<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: MAY 12, 1994
DATE OF EARLIEST EVENT REPORTED: APRIL 4, 1993
REGENCY HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER: 1-11144
<TABLE>
<S> <C>
DELAWARE 33-0210226
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2742 DOW AVENUE
TUSTIN, CALIFORNIA 92680
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 544-4443
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1993 and 1992 . . . . . . . . . . F-2
Consolidated Statements of Operations, Years Ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows, Years Ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . F-8
(b) Unaudited Pro Forma Condensed Financial Information . . . . . . . . . . . . . . . F-21
Unaudited Pro Forma Condensed Balance Sheet . . . . . . . . . . . . . . . . . . F-22
Unaudited Pro Forma Condensed Statements of Income . . . . . . . . . . . . . . F-23
Six Months Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . F-23
Year Ended June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Year Ended June 30, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Year Ended June 30, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Notes to Unaudited Pro Forma Condensed Financial Information . . . . . . . . . . . F-27
(c) Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
</TABLE>
-i-
<PAGE> 3
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 4, 1994, Regency Health Services, Inc. (the "Registrant") and Care
Enterprises, Inc. ("Care") completed their previously announced merger.
Pursuant to the Agreement and Plan of Merger, dated as of December 20, 1993, as
amended by an Amendment, dated as of January 31, 1994, and Second Amendment,
dated as of March 21, 1994 (the "Merger Agreement"), Care Merger Sub, Inc., a
wholly owned subsidiary of the Registrant, was merged with and into Care (the
"Merger"), and Care became a wholly owned subsidiary of the Registrant. Each
share of common stock of Care (other than shares owned by the Registrant or any
of its subsidiaries, held in the treasury of Care or owned by any subsidiary of
Care) was converted into 0.71 of a share of common stock of the Registrant.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
-1-
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Care Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Care
Enterprises, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company'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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Care
Enterprises, Inc. and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in notes to the consolidated financial statements, in 1992 the
Company changed its method of accounting for income taxes.
ERNST & YOUNG
Orange County, California
March 10, 1994
-F-1-
<PAGE> 5
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par values)
ASSETS
<TABLE>
<CAPTION>
As of December 31,
----------------------------
1993 1992
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 12,985 $ 7,283
Receivables:
Due from patients, less allowance for doubtful accounts of
$1,633 and $2,595 for 1993 and 1992, respectively . . . . . . . . . . 17,149 15,449
Notes, contracts, and other . . . . . . . . . . . . . . . . . . . . . 4,492 1,944
Supplies inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,470 1,395
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,254 1,090
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 3,982 2,619
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 41,332 29,780
PROPERTY AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . . . . . . 69,386 69,166
MORTGAGE NOTES RECEIVABLE, less allowance for losses of
$1,664 and $937 for 1993 and 1992, respectively . . . . . . . . . . . . 2,175 2,257
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,505 9,345
-------- --------
$121,398 $110,548
======== ========
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial
Statements.
-F-2-
<PAGE> 6
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par values)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
As of December 31,
------------------------
1993 1992
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long term debt . . . . . . . . . . . . . . . . . . . . . $ 1,139 $ 7,683
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,716 9,679
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,623 15,791
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 3,085 8,844
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 35,563 41,997
LONG TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,601 32,743
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,812 4,624
OTHER NONCURRENT LIABILITIES AND DEFERRED ITEMS . . . . . . . . . . . . . . 11,949 10,787
-------- --------
Total liabilities 95,925 90,151
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value;
Authorized 1,000,000 shares; issued and outstanding - none . . . . . . . . -- --
Common stock, $.01 par value;
Authorized 25,000,000; issued and outstanding - 13,234,000
and 13,222,000 shares for 1993 and 1992, respectively . . . . . . . . . . . 11,076 11,047
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,451 1,451
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,946 7,899
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 25,473 20,397
-------- --------
$121,398 $110,548
======== ========
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial
Statements.
-F-3-
<PAGE> 7
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . . . $200,354 $192,048 $185,676
-------- -------- --------
DIRECT EXPENSES:
Salaries and wages . . . . . . . . . . . . . . . . . . . . 94,087 91,430 88,798
Share appreciation rights . . . . . . . . . . . . . . . . . 2,157 323 293
Employee benefits . . . . . . . . . . . . . . . . . . . . . 25,660 24,218 23,890
Supplies and other expenses . . . . . . . . . . . . . . . . 31,560 31,208 31,440
Purchased services . . . . . . . . . . . . . . . . . . . . 17,800 15,735 13,842
Professional fees . . . . . . . . . . . . . . . . . . . . . 1,927 2,387 2,805
Other costs and expenses . . . . . . . . . . . . . . . . . 4,383 3,351 4,657
-------- -------- --------
Total direct expenses . . . . . . . . . . . . . . . . . . . 177,574 168,652 165,725
PROPERTY EXPENSES:
Lease and rent . . . . . . . . . . . . . . . . . . . . . . 6,962 7,745 7,854
Depreciation and amortization . . . . . . . . . . . . . . . 5,184 5,336 5,878
Interest, net . . . . . . . . . . . . . . . . . . . . . . . 2,494 3,266 4,983
-------- -------- --------
Total property expenses . . . . . . . . . . . . . . . . . . 14,640 16,347 18,715
INCOME BEFORE REORGANIZATION AND OTHER
ITEMS AND INCOME TAXES . . . . . . . . . . . . . . . . . . 8,140 7,049 1,236
REORGANIZATION AND OTHER ITEMS:
Gain on sale of facilities . . . . . . . . . . . . . . . . -- 1,007 --
Other reorganization items . . . . . . . . . . . . . . . . -- 536 1,720
-------- -------- --------
Total reorganization and other items . . . . . . . . . . . -- 1,543 1,720
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . 8,140 8,592 2,956
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . 3,093 2,928 721
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,047 $ 5,664 $ 2,235
======== ======== ========
INCOME PER SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.38 $ 0.49 $ 0.24
======== ======== ========
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . $ 0.38 $ 0.49 $ 0.21
======== ======== ========
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial
Statements.
