SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 31, 1996
Mariner Health Group, Inc.
--------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-21512 06-1251310
-------- ------- ----------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
125 Eugene O'Neill Drive, New London, Connecticut 06320
- ------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (860) 701-2000
-2-
ITEM 5. OTHER EVENTS.
Pursuant to an Asset Purchase Agreement dated as of July 31, 1996 (the
"Agreement") by and among Mariner Health Group, Inc. ("Mariner" or the
"Company"); Mariner Health of Maryland, Inc. ("Acquisition Sub"); Allegis Health
Services, Inc. ("Allegis"); Technicare, L.L.C.; Rehab Solutions, L.L.C.; Bay
Meadow Nursing and Rehabilitation Center, L.L.C.; Camden Yards Nursing and
Rehabilitation Center, L.L.C.; Kensington Gardens Nursing and Rehabilitation
Center, L.L.C.; Global Healthcare Center-Overlea, L.L.C.; Allegis Health and
Rehabilitation Center - Southern Maryland, L.L.C. (the foregoing parties
collectively referred to as "Business Owners"); Global Healthcare Center
Bethesda, L.L.C. ("Bethesda"); Circle Manor Nursing Home, Inc. ("Circle Manor");
Arcola Nursing and Rehabilitation Center, Inc. ("Arcola"); Technicare Pharmacy,
Inc.; Global Health Investment Associates, L.L.C. ("GHIA"); Paul J. Diaz; Marvin
H. Rabovsky; Harvey W. Wertlieb; Roger C. Lipitz; Gary M. Sudhalter and Jay
Mutchnik (all parties collectively referred to as "Seller Parties"), Acquisition
Sub proposes to purchase from the Seller Parties substantially all the assets of
the Business Owners as well as all the stock of Beechwood Heritage Retirement
Community, Inc. owned by Allegis and all the limited liability company interests
of Bethesda, Allegis Health and Living Center at Heritage Harbour, L.L.C. and
Upper Chesapeake Health and Living Center, L.L.C. owned by Allegis and GHIA.
Acquisition Sub will also acquire substantially all the assets of Arcola from
Arcola and Circle Manor from Harvey W. Wertlieb.
The assets consist primarily of eight nursing facilities located throughout
the Baltimore-Washington metropolitan area (the "Service Area"), an
institutional pharmacy operation, the operations of a company providing contract
rehabilitation services, the operation of a PEN therapy services business and
certain development projects and a certificate of need application all relating
to the establishment of additional skilled nursing facilities in the Service
Area (collectively the "Business").
The aggregate purchase price for the assets, voting securities and limited
liability company interests included in the transaction is approximately
$98,000,000, which consists of the assumption of approximately $15,000,000 in
debt, including a capital lease, and $95,000,000 in cash which will be borrowed
under the Company's existing credit facility. The purchase price is subject to
adjustment (to a maximum of $105,000,000 but in no event less than $95,000,000)
based on a multiple of the annualized net operating income generated by the
Business for the first eight months of 1996. The aggregate purchase price is
subject to further adjustment after the closing based on a multiple of the net
operating income of the Business for the year ending December 31, 1996. Of the
aggregate purchase price, $2,221,127 will be delivered into escrow at the
closing to secure certain post-closing obligations of the Seller Parties.
The transaction is expected to be accounted for as a purchase.
The proposed transaction is subject to customary closing conditions and
expiration or early termination of the applicable Hart-Scott-Rodino waiting
period. The acquisition of the Bethesda limited liability company interest is
subject to certain further conditions. If Allegis has not sold 50% of the
Bethesda limited liability company interest prior to the closing, Acquisition
Sub will acquire substantially all of the assets of Bethesda rather than the
limited liability company interest and the aggregate purchase price will be
increased by $2,291,000. Subject to meeting the foregoing conditions, the
parties intend to close the transaction on or about October 1, 1996.
-3-
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired. None.
(b) Pro Forma Financial Information. None.
(c) Exhibits.
