabilitation
Services, Inc. ("NRS") in exchange for approximately 187,000 shares of the
Company's common stock valued at approximately $3.4 million. Prior to the
acquisition of the 20% share, the Company owned an 80% share of NRS, a contract
therapy company with annual revenues of approximately $8.2 million. Each of the
above acquisitions, in addition to various other acquisitions have been
accounted for as purchases. The aggregate effect of these acquisitions is not
material to the results of operations of the Company.
(3) SPECIAL CHARGE (AS AMENDED)
During the first quarter of fiscal 1996, a special charge of approximately
$63.5 million (pre-tax) was recorded. The special charge resulted primarily from
(i) the write-off of costs which had been incurred in completing the CMS Merger
and (ii) the approval by management of the Company of restructuring measures
resulting from efforts to combine the previously separate companies. The special
charge is comprised of several components including transaction costs incurred
to effect the CMS Merger as well as asset impairments charges, termination
benefits, lease exit costs and other charges associated with combining and
restructuring the merged companies operations.
7
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HORIZON/CMS HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SPECIAL CHARGE (CONTINUED)
At August 31, 1995, the remaining balance in the $63.5 million special
charge accrual is approximately $37.0 million. The impairment of property and
equipment is reflected as a reduction of the related asset accounts while the
remaining amounts are included in accrued expenses. The components of the
special charge are as follows (in thousands):
<TABLE>
<CAPTION>
ORIGINAL FISCAL YEAR BALANCE
PROVISION 1996 ACTIVITY AUGUST 31, 1995
--------- ------------- ---------------
<S> <C> <C> <C>
Impairment of assets.............. $ 26,144 $ (8,766) $17,378
Termination benefits.............. 20,566 (12,089) 8,477
Transaction costs................. 6,697 (5,713) 984
Lease exit and other.............. 10,133 -- 10,133
--------- ------------- ---------------
$ 63,540 $(26,568) $36,972
--------- ------------- ---------------
--------- ------------- ---------------
</TABLE>
As previously reported, in June 1995 the Company announced that it plans to
sell the assets and leasehold improvements at eight of its long-term care
facilities and anticipates that the intended dispositions will occur during
fiscal 1996. In connection therewith, during the first quarter of fiscal 1996
the Company recorded an $11.9 million pre-tax asset impairment charge as a
component of the special charge. The charge represents the amount by which
the carrying amount of the properties intended for sale exceeds the fair value
of the properties. The Company's considerable experience in an active market
for long-term care facilities provides a reasonable basis upon which to
apply valuation techniques and estimate market prices. The Company intends to
complete the sale of the long-term care facilities during fiscal 1996. The
properties that are the subject of the planned dispositions or closure, in the
aggregate, incurred pre-tax net losses for the three months ended August 31,
1995 and 1994 of approximately $2.3 million and $.2 million, respectively.
Revenues related to these operations for the first quarter of fiscal years
1996 and 1995 approximated $18.0 million and $19.0 million, respectively.
The $14.2 million balance of the special charge resulting from impairment
of assets is associated with the elimination or consolidation of operations
in the effort to combine the merged companies. In connection therewith, the
Company intends to consolidate or restructure contract respiratory therapy,
corporate and physician locum tenens operations and plans to close a
rehabilitation clinic. The consolidation and elimination of certain contract
respiratory therapy company operations results in a $5.7 million charge. This
charge is comprised of a $4.9 million fair value adjustment to the carrying cost
of related long-lived assets and a $800,000 adjustment to receivables and
inventory which were negatively impacted by Horizon's decision to restructure
the operations. The consolidation of corporate operations anticipates the
retirement of existing credit facilities and the negotiation of an expanded
consolidated credit agreement. The expected write-off of $2.6 million of
existing facility deferred financing costs is provided in the charge. Consolida-
tion of corporate operations also anticipates the write-off of excess or dupli-
cative computer system development investment of approximately $950,000. In
evaluating the existing operations of the combined companies, Horizon has
also determined to cease operations and/or dispose of assets at a
rehabilitation clinic in California and a long-term care property in Ohio.