-F-4-
<PAGE> 8
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock
----------------- Additional Retained
Shares Amount Capital Earnings Total
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE at December 31, 1990 . . . . . . . 8,956 $ 4,275 $ -- $ -- $ 4,275
Conversion of convertible exchangeable
notes . . . . . . . . . . . . . . . . . . 2,679 2,854 -- -- 2,854
Charge in lieu of income taxes . . . . . . -- -- 721 -- 721
Net income . . . . . . . . . . . . . . . . -- -- -- 2,235 2,235
------ ------- ------- ------- -------
BALANCE at December 31, 1991 . . . . . . . 11,635 7,129 721 2,235 10,085
Sale of common stock . . . . . . . . . . . 1,633 3,918 -- -- 3,918
Retirement of shares acquired by the company (46) -- -- -- --
Charge in lieu of income taxes . . . . . . -- -- 730 -- 730
Net income . . . . . . . . . . . . . . . . -- -- -- 5,664 5,664
------ ------- ------- ------- -------
BALANCE at December 31, 1992 . . . . . . . 13,222 11,047 1,451 7,899 20,397
Exercise of stock options . . . . . . . . . 12 29 -- -- 29
Net income . . . . . . . . . . . . . . . . -- -- -- 5,047 5,047
------ ------- ------- ------- -------
BALANCE at December 31, 1993 . . . . . . . 13,234 $11,076 $ 1,451 $12,946 $25,473
====== ======= ======= ======= =======
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
-F-5-
<PAGE> 9
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 5,047 $ 5,664 $ 2,235
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 5,184 5,336 5,878
Provision for doubtful accounts . . . . . . . . . . . . . . 88 30 1,036
Provision for losses on mortgage notes receivable . . . . . -- 117 511
Deferred income taxes and charge in lieu of taxes . . . . . 825 1,746 721
Other, net . . . . . . . . . . . . . . . . . . . . . . . . (645) (416) (173)
Reorganization and other items:
Gain on sale of facilities . . . . . . . . . . . . . . . . . -- (1,007) --
Other reorganization items . . . . . . . . . . . . . . . . -- (536) (1,720)
Changes in assets and liabilities, net of effects
from sales or disposals of facilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . (1,788) 200 (218)
Other current assets . . . . . . . . . . . . . . . . . . . 748 695 2,446
Notes and contracts receivable . . . . . . . . . . . . . . (320) 1,023 225
Other assets . . . . . . . . . . . . . . . . . . . . . . . 13 (380) 1,188
Accounts payable and accrued liabilities . . . . . . . . . 4,569 (2,428) (4,249)
Other current liabilities . . . . . . . . . . . . . . . . . (3,149) 1,018 793
Other noncurrent liabilities and deferred items . . . . . . (2) 32 309
------- ------- -------
Total adjustments . . . . . . . . . . . . . . . . . . . . . 5,523 5,430 6,747
------- ------- -------
Net cash provided by operating activities . . . . . . . . . 10,570 11,094 8,982
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets . . . . . . . . . . . . . . . 44 274 86
Proceeds from payoff of notes receivable . . . . . . . . . -- 700 255
Payments received on mortgage notes receivable . . . . . . 308 294 566
Investment in pharmacy partnership . . . . . . . . . . . . -- (238) --
Exercise of options to purchase facilities . . . . . . . . (1,542) -- --
Payments for property additions . . . . . . . . . . . . . . (3,884) (3,501) (3,579)
------- ------- -------
Net cash used in investing activities . . . . . . . . . . . (5,074) (2,471) (2,672)
------- ------- -------
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
-F-6-
<PAGE> 10
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except facility data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on term notes, mortgage debt and
capitalized leases . . . . . . . . . . . . . . . . . . . . $(28,684) $(9,611) $(7,674)
Payments on liabilities subject to reorganization proceedings -- (47) (4,111)
Proceeds of borrowing, net of expenses . . . . . . . . . . 28,861 1,000 2,750
Proceeds from exercise of stock options . . . . . . . . . . 29 -- --
Proceeds from sale of common stock, net of expenses . . . . -- 3,918 --
-------- ------- -------
Net cash provided by (used in) financing activities . . . . 206 (4,740) (9,035)
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . 5,702 3,883 (2,725)
CASH AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . 7,283 3,400 6,125
-------- ------- -------
CASH AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . $ 12,985 $ 7,283 $ 3,400
======== ======= =======
SUPPLEMENTAL CASH INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . $ 3,532 $ 4,014 $ 5,449
======== ======= =======
Income taxes paid . . . . . . . . . . . . . . . . . . . . . $ 183 $ 542 $ --
======== ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
NUMBER OF FACILITIES DISPOSED:
Long term care facilities . . . . . . . . . . . . . . . . . -- -- 2
Pharmacies and distribution centers . . . . . . . . . . . . -- 9 --
FINANCIAL IMPACT OF DISPOSALS:
Net assets . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 2,026 $ 5,488
Net liabilities . . . . . . . . . . . . . . . . . . . . . . -- (626) (4,781)
-------- ------- -------
Net assets sold or disposed . . . . . . . . . . . . . . . . -- 1,400 707
Cash proceeds . . . . . . . . . . . . . . . . . . . . . . . -- -- (54)
Additional notes on sale . . . . . . . . . . . . . . . . . -- -- --
Equity in pharmacy partnership . . . . . . . . . . . . . . -- (1,400) --
Charged against reserves for disposal of facilities . . . . -- -- (653)
-------- ------- -------
Net gain on sales and disposals . . . . . . . . . . . . . . $ -- $ -- $ --
======== ======= =======
</TABLE>
In 1992 Care contributed the net assets of five pharmacies and four
distribution centers having a net book value of $1,400,000 to a partnership
formed with another long-term provider. During 1991 Care disposed of two
facilities, one of which the Company continued to operate under a short term
lease agreement through November 1992.
See Independent Auditors' Report and Notes to Consolidated Financial
Statements.
-F-7-
<PAGE> 11
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MERGER AGREEMENT
On December 20, 1993, Care Enterprises, Inc. ("Care" or "the Company") and
Regency Health Services, Inc., a Delaware Corporation ("Regency"), entered into
an Agreement and Plan of Merger (the "Merger Agreement"). Regency currently
operates 43 long-term care facilities with 4,215 beds and one pharmacy, all
located in California. Pursuant to the Merger Agreement, Care will be merged
with and into Regency with Regency as the surviving corporation (the "Merger")
and each share of Care's Common Stock will be converted into 0.71 shares of
Regency's Common Stock, par value $0.01 per share in a tax-free transaction.
The Company anticipates that the Merger will be accounted for as a pooling of
interests.
The Merger has been approved by the Board of Directors of both companies and
its completion is subject to, among other things, the approval of regulatory
agencies and the shareholders of each of Care and Regency. In connection with
the Merger Agreement, shareholders holding a majority of Care's Common Stock
and shareholders holding approximately 22% of Regency's Common Stock have
agreed to vote in favor of the Merger under certain circumstances. Care
anticipates that the Merger will be consummated in the second calendar quarter
of 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Care provides skilled and intermediate nursing, rehabilitative services,
subacute and other specialized medical services. Services are provided in the
Company's owned, leased or managed nursing and rehabilitation facilities
located in California, Ohio, West Virginia and New Mexico. Care, through its
wholly-owned subsidiary Care Home Health Services, Inc., provides patients at
home with technical medical support such as infusion therapy and ventilator
care, and respite services such as assistance with personal hygiene, cooking
and cleaning.
Principles of Consolidation
The consolidated financial statements include the accounts of Care and its
wholly-owned subsidiaries. All material intercompany balances have been
eliminated.
Reclassifications
The Company has reclassified the presentation of certain prior year
information to conform with the current year presentation.
Cash
Cash consists of cash balances held in banks and petty cash funds. The cash
balance at December 31, 1993 includes $6,238,000 temporarily placed with Wells
Fargo Bank to collateralize letters of credit issued in conjunction with Care's
self-insured workers' compensation programs. An agreement in principle was
reached in December 1993, and a definitive agreement was signed in March 1994
with the Bank of America to provide an $8,000,000 letter of credit facility
(Note 7) and new letters of credit were obtained to secure the workers'
compensation obligations.
At December 31, 1993 and 1992 the Company held personal funds in trust for
patients approximating $425,000 and $400,000, respectively, which are not
reflected on the accompanying balance sheets.
Supplies Inventory
Supplies inventory is stated at the lower of cost or market using the
first-in, first-out method.
-F-8-
<PAGE> 12
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Property and equipment owned by the Company at the time of its emergence from
bankruptcy on December 31, 1990 was adjusted to its then current fair market
value. All other property and equipment is stated at cost. Depreciation and
amortization is provided on the straight-line method over the following
estimated useful lives or, if applicable, over the terms of the leases.
<TABLE>
<S> <C>
Buildings 20 to 40 years
Leasehold interests and improvements 7 to 30 years
Equipment 5 to 10 years
Assets under capitalized leases 10 to 25 years
</TABLE>
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost
and accumulated depreciation applicable to assets retired are removed from the
accounts and any gain or loss on disposition is recognized in income.