EXHIBIT NO. DESCRIPTION
23.1 Consent of Arthur Andersen LLP
99.1 The following audited financial statements of Allegis,
together with the report thereon manually signed by Arthur
Andersen LLP:
Combined Balance Sheet as of December 31, 1995
Combined Statement of Income for the year ended
December 31, 1995
Combined Statement of Stockholders' and Members'
Equity as of December 31, 1995
Combined Statement of Cash Flows for the year ended
December 31, 1995
Notes to the Combined Financial Statements as of
December 31, 1995
99.2 The following unaudited financial statements of Allegis:
Combined Balance Sheet as of June 30, 1996
Combined Statement of Income for the six months
ended June 30, 1996
Combined Statement of Stockholders' and Members'
Equity as of June 30, 1996
Combined Statement of Cash Flows for the six months
ended June 30, 1996
Notes to the Combined Financial Statements as of
June 30, 1996
99.3 The following unaudited pro forma combined financial
statements:
Pro Forma Combined Balance Sheet as of June 30,
1996
Pro Forma Combined Statement of Operations for the
six months ended June 30, 1996
Pro Forma Combined Statement of Operations for the
year ended December 31, 1995
Notes to Unaudited Pro Forma Combined Financial
Information
-4-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MARINER HEALTH GROUP, INC.
Dated: August 19, 1996 By: /s/ Jeffrey W. Kinell
---------------------
Jeffrey W. Kinell
Executive Vice President, Treasurer
and Chief Financial Officer
-5-
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
23.1 Consent of Arthur Andersen LLP
99.1 The following audited financial statements of Allegis,
together with the report thereon manually signed by Arthur
Andersen LLP:
Combined Balance Sheet as of December 31, 1995
Combined Statement of Income for the year ended
December 31, 1995
Combined Statement of Stockholders' and Members'
Equity as of December 31, 1995
Combined Statement of Cash Flows for the year ended
December 31, 1995
Notes to the Combined Financial Statements as of
December 31, 1995
99.2 The following unaudited financial statements of Allegis:
Combined Balance Sheet as of June 30, 1996
Combined Statement of Income for the six months
ended June 30, 1996
Combined Statement of Stockholders' and Members'
Equity as of June 30, 1996
Combined Statement of Cash Flows for the six months
ended June 30, 1996
Notes to the Combined Financial Statements as of
June 30, 1996
99.3 The following unaudited pro forma combined financial
statements:
Pro Forma Combined Balance Sheet as of June 30,
1996
Pro Forma Combined Statement of Operations for the
six months ended June 30, 1996
Pro Forma Combined Statement of Operations for the
year ended December 31, 1995
Notes to Unaudited Pro Forma Combined Financial
Information
CONSENT OF INDEPENDENT ACCOUNTANTS
AS INDEPENDENT PUBLIC ACCOUNTANTS, WE HEREBY CONSENT TO THE
INCORPORATION OF OUR REPORT INCLUDED IN THIS FORM 8-K, INTO MARINER HEALTH
GROUP, INC.'S PREVIOUSLY FILED REGISTRATION STATEMENTS ON FORM S-8 (NOS
33-67628, 33-77762, 33-78880, 33-99642 AND 333-2780) AND FORM S-3 (FILE NO.
333-3314).