The adjustments to fair value of the carrying cost of the related long-lived
assets is approximately $3.4 million. Various other restructuring measures
result in the $1.5 million balance of the $14.2 million total. All of the
actions which comprise this total are expected to take place during the
Company's fiscal 1996.
Approximately $20.6 million of the special charge is comprised of
involuntary termination benefits to be paid to an estimated 340 employees
impacted by the CMS Merger. Effected personnel are employed primarily within the
Company's corporate offices and contract therapy businesses. Of the $20.6
million total, approximately $9.5 million was paid to the former chairman and
chief executive officer of CMS pursuant to agreements in place prior to
discussions with the Company related to the CMS Merger.
Lease exit costs related to the consolidation efforts described above
approximate $2.2 million. Other one-time charges directly related to the CMS
Merger or costs not associated with activities that will be continued by the
combined company comprise the approximate $7.9 million balance of the special
charge. Such costs primarily include insurance consolidation and continuation
costs and certain employee benefit and other costs.
(4) LONG-TERM DEBT
In July 1995, in connection with the CMS Merger, the Company entered into a
new revolving credit facility which replaced the credit facility outstanding at
May 31, 1995, and increased the amount available for borrowing to $485.0
million. The aggregate principal amount was divided between the Company and CMS
in the amounts of $250.0 million and $235.0 million, respectively. The terms of
the new credit facility are substantially consistent with those of the old
credit facility except that accounts receivable are no longer required as
collateral and the interest component has been revised.
On September 26, 1995, the Company completed a tender offer and consent
solicitation for CMS's 10 3/8% and 10 7/8% senior subordinated notes (the
"Notes"). Tenders and consents were obtained from
8
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HORIZON/CMS HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM DEBT (CONTINUED)
the holders of 99.8% of the $118.8 million 10 3/8% notes and holders of 97.5% of
the $146.1 million 10 7/8% notes. The 10 3/8% notes were redeemed at 109.25%
plus a consent fee of 1.05% and the 10 7/8% notes were redeemed at 109.0% plus a
consent fee of .75%. The Company paid $289.5 million to retire the Notes,
including principal, premium, consent fee and other related costs. As a result
of the tender, the Company will record an extraordinary charge related to the
loss on the retirement of the Notes, including the write-off of related deferred
discount, swap cancellation and financing costs, of approximately $22.1 million,
net of tax, in the second quarter of fiscal 1996.
In connection with the tender offer, the Company's credit facility was
amended and restated to increase the facility from $485.0 million to $750.0
million, of which $70.0 million is available in the form of letters of credit.
The Notes were retired with funds drawn on the Company's amended credit
facility. The amended credit facility is also agented by NationsBank of Texas
N.A. for a group of banks and is subject to substantially the same interest and
terms of the previous $485.0 million facility, except that the facility is no
longer divided between the Company and CMS. Aggregate draws, including letters
of credit, under the amended credit facility after retirement of the Notes was
approximately $490.0 million.
(5) SUPPLEMENTAL INFORMATION RELATING TO CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended August 31, 1995 and August 31, 1994, the
following are considered supplemental information for the purposes of the
consolidated statements of cash flows:
a) The issuance of 20.9 million shares of common stock in exchange for
all of the outstanding common stock of CMS, for the three months ended
August 31, 1995, and the issuance of .5 million shares of common stock for
various acquisitions which in the aggregate were insignificant.
b) Cash paid for interest of $10.7 million for the three months ended
August 31, 1995 and $13.3 million for the three months ended 1994.
c) Cash paid for income taxes, net of refunds of $2.3 million for the
three months ended August 31, 1995 and $2.7 million for the three months
ended August 31, 1994.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HORIZON/CMS HEALTHCARE CORPORATION
Date: February 26, 1996 By /s/ ERNEST A. SCHOFIELD
----------------------------------
Ernest A. Schofield
CHIEF FINANCIAL OFFICER AND
SENIOR VICE PRESIDENT
- ------------------------
*Ernest A. Schofield is signing in the dual capacities as Chief Financial
Officer and as a duly authorized officer of the Company.