Health Care Revenues and Reimbursement Programs
Long-term care facilities receive payments for services to certain patients
under Medicare and state Medicaid programs and from the Veterans
Administration. Revenues are recorded at the estimated net realizable amounts
from patients and third party payors in the period in which the service is
provided. Approximately 83% (1993), 82% (1992), and 83% (1991) of total
revenue was derived from federal and state medical assistance programs.
Revenue under these programs are based in part on cost reimbursement principles
which govern reimbursement of current year costs. These revenues and costs are
subject to audit and, in the opinion of management, adequate provision has been
made for any adjustments that may result from such audits. Differences between
estimated provisions and final settlements are reflected in operations in the
year finalized. Approximately 75% (1993) and 78% (1992) of the Company's
accounts receivable were related to federal and state medical assistance
programs including approximately 26% (1993) and 33% (1992) related to the
California Medicaid program.
Interest Expense
Interest expense is reflected net of $712,000, $752,000 and $1,280,000 of
interest income for the years ending December 31, 1993, 1992 and 1991,
respectively.
Income Taxes
During 1991, the Company accounted for income taxes under the provisions of
Statement of Financial Accounting Standards No. 96 ("SFAS 96"). Effective
December 31, 1992, the Company adopted (on a cumulative basis from January 1,
1992) the provisions of Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes" (Note 3).
In accordance with AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" (SOP 90- 7), SFAS 96 and
SFAS 109 tax benefits recognized in periods subsequent to bankruptcy
reorganization, resulting from utilization of pre- reorganization financial
reporting Net Operating Losses ("financial reporting NOL"), are recorded by the
Company as direct additions to additional capital with a corresponding charge
in lieu of taxes included in the provision for income taxes in the Statement of
Operations.
Income Per Share
Income per share for 1993, 1992 and 1991 has been computed on the basis of the
weighted average shares of Common Stock outstanding plus, for 1993, common
equivalent shares arising from dilutive stock options, using the treasury stock
method. For 1992, common equivalent shares arising from dilutive stock options
have been excluded
-F-9-
<PAGE> 13
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from the determination of income per share due to immateriality. No such
options were outstanding during 1991. For the computation of fully diluted
income per share for 1991, shares issued in November 1991 for the conversion of
the $3,000,000 secured convertible exchangeable notes are included in the
weighted average shares outstanding from the beginning of 1991 and,
accordingly, net income for 1991 has not been reduced by interest expense on
the notes. The weighted average number of common and common equivalent shares
outstanding for the calculation of primary income per share was 13,312,000 in
1993, 11,667,000 in 1992, and 9,294,000 in 1991. The weighted average number
of shares used to compute income per share, assuming full dilution, was
13,388,000 in 1993, 11,667,000 in 1992, and 11,635,000 in 1991. All common
shares issued pursuant to the Plan of Reorganization have been treated as
outstanding as of December 31, 1990.
The income per share calculation does not include the shares reserved for
issuance in connection with the Company's Share Appreciation Rights Plan (Note
8), which provides for settlement of the rights in cash or stock. The
Company's Board of Directors does not presently plan to issue any shares in
settlement of the rights.
Workers' Compensation Self-Insurance
The Company maintains self-insurance programs for workers' compensation in
California and Ohio. The self-insurance liability under these programs is
based on claims filed and estimates of claims incurred but not reported. The
self-insurance liability is discounted at a rate of 10%, which management
believes to be its appropriate market rate of interest based on its current
financial circumstances.
Professional Liability Insurance
The Company maintains approximately $30,000,000 of professional liability
insurance covering substantially all of its operations on a claims- made basis,
with a $10,000 deductible for operations in the states of New Mexico and West
Virginia and a $250,000 self-insurance retention for all other locations. The
estimated amount payable for claims, including unasserted claims, under the
Company's self-insurance retention is recorded as a liability, without
discounting.
3. INCOME TAXES
During 1991, the Company accounted for income taxes under the provisions of
SFAS 96. Effective December 31, 1992, the Company adopted (on a cumulative
basis from January 1, 1992) the provisions of SFAS 109, which mandates the
liability method of accounting for deferred income taxes and permits the
recognition of net deferred tax assets subject to an ongoing assessment of
realizability. The change in accounting for income taxes did not have a
material effect on the Company's financial statements.
For federal tax return purposes, Care Enterprises, Inc. files a consolidated
tax return with its subsidiaries. As of December 31, 1993, the Company had
claimed a federal net operating loss carryforward for tax purposes ("Tax NOL")
of approximately $93,200,000 and credit carryforwards of approximately
$4,021,000. However, when the Company's Plan of Reorganization was confirmed,
an ownership change as defined in Internal Revenue Code ("IRC") Section 382
occurred. As a result, use of Tax NOL and credit carryforwards accumulated on
or before April 20, 1990 ("pre-confirmation") may be subject to an annual
limitation of approximately $300,000. Tax losses and credits generated after
April 20, 1990 ("post-confirmation") are not subject to the above limitation.
Because a portion of the Company's Tax NOL was generated as early as 1985, it
will begin to expire in the year 2000. Considering the annual limitation, it
is currently estimated that as of December 31, 1993, a maximum of $3,300,000 of
Tax NOL in the aggregate will be available for use prior to expiration.
Management is pursuing the possibility that the Company may qualify for the
special provisions of IRC Section 382(1)(5), which could reduce the aggregate
Tax NOL and credit carryforwards available but would not limit their annual
use. Should circumstances permit the Company to qualify for this section of
the IRC, a significant portion
-F-10-
<PAGE> 14
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the pre-confirmation Tax NOL and credit carryforwards could become available
for use. However, the Merger (discussed in Note 1) may also result in a
limitation on the use of the Company's post-confirmation Tax NOL and credit
carryforwards and, if Section 382(1)(5) applies, pre-confirmation Tax NOL and
carryforwards.
The Internal Revenue Service ("IRS") is examining the Company's income tax
returns for the years 1987 through 1990. Management believes that the outcome
of this examination will not have a material impact on the financial position
or liquidity of the Company, although it may reduce the Tax NOL.
In March 1994 the IRS issued final regulations relating to net operating
losses, and specifically relating to the determination of eligibility for the
use of Section 382(1)(5). Based on the new regulations, management believes
the Company will qualify for use of this section. After applying its
provisions, the amount of Tax NOL would be approximately $53,000,000, usable
without annual limitation, before the effect of any audit adjustments.
Deferred income tax assets and liabilities originate from differences between
accounting principles and procedures used for book and tax purposes,
principally related to depreciation, contingencies and legal settlements,
workers' compensation, share appreciation rights, bankruptcy costs and fees,
doubtful accounts and reserves for losses on discontinuance of certain
operations.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1993 1992 1991
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Current
Federal . . . . . . . . . . . . . . . . . . $1,915 $ 844 $ --
State . . . . . . . . . . . . . . . . . . . 353 338 --
Deferred
Federal . . . . . . . . . . . . . . . . . . 690 981 --
State . . . . . . . . . . . . . . . . . . . 135 35 --
Charge in lieu of income taxes . . . . . . . -- 730 721
------ ------ ----
Total provision for income taxes . . . . . . $3,093 $2,928 $721
====== ====== ====
</TABLE>
-F-11-
<PAGE> 15
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the federal statutory income tax rate with the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Federal rate . . . . . . . . . . . . . . . . . . . . . . . 34.0% 34.0% 34.0%
Reversal of pre-reorganization reserves . . . . . . . . . . -- (8.0) (15.6)
State taxes net of federal benefit . . . . . . . . . . . . 3.9 7.5 6.0
Permanent differences . . . . . . . . . . . . . . . . . . . 0.7 0.5 --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . (0.6) -- --
---- ---- ----
Effective rate . . . . . . . . . . . . . . . . . . . . . . 38.0% 34.0% 24.4%
==== ==== ====
</TABLE>
The tax effect of the temporary differences giving rise to the Company's
deferred tax assets and liabilities are shown on the following table:
<TABLE>
<CAPTION>
As of December 31,
----------------------
1993 1992
-------- ---------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward . . . . . . . . . . . . . . . . . . $ 1,351 $ 2,489
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . 671 1,066
Accrual for contingencies and legal settlements . . . . . . . . . . 1,056 1,145
Accrued workers' compensation claims . . . . . . . . . . . . . . . 4,199 4,364
Share appreciation rights . . . . . . . . . . . . . . . . . . . . . 1,106 240
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,291 1,951
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . (959) --
-------- --------
Total deferred income tax assets . . . . . . . . . . . . . . . . . 9,715 11,255
-------- --------
Deferred income tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,545) (12,260)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000) (1,000)
-------- --------
Total deferred income tax liabilities . . . . . . . . . . . . . . . (12,545) (13,260)
-------- --------
Net deferred income taxes . . . . . . . . . . . . . . . . . . . . . $ (2,830) $ (2,005)
======== ========
</TABLE>
-F-12-
<PAGE> 16
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
As of December 31,
--------------------
1993 1992
------- -------
(in thousands)
<S> <C> <C>
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . $10,489 $ 8,711
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,860 37,469
Leasehold interest and improvements . . . . . . . . . . . . . . . . 18,822 19,409
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,738 10,901
Assets under capitalized leases . . . . . . . . . . . . . . . . . . 650 3,181
------- -------
Total property and equipment . . . . . . . . . . . . . . . . 84,559 79,671
Less accumulated depreciation and amortization . . . . . . . . . . 15,173 10,505
------- -------
Total property and equipment, net . . . . . . . . . . . . . . . . . $69,386 $69,166
======= =======
</TABLE>
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Other assets consist of deposits (primarily related to the Company's
self-insured workers' compensation plans and facility leases), debt service
reserves related to the Industrial Development Bonds, a 26% interest in a
pharmacy partnership, deferred charges and other.
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
As of December 31,
-------------------
1993 1992
------- -------
(in thousands)
<S> <C> <C>
Accrued payroll and related taxes . . . . . . . . . . . . . . . . . $ 4,357 $ 3,891
Share appreciation rights . . . . . . . . . . . . . . . . . . . . . 2,693 585
Accrual for contingencies and legal settlements . . . . . . . . . . 3,030 3,244
Accrued workers' compensation claims (Net of discounting of
$2,954 and $3,085 for 1993 and 1992, respectively) . . . . . . . . . 10,226 10,627
Accrued employee benefits . . . . . . . . . . . . . . . . . . . . . 3,934 3,875
Reserve for losses on discontinuance of certain operations . . . . -- 1,513
Reserve for expenses and fees in connection with Chapter 11
proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 556
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . 4,454 1,647
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 2,725 640
------- -------
Total accrued liabilities . . . . . . . . . . . . . . . . . . . . . 31,572 26,578
Less current portion of accrued liabilities . . . . . . . . . . . . 19,623 15,791
------- -------
Noncurrent portion . . . . . . . . . . . . . . . . . . . . . . . . $11,949 $10,787
======= =======
</TABLE>
-F-13-
<PAGE> 17
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt consists of the following:
<TABLE>
<CAPTION>
As of December 31,
-------------------
1993 1992
------- -------
(in thousands)
<S> <C> <C>
Senior Secured Notes due December 2000 with interest at 8.1%,
payable semiannually. Annual principal payments of $6 million
commencing January 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,000 $ --
Term Notes with interest at a rate which approximates the
Citibank N.A. prime rate plus 2% (effectively 8% during 1993),
paid in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,374
Term Notes payable to a shareholder (Note 9), with interest at a rate
which approximates the Citibank N.A. prime rate plus 2% (effectively 8%
during 1993), paid in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,375
Mortgage notes payable due through January 1998 in monthly installments of
$7,691, including interest at 8.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 5,212
Industrial development bonds ("IDB's") due through August 2012 in varying
amounts with interest at rates from 6.1% to 13.75% . . . . . . . . . . . . . . . . . . . 10,935 12,595
Working capital loan from a shareholder with interest at the Citibank N.A.
prime rate plus 3% (effectively 9% during 1993), paid in 1993 . . . . . . . . . . . . . -- 1,000
Other unsecured indebtedness payable in varying amounts through
August 2017 with interest at rates from 0% to 13.0% . . . . . . . . . . . . . . . . . . 1,033 1,436
Capitalized lease obligations payable through September 1996 . . . . . . . . . . . . . . 485 1,434
------- -------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,740 40,426
Less: Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,139 7,683
------- -------
Long-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,601 $32,743
======= =======
</TABLE>
The repayment of the remaining balances of the Term Notes and the working
capital loan and the reduction of the outstanding balances of IDB's, mortgage
notes payable, and capitalized lease obligations was primarily accomplished
with the proceeds of the Senior Secured Notes, as discussed below.
-F-14-
<PAGE> 18
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate maturities of long-term debt and capitalized lease obligations
for the ensuing five years and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1994 $ 1,139
1995 306
1996 297
1997 6,277
1998 6,282
Thereafter 28,439
-------
$42,740
=======
</TABLE>
On December 30, 1993, Care entered into a Note Agreement with a number of
institutional purchasers pursuant to which it issued $30,000,000 of its 8.10%
Senior Secured Notes due December 15, 2000 ("Notes"). The Notes have an
average maturity of five years and provide for interest payments on each of
January 15 and July 15, commencing January 15, 1994. Principal payments of
$6,000,000 are due annually commencing on January 15, 1997, with the final
payment due on maturity. The Notes are secured by mortgages on eleven nursing
facilities having an aggregate carrying value of $30,374,000. The Notes
contain covenants which require the maintenance of certain financial ratios and
levels of tangible net worth, restrict the incurrence of new debt, and limit
the payment of dividends on Care's Common Stock.
The proceeds of the Notes were used to pay $18,851,000 of existing debt,
including the remaining balance of $11,569,000 on the Term Notes, the
$1,000,000 working capital loan from a shareholder, and $6,282,000 in other
debt. An additional $495,000 was used to pay the outstanding balance of a
capitalized lease obligation and purchase the related facility. Proceeds of
the borrowing were also used to pay costs and expenses of the issuance of the
notes totaling $1,139.000, and $709,000 was used to establish cash escrows with
a title company pending the resolution of certain title and debt payoff related
issues and to pay certain other costs.
Each of the mortgage notes and IDB's is secured by a first deed of trust on
the related facility. One of the IDB's requires the maintenance of debt
service reserve funds and all of the IDB's contain affirmative and negative
covenants and reporting requirements.
7. COMMITMENTS AND CONTINGENCIES
Letters of Credit
The Company is contingently liable under letters of credit principally related
to deposit requirements on its self-insured workers' compensation plans. State
regulations require the maintenance of deposits at specified percentages of
estimated future claim payments which can be satisfied through a combination of
cash deposits, surety bonds and letters of credit. The total amount of letters
of credit outstanding at December 31, 1993 and 1992 were $6,238,000 and
$6,250,000, respectively.
An agreement in principle was reached in December 1993, and a definitive
agreement was signed in March 1994 with the Bank of America to provide an
$8,000,000 letter of credit facility secured by Care's accounts and notes
receivable and the shares of Care's subsidiary, Healthcare Network, which is a
partner in the pharmacy partnership.
-F-15-
<PAGE> 19
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Leases
The Company leases certain facilities and offices under cancelable and
noncancelable agreement expiring at various dates through October 2010. the
leases are generally triple-net leases and provide for the Company's payment of
property taxes, insurance and repairs. Certain leases contain renewal options
and rent escalation clauses. Rent escalation clauses require either fixed
increases or increases tied to the Consumer Price Index. Five leases include
purchase options at fixed or market prices at various dates. Three leases
include put options in the year 2000 at 100% of fair market value. Rent and
lease expenses aggregated $6,897,000 for 1993, $7,682,000 for 1992, and
$7,785,000 for 1991.
Future minimum lease payments (in thousands) for operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1994 $ 7,600
1995 7,716
1996 7,696
1997 6,410
1998 5,297
Thereafter 31,426
-------
Total minimum lease payments $66,145
=======
</TABLE>
Guarantees of Leases
The Company is contingently liable for certain operating leases assumed by the
purchasers of the Company's leasehold interests in facilities. The Company is
not aware of any failure on the part of these purchasers to meet the terms of
their obligations, and does not anticipate any expenditures to be incurred in
connection with its guarantees. If a default were to occur, the Company
generally would be able to assume operations of the facility and use the net
revenues thereof to defray the Company's expenditures on these guarantees.
The following is a schedule of future minimum lease payments (in thousands)
for the operating leases for which the Company is contingently liable:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1994 $ 1,368
1995 1,371
1996 1,204
1997 1,172
1998 631
Thereafter 5,288
-------
Total minimum lease payments $11,034
=======
</TABLE>
Litigation
The Company is also subject to various claims and lawsuits which arise in the
normal course of business. In the opinion of management, adequate provision
has been made and such claims or actions are not expected to have a material
adverse effect on the Company's financial position.
-F-16-
<PAGE> 20
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STRUCTURE
The Company has authorized capital stock of 26,000,000 shares consisting of
1,000,000 shares of Series A Preferred Stock, $1.00 par value per share, and
25,000,000 shares of Common Stock, $.01 par value per share.
Preferred Stock
The Preferred Stock, none of which has been issued, has certain preferences
upon liquidation or redemption and has voting rights similar to the Common
Stock.
Common Stock
On December 21, 1992, the Company sold 1,633,000 shares of Common Stock to
affiliates of Smith Management Company and Foothill Group, Inc., its two
largest shareholders for $4,000,000 (Note 9). In 1992, Care retired 46,000
shares of Common Stock which had been acquired by the Company through
settlement of certain claims.
Stock Option Plan
In 1992, the Board of Directors and the shareholders of the Company approved a
stock option plan providing for the grant of options to employees and certain
consultants to purchase an aggregate of 550,000 shares of the Company's Common
Stock. Under this plan, full-time employees are eligible to receive grants of
either incentive stock options structured to qualify under Section 422 of the
IRC of 1986, or non- qualified stock options which are not intended to meet the
requirements of the IRC. Consultants and certain eligible directors may be
granted only non-qualified stock options. The options vest over a four year
period and have an exercise price equal to the market price of the Company's
common stock on the date of grant. Outstanding options expire on various dates
through December 15, 1998.
Stock option activity (in shares):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1993 1992
----------- -----------
<S> <C> <C>
Options outstanding at beginning of year . . . . . . . . . . . . . . . . . . 339,000 --
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,000 378,000
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,000) --
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,000) (39,000)
----------- -----------
Options outstanding at end of year . . . . . . . . . . . . . . . . . . . . . 371,000 339,000
=========== ===========
Options exercisable at end of year . . . . . . . . . . . . . . . . . . . . . 68,000 --
=========== ===========
Option price range . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.13-$6.50 $2.13-$2.88
</TABLE>
At December 31, 1993, there were 167,000 options available for grant.
-F-17-
<PAGE> 21
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Share Appreciation Rights Plan
In January 1991, Care's Board of Directors adopted a Share Appreciation
Rights Plan (the "SAR Plan") which provided for the award of 1,000,000 units to
certain key executives. The SAR Plan was amended by the Board of Directors and
shareholders in May 1992.
The SAR Plan provides that upon award, 25% of the units vest on each of the
first four anniversaries of the award date and vested units must be exercised
before the fifth anniversary of the award. Upon exercise, the awardee is
entitled to receive in cash or stock, at the Company's option, the difference
between the base value awarded and the market value on the date units are
exercised.
As indicated below, of the 900,000 units which were awarded in 1991 at the
base price of $1 per unit, 36,000 were exercised, 531,000 were forfeited and
333,000 remain outstanding, of which 166,500 are vested as of December 31,
1993. The Board of Directors has decided not to award additional rights under
the SAR Plan. During 1993, 1992 and 1991, the Company accrued $2,157,000,
$323,000 and $293,000, respectively, in benefits associated with this plan and
450,000 shares of Common Stock have been reserved for possible issuance in
settlement of the appreciation due awardees.
Share appreciation rights activity (in units):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Outstanding, January 1, . . . . . . . . . . . 360,000 450,000 --
Granted . . . . . . . . . . . . . . . . . . . -- -- 900,000
Settled . . . . . . . . . . . . .. . . . . . (13,500) (22,500) --
Canceled . . . . . . . . . . . . . . . . . . (13,500) (67,500) (450,000)
------- ------- --------
Outstanding, December 31, . . . . . . . . . . 333,000 360,000 450,000
======= ======= ========
</TABLE>
9. RELATED PARTY TRANSACTIONS
Smith Management Company and its affiliated companies ("Smith") and Foothill
Capital Corporation, Foothill Group, Inc. and affiliates ("Foothill") are
significant shareholders of the Company.
In January 1992, Foothill acquired from Wells Fargo Bank, N.A. a 50% interest
in the Company's Term Note obligation. Their portion of the Term Notes
amounted to $9,375,000 at December 31, 1992. As part of the transaction,
Foothill also acquired a contingent letter of credit obligation with a
principal amount of $4,316,000. The remaining balance of the Term Notes was
paid on December 30, 1993.
In December, 1992, the Company sold 1,633,000 shares of Common Stock to Smith
and Foothill for $4,000,000. In connection with this transaction, Smith and
Foothill have registration rights whereby they can join the Company in a
registration if the Company chooses to register other shares of its Common
Stock with the Securities and Exchange Commission.
-F-18-
<PAGE> 22
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1990 and 1991 the Company sold $3,000,000 in secured convertible
exchangeable notes to Smith and Foothill. The notes, which had a maturity date
of December 31, 1993, bore interest at a rate approximating the Citibank, N.A.
prime rate plus 1% payable quarterly, were secured by two of the Company's
nursing facilities. The notes were convertible at any time, at the option of
the holder, into shares of Preferred Stock or Common Stock and would
automatically convert into shares of Common Stock upon the occurrence of
certain events. On November 14, 1991, the requirements for automatic
conversion were met and the notes were converted into 2,679,000 shares of
Common Stock. The holders of these shares have registration rights whereby
they can request, at the Company's expense, that the Common Stock issued be
registered with the Securities and Exchange Commission. Foothill also provided
the Company with a $1,000,000 revolving credit working capital facility which
was terminated, and the outstanding balance paid, in December 1993.
In April 1991, the Company engaged Smith to assist in the development and
implementation of a program which would improve the Company's liquidity. Under
this agreement, the Company paid Smith an aggregate of $218,000 for 1992 and
$100,000 for 1991. This agreement expired on December 31, 1992.
The Company has a 26% interest in the pharmacy partnership formed in April
1992. The partnership continues to provide products and services to the
nursing and rehabilitation centers operated by the Company. For 1993 and 1992
these purchases totaled approximately $5,900,000 and $4,200,000, respectively.
10. DISPOSAL OF FACILITY
In 1992, Care recognized a gain of $1,007,000 on a nursing facility disposal
which occurred in 1991. The gain represents the difference between the book
value of the nursing facility assets which were acquired in 1991 by a bank in a
non-judicial foreclosure and management's estimate of the value of the assets
surrendered.
11. RETIREMENT SAVING PLAN
Effective January 1, 1992, the Company began accepting the entry of new
participants and began accepting participant contributions to the Care
Enterprises, Inc. Retirement Savings Plan, which is a qualified cash or
deferred arrangement under Section 401(k) of the Internal Revenue Code. All
employees with at least one year of employment who have attained the age of 21
are eligible to participate. Participants may contribute, on a pre-tax basis,
up to 15% of their earnings to the plan (subject to certain limitations), for
which the Company matches 15% of the first 3% of contributions for persons with
less than three years of service and 25% of the first 5% for all others. The
Company's contributions are subject to a four-year vesting period. Matching
contributions made by the Company for 1993 and 1992 were $186,000 and $155,000,
respectively.
12. QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
First Second Third Fourth
1993 (Unaudited): Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $47,748 $49,865 $50,582 $52,159 $200,354
======= ======= ======= ======= ========
Income before income taxes . . . . . . . . 1,661 2,247 2,658 1,574 8,140
Provision for income taxes . . . . . . . . 665 898 1,063 467 3,093
------- ------- ------- ------- --------
Net income . . . . . . . . . . . . . . . $ 996 $ 1,349 $ 1,595 $ 1,107 $ 5,047
======= ======= ======= ======= ========
Income per share-primary:
Net income . . . . . . . . . . . . . . . $ .08 $ .10 $ .12 $ .08 $ .38
======= ======= ======= ======= ========
Weighted average shares outstanding . . . . 13,262 13,323 13,321 13,353 13,312
======= ======= ======= ======= ========
</TABLE>
During the fourth quarter of 1993, the Company recorded a charge of $1,694,000
for compensation payable under the Share Appreciation Rights Plan. This charge
is the result of an increase in the market price of Care's Common Stock from
$4.00 per share at September 30, 1993 to $9.625 at December 31, 1993.
-F-19-
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1992 (Unaudited): First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 47,933 $ 46,401 $ 48,523 $ 49,191 $ 192,048
=========== =========== =========== =========== ===========
Income before reorganization items
and income taxes . . . . . . . . . . . . 690 1,356 2,124 2,879 7,049
Reorganization and other items . . . . . . -- -- -- 1,543 1,543
----------- ----------- ----------- ----------- -----------
Income before income taxes . . . . . . . . 690 1,356 2,124 4,422 8,592
Provision for income taxes . . . . . . . . 276 542 850 1,260 2,928
----------- ----------- ----------- ----------- -----------
Net income . . . . . . . . . . . . . . . $ 414 $ 814 $ 1,274 $ 3,162 $ 5,664
=========== =========== =========== =========== ===========
Income per share-primary:
Net income . . . . . . . . . . . . . . . $ .04 $ .07 $ .11 $ .27 $ .49
=========== =========== =========== =========== ===========
Weighted average shares outstanding . . . . 11,635 11,635 11,635 11,809 11,667
=========== =========== =========== =========== ===========
</TABLE>
During the fourth quarter of 1992, the Company recognized gains resulting from
the reversal of reserves for losses on the discontinuance of certain operations
of $461,000, the reversal of reserves for expenses and fees resulting from
Chapter 11 proceedings of $75,000 and recognized a gain on the sale of a
facility disposed in 1991, of $1,007,000.
<TABLE>
<CAPTION>
1991 (Unaudited): First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 44,455 $ 46,057 $ 46,429 $ 48,735 $ 185,676
=========== =========== =========== =========== ===========
Income (loss) before reorganization items
and income taxes . . . . . . . . . . . . (166) 492 22 888 1,236
Reorganization and other items . . . . . . -- -- 882 838 1,720
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes . . . . . (166) 492 904 1,726 2,956
Provision for income taxes . . . . . . . . -- -- 425 296 721
----------- ----------- ----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . $ (166) $ 492 $ 479 $ 1,430 $ 2,235
=========== =========== =========== =========== ===========
Income (loss) per share-primary:
Net income (loss) . . . . . . . . . . . . $ (.02) $ .05 $ .05 $ .14 $ .24
=========== =========== =========== =========== ===========
Weighted average shares outstanding . . . . 8,956 8,956 8,956 10,296 9,294
=========== =========== =========== =========== ===========
</TABLE>
During the second quarter of 1991, Care disposed of one facility and
recognized a loss of $653,000 that was charged against reserves for losses on
discontinuance of certain operations.
During the third quarter of 1991, the Company recognized gains resulting from
the reversal of reserves for losses on the discontinuance of certain operations
of $882,000.
During the fourth quarter of 1991, the Company recognized gains resulting from
the reversal of reserves for losses on the discontinuance of certain operations
of $374,000 and reversal of reserves for expenses and fees resulting from
Chapter 11 proceedings of $464,000.
-F-20-
<PAGE> 24
(B) UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed balance sheet as of December 31,
1993 of Regency Health Services, Inc. ("Regency") and Care Enterprises, Inc.
("Care"), and the unaudited pro forma condensed statements of income for
each of the three years in the period ended June 30, 1993 and the six months
ended December 31, 1993 give effect to the Merger involving Regency and Care
using the pooling-of-interests method of accounting as if it had occurred
at the beginning of the earliest period presented. The data presented
may not be indicative of the results that would have been obtained had the
transactions described above actually occurred on the dates assumed. The
operating results for the six months ended December 31, 1993 are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 1994. In the opinion of management of each of Regency and
Care, this data includes all adjustments, consisting of normal recurring
adjustments, that each of Care and Regency considered necessary for a fair
presentation of the data set forth therein.
-F-21-
<PAGE> 25
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Regency Care Adjustments As Adjusted
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . $ 21,325 $ 12,985 $ -- $ 34,310
Accounts and notes receivable, net . . . . . . 30,092 21,641 -- 51,733
Other current assets . . . . . . . . . . . . . . 2,958 6,706 -- 9,664
-------- -------- -------- --------
Total current assets . . . . . . . . . . . . . 54,375 41,332 -- 95,707
Property and equipment, net . . . . . . . . . . 59,462 69,386 -- 128,848
Mortgage notes receivable . . . . . . . . . . . -- 2,175 -- 2,175
Other assets . . . . . . . . . . . . . . . . . . 8,103 8,505 -- 16,608
-------- -------- -------- --------
Total Assets . . . . . . . . . . . . . . . . . . $121,940 $121,398 $ -- $243,338
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt . . . . . . . $ 209 $ 1,139 $ -- $ 1,348
Accounts payable . . . . . . . . . . . . . . . . 6,128 11,716 -- 17,844
Accrued expenses and compensation . . . . . . . 6,672 19,623 5,400 (4) 31,695
Other current liabilities . . . . . . . . . . . 3,627 3,085 -- 6,712
-------- -------- -------- --------
Total current liabilities . . . . . . . . . . 16,636 35,563 5,400 57,599
Long-term debt, net of current portion . . . . . 62,384 41,601 -- 103,985
Other noncurrent liabilities and deferred items . 1,378 18,761 -- 20,139
-------- -------- -------- --------
80,398 95,925 5,400 181,723
-------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Common Stock . . . . . . . . . . . . . . . . . 68 11,076 (10,982)(6) 162
Additional paid-in-capital . . . . . . . . . . 32,922 1,451 10,982 (6) 45,355
Retained earnings . . . . . . . . . . . . . . . 8,552 12,946 (5,400)(4) 16,098
-------- -------- -------- --------
41,542 25,473 (5,400) 61,615
-------- -------- -------- --------
Total liabilities and stockholders' equity . . . $121,940 $121,398 $ -- $243,338
======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
-F-22-
<PAGE> 26
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Regency Care(7) Pro Forma
-------------- --------------- --------------
<S> <C> <C> <C>
Net operating revenue . . . . . . . . . . . . . . . . . . . $ 79,519 $ 102,556 $ 182,075
-------------- --------------- --------------
Costs and expenses:
Operating and administrative . . . . . . . . . . . . . . 65,292 89,781 155,073
Share appreciation rights . . . . . . . . . . . . . . . . -- 1,662 1,662
Rent expense and property taxes . . . . . . . . . . . . . 4,584 3,308 7,892
Depreciation and amortization . . . . . . . . . . . . . . 1,307 2,579 3,886
Interest expense . . . . . . . . . . . . . . . . . . . . 2,015 994 3,009
-------------- --------------- --------------
Total costs and expenses . . . . . . . . . . . . . . . . . 73,198 98,324 171,522
-------------- --------------- --------------
Income before provision for income taxes and extraordinary
items . . . . . . . . . . . . . . . . . . . . . . . . . . 6,321 4,232 10,553
Provision for income taxes . . . . . . . . . . . . . . . . 2,482 1,530 4,012
-------------- --------------- --------------
Income before extraordinary items . . . . . . . . . . . . . $ 3,839 $ 2,702 $ 6,541
============== =============== ==============
Pro forma income per share before extraordinary items:(5)
Primary . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.40
Fully diluted . . . . . . . . . . . . . . . . . . . . . . $ 0.37
Number of shares used in calculation:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . 16,385
Fully diluted . . . . . . . . . . . . . . . . . . . . . . 20,439
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
-F-23-
<PAGE> 27
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1993(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Regency Care Adjustments As Adjusted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net operating revenue . . . . . . . . . . . . . . . . $ 115,378 $ 196,072 $ -- $ 311,450
------------ ------------ ------------ ------------
Costs and expenses:
Operating and administrative . . . . . . . . . . . 95,398 169,714 -- 265,112
Share appreciation rights . . . . . . . . . . . . . -- 672 -- 672
Rent expense and property taxes . . . . . . . . . . 7,256 7,989 -- 15,245
Depreciation and amortization . . . . . . . . . . . 1,985 5,206 -- 7,191
Interest expense . . . . . . . . . . . . . . . . . 1,635 3,580 -- 5,215
------------ ------------ ------------ ------------
Total costs and expenses . . . . . . . . . . . . . . 106,274 187,161 -- 293,435
------------ ------------ ------------ ------------
Income before reorganization items, provision for
income taxes and extraordinary items . . . . . . . 9,104 8,911 -- 18,015
------------ ------------ ------------ ------------
Reorganization and other items:
Gain on sale of facilities . . . . . . . . . . . . -- 1,007 -- 1,007
Other reorganization items . . . . . . . . . . . . -- 536 -- 536
------------ ------------ ------------ ------------
Total reorganization and other items . . . . . . . . -- 1,543 -- 1,543
------------ ------------ ------------ ------------
Income before provision for income taxes and
extraordinary items . . . . . . . . . . . . . . . . 9,104 10,454 -- 19,558
Provision for income taxes . . . . . . . . . . . . . 3,621 3,673 (99)(3) 7,195
------------ ------------ ------------ ------------
Income before extraordinary items . . . . . . . . . . $ 5,483 $ 6,781 $ 99 $ 12,363
============ ============ ============ ============
Pro forma income per share before extraordinary items:(5)
Primary . . . . . . . . . . . . . . . . . . . . . . $ 0.79
Fully diluted . . . . . . . . . . . . . . . . . . . $ 0.77
Number of shares used in calculation:
Primary . . . . . . . . . . . . . . . . . . . . . . 15,654
Fully diluted . . . . . . . . . . . . . . . . . . . 16,673
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
-F-24-
<PAGE> 28
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1992(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Regency Care Adjustments As Adjusted
------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net operating revenue . . . . . . . . . . . . . . . . $81,447 $190,325 $ -- $271,772
Costs and expenses:
Operating and administrative . . . . . . . . . . . 68,276 167,221 -- 235,497
Share appreciation rights . . . . . . . . . . . . . 438 -- 438
Rent expense and property taxes . . . . . . . . . . 5,496 9,054 -- 14,550
Depreciation and amortization . . . . . . . . . . . 1,535 5,592 -- 7,127
Interest expense . . . . . . . . . . . . . . . . . 2,462 5,064 -- 7,526
------- -------- ------- --------
Total costs and expenses . . . . . . . . . . . . . . 77,769 187,369 -- 265,138
------- -------- ------- --------
Income before reorganization items, provision for
income taxes and extraordinary items . . . . . . . 3,678 2,956 -- 6,634
------- -------- ------- --------
Reorganization items . . . . . . . . . . . . . . . . -- 1,720 -- 1,720
------- -------- ------- --------
Income before provision for income taxes and
extraordinary items . . . . . . . . . . . . . . . . 3,678 4,676 -- 8,354
Provision for income taxes . . . . . . . . . . . . . 1,454 1,539 (1,022)(3) 1,971
------- -------- ------- --------
Income before extraordinary items . . . . . . . . . . $ 2,224 $ 3,137 $ 1,022 $ 6,383
======= ======== ======= ========
Pro forma income per share before extraordinary
items:(5)
Primary . . . . . . . . . . . . . . . . . . . . . . $ 0.57
Fully diluted . . . . . . . . . . . . . . . . . . . $ 0.54
Number of shares used in calculation:
Primary . . . . . . . . . . . . . . . . . . . . . . 11,225
Fully diluted . . . . . . . . . . . . . . . . . . . 11,944
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
-F-25-
<PAGE> 29
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1991(1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Regency Care Adjustments As Adjusted
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net operating revenue . . . . . . . . . . . . . . . . $ 56,788 $ 91,338 $ -- $ 148,126
------------ ------------ ------------ -----------
Costs and expenses:
Operating and administrative . . . . . . . . . . . 47,161 80,452 -- 127,613
Share appreciation rights . . . . . . . . . . . . . -- -- -- --
Rent expense and property taxes . . . . . . . . . . 3,584 4,221 -- 7,805
Depreciation and amortization . . . . . . . . . . . 1,387 3,021 -- 4,408
Interest expense . . . . . . . . . . . . . . . . . 3,114 3,318 -- 6,432
------------ ------------ ------------ -----------
Total costs and expenses . . . . . . . . . . . . . . 55,246 91,012 -- 146,258
------------ ------------ ------------ -----------
Income before reorganization items, provision for
income taxes and extraordinary items . . . . . . . 1,542 326 -- 1,868
------------ ------------ ------------ -----------
Reorganization and other items:
Gain on sale of facilities . . . . . . . . . . . . 312 -- -- 312
------------ ------------ ------------ -----------
Total reorganization and other items . . . . . . . . 312 -- -- 312
------------ ------------ ------------ -----------
Income before provision for income taxes and
extraordinary items . . . . . . . . . . . . . . . . 1,854 326 -- 2,180
Provision for income taxes . . . . . . . . . . . . . 792 -- (762)(3) 30
------------ ------------ ------------ -----------
Income before extraordinary items . . . . . . . . . . $ 1,062 $ 326 $ 762 $ 2,150
------------ ------------ ------------ -----------
Pro forma income per share before extraordinary
items:(5)
Primary . . . . . . . . . . . . . . . . . . . . . . $ 0.37
Fully diluted . . . . . . . . . . . . . . . . . . . $ 0.33
Number of shares used in calculation:
Primary . . . . . . . . . . . . . . . . . . . . . . 6,295
Fully diluted . . . . . . . . . . . . . . . . . . . 7,238
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Information.
</TABLE>
-F-26-
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Under the pooling-of-interests accounting method, the accounting policies
followed by the two entities are conformed. The following describes certain
accounting policy differences between Regency and Care which were adjusted in
the unaudited pro forma condensed balance sheet, unaudited pro forma condensed
statements of income and other items relevant to the pro forma information.
(1) Regency reports its financial position and results of operations using
a June 30 fiscal year end. Care reports its financial position and
results of operations using a December 31 fiscal year end. The
accompanying unaudited pro forma condensed statements of income for
each of the three fiscal years in the period ended June 30, 1993
conform Care to a June 30 fiscal year end.
(2) On December 31, 1990 Care emerged from bankruptcy after its Joint Plan
of Reorganization became effective. Care implemented the recommended
accounting for entities in ("Pre-Reorganization Reporting") and
emerging from ("Fresh-Start Reporting") Chapter 11 reorganization as
set forth in SOP 90-7 during the year ended December 31, 1990.
Accordingly, the unaudited pro forma condensed statement of income for
the year ended June 30, 1991 includes the operations for Care for only
six months (January 1, 1991 through June 30, 1991).
(3) Regency's consolidated financial statements as of and for each of the
three fiscal years in the period ended June 30, 1993 reflect income
taxes following the requirements of Accounting Principles Board (APB)
Opinion No. 11, "Accounting for Income Taxes." Care's consolidated
financial statements reflect income taxes following the requirements
of Statement of Financial Accounting Standard (SFAS) No. 109,
"Accounting for Income Taxes." To conform Regency's accounting
practice to SFAS No. 109, an adjustment is required to reclassify the
utilization of Regency's net operating loss carryforward from an
extraordinary item to a reduction in the provision for income taxes.
The effect on the unaudited pro forma condensed balance sheet is not
material.
(4) All fees and expenses related to the Merger and to the consolidation
and restructuring of the combining companies will be expensed as
required under the pooling-of-interests accounting method. These
expenses have not been reflected in the unaudited pro forma condensed
statements of income, but will be reflected in the statement of income
of Regency in the period the Merger is consummated. The total
Merger costs are expected to approximate $5,400,000. The direct
transactional expenses are estimated to be approximately $2,500,000
for investment banking, legal, accounting, printing, mailing and
similar expenses. Although there can be no precise determination of
such expenses until the consolidation of operations is actually
completed, it is expected that up to an additional $2,900,000 (net of
tax) will be required for integrating management information and
accounting systems and consolidating various operating, management and
other functions of the two companies to efficiently open the new
enterprise as a result of the Merger. No assurance can be given at
present that such expenses will not be greater or less than the amount
budgeted for them or that such operating efficiencies will be fully
realized.
(5) The calculation of unaudited pro forma income per share before
extraordinary items for each period presented reflects the issuance of
.71 of a share of Regency Common Stock for each share of common and
common equivalent share of Care Common Stock used in such calculation
without consideration for fractional shares.
(6) This Pro Forma adjustment gives effect to the issuance of 9,396,140
shares of Regency Common Stock, $0.01 par value, in connection with
the Merger based upon the number of shares of Care Common Stock
outstanding as of December 31, 1993.
(7) During the six months ended December 31, 1993, Care incurred a charge
to operating income of $1,662,000 relating to the SAR's previously
granted. The charge to operating income for the year ended December
31, 1993 was approximately $2,157,000, primarily as a result of the
increasing market price of shares of Care Common Stock to $9.625 per
share on December 31, 1993 as compared to $2.75 per share on January
1, 1993. Depending upon the future performance of Regency
Common Stock, Regency may incur substantial additional charges in
future periods, through December 31, 1995, which will aggregate
approximately $330,000 for each one dollar increase in the market
price of Care Common Stock (or $235,000 for each one dollar increase
in the market price of Regency Common Stock).
-F-27-
<PAGE> 31
(C) EXHIBITS FILED
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of December 20, 1993, by and between Regency
Health Services, Inc. and Care Enterprises, Inc. (included as Annex A to the Proxy
Statement/Prospectus contained in Regency Health Services, Inc.'s
Registration Statement on Form S-4 (File No. 33-52497)).
2.1.1 Amendment to Agreement and Plan of Merger, dated as of January 31, 1994, by and between
Regency Health Services, Inc. and Care Enterprises, Inc. (included as Annex A to the Proxy
Statement /Prospectus contained in Regency Health Services, Inc.'s
Registration Statement on Form S-4 (File No. 33-52497)).
2.1.2 Second Amendment to Agreement and Plan of Merger, dated as of March 21, 1994, by and among
Regency Health Services, Inc., Care Enterprises, Inc. and Care Merger Sub, Inc.
4.1 Specimen of common stock certificate of Regency Health Services, Inc. (incorporated by
reference to Regency Health Services Inc.'s Registration Statement on Form S-1 (File No. 33-45591).
4.2 Voting Agreement, dated as of December 27, 1993, by and among Regency Health Services, Inc.
and the stockholders named therein (incorporated by reference to Regency Health Services, Inc.'s
Registration Statement on Form S-4 (File No. 33-52497)).
4.3 Voting Agreement, dated as of December 27, 1993, by and among Care Enterprises, Inc. and the
stockholders named therein (incorporated by reference to Regency Health Services, Inc.'s
Registration Statement on Form S-4 (File No. 33-52497)).
20.1 Proxy Statement/Prospectus of Regency Health Services, Inc. dated March 7, 1994 (filed as part of
Regency Health Services, Inc.'s Registration Statement on Form S-4 (File No. 33-52497)).
</TABLE>
-2-
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGENCY HEALTH SERVICES, INC.
(Registrant)
May 12, 1994 By: /s/ Cecil Mays
-----------------------
Cecil Mays
President and
Chief Executive Officer
May 12, 1994 By: /s/ Gary L. Massimino
------------------------
Gary L. Massimino
Executive Vice
President and Chief Financial
Officer
-3-
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C>
2.1 Agreement and Plan of Merger, dated as of December 20, 1993, by and between Regency *
Health Services, Inc. and Care Enterprises, Inc. (included as Annex A to the Proxy
Statement/Prospectus contained in Regency Health Services, Inc.'s Registration
Statement on Form S-4 (File No. 33-52497)).
2.1.1 Amendment to Agreement and Plan of Merger, dated as of January 31, 1994, by and *
between Regency Health Services, Inc. and Care Enterprises, Inc. (included as Annex
A to the Proxy Statement/Prospectus contained in Regency Health Services, Inc.'s
Registration Statement on Form S-4 (File No. 33-52497)).
2.1.2 Second Amendment to Agreement and Plan of Merger, dated as of March 21, 1994, by and *
among Regency Health Services, Inc., Care Enterprises, Inc. and Care Merger Sub,
Inc.
4.1 Specimen of common stock certificate of Regency Health Services, Inc. (incorporated *
by reference to Regency Health Services, Inc.'s Registration Statement on Form S-1
(File No. 33-45591)).
4.2 Voting Agreement, dated as of December 27, 1993, by and among Regency Health *
Services, Inc. and the stockholders named therein (incorporated by reference to
Regency Health Services, Inc.'s Registration Statement on Form S-4 (File No. 33-
52497)).
4.3 Voting Agreement, dated as of December 27, 1993, by and among Care Enterprises, Inc. *
and the stockholders named therein (incorporated by reference to Regency Health
Services, Inc.'s Registration Statement on Form S-4 (File No. 33-52497)).
20.1 Proxy Statement/Prospectus of Regency Health Services, Inc. dated March 7, 1994 *
(filed as part of Regency Health Services, Inc.'s Registration Statement on Form S-4
(File No. 33-52497)).
</TABLE>
* Exhibit previously filed with Form 8-K dated April 4, 1994.