Washington D.C. /s/ Arthur Andersen LLP
August 19, 1996
EXHIBIT 99.1
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995,
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Allegis Health Services, Inc. and Affiliates:
We have audited the accompanying combined balance sheet of Allegis Health
Services, Inc. and Affiliates (together, "Allegis") as of December 31, 1995, and
the related combined statements of income, stockholders and members' equity and
cash flows for the year then ended. These combined financial statements are the
responsibility of Allegis' management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Allegis as
of December 31, 1995, and the combined results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
-----------------------
Washington, D.C.,
June 27, 1996
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 2,499,581
Accounts receivable (net of allowance of $240,000) 8,986,399
Prepaid expenses 489,185
Inventory 255,524
Due from third-party payors 252,824
Other 21,716
------
Total current assets 12,505,229
----------
NONCURRENT ASSETS:
Property, plant and equipment, net 30,867,935
Deferred costs, net of accumulated amortization 1,414,319
Other 305,179
-------
Total noncurrent assets 32,587,433
----------
Total assets $45,092,662
===========
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,721,561
Wages and payroll taxes payable 1,136,292
Accrued vacation 597,777
Short-term borrowings 5,163,964
Due to third-party payors 841,814
Current maturities of long-term debt 571,281
Other 4,758
-----
Total current liabilities 12,037,447
----------
LONG-TERM DEBT, net of current maturities 30,934,311
MINORITY INTERESTS 309,773
-------
Total liabilities 43,281,531
----------
STOCKHOLDERS' AND MEMBERS' EQUITY:
Common stock 7,250
Additional paid-in capital 1,271,278
Retained earnings and members' equity 532,603
-------
Total stockholders' and members' equity 1,811,131
---------
Total liabilities and stockholders' and members' equity $45,092,662
===========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
-1-
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
REVENUES:
Net patient service revenue $57,369,711
Other revenue 785,624
-------
Total revenues 58,155,335
----------
EXPENSES:
Facility operating costs 43,773,095
Corporate, general and administrative 5,233,149
Depreciation and amortization 1,749,794
Interest expense 3,227,428
Facility rent expense 1,635,775
---------
Total expenses 55,619,241
----------
NET INCOME BEFORE MINORITY INTERESTS 2,536,094
MINORITY INTERESTS (69,422)
-------
Net income $ 2,466,672
============
</TABLE>
The accompanying notes are an integral part of this combined statement.
-2-
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDERS' AND MEMBERS' EQUITY
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN AND MEMBERS'
STOCK CAPITAL EQUITY
----- ------- ------
<S> <C> <C> <C>
STOCKHOLDERS' AND MEMBERS' EQUITY, beginning $7,250 $ 521,278 $ (319,968)
Net income - - 2,466,672
Contributions to Allegis Health Services, Inc. - 750,000 -
Distributions and dividends - - (1,614,101)
------- ----------- -----------
STOCKHOLDERS' AND MEMBERS' EQUITY, ending $7,250 $1,271,278 $ 532,603
====== ========== ===========
</TABLE>
The accompanying notes are an integral part of this combined statement.
-3-
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,466,672
Adjustments to reconcile net income to net cash from operating activities-
Depreciation and amortization 1,749,794
Increase in accounts receivable (3,591,523)
Increase in prepaid expenses (86,257)
Increase in inventory (252,024)
Increase in due from third-party payors (201,254)
Decrease in other assets 67,597
Increase in accounts payable and accrued expenses 1,323,743
Decrease in due to third-party payors (360,958)
Decrease in other liabilities (40,213)
Increase in minority interest 69,422
------
Net cash from operating activities 1,144,999
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (2,350,742)
----------
Net cash from investing activities (2,350,742)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from financing arrangements 6,412,449
Financing costs (190,740)
Principal payments on debt (2,567,484)
Distributions and dividends (1,614,101)
Contributions to stockholders' equity 750,000
Contributions from minority interests 246,351
-------
Net cash from financing activities 3,036,475
---------
INCREASE IN CASH 1,830,732
CASH, beginning of year 668,849
CASH, end of year $2,499,581
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $3,179,469
==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS:
Financing of Bethesda facility purchase on September 30, 1995-
Mortgage proceeds $5,825,000
Property, plant, and equipment costs incurred (5,877,565)
Deferred costs incurred (318,204)
Real estate taxes paid at settlement (50,306)
-------
Cash paid at settlement for property costs $ (421,075)
===========
</TABLE>
The accompanying notes are an integral part of this combined statement.
- 4 -
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
1. ORGANIZATION:
Allegis Health Services, Inc. ("Allegis," formerly Global Health Management,
Inc.), is a Maryland-based "S" corporation that was organized in 1989 to provide
long-term care and related healthcare services in the Baltimore-Washington
metropolitan area. Allegis presently operates the following eight comprehensive
care facilities, all of which are owned by Allegis or its stockholders:
o Arcola Nursing and Rehabilitation Center, Inc. - Silver Spring, MD
(trading as Allegis Health and Rehabilitation Center - Silver Spring)
o Bay Meadow Nursing and Rehabilitation Center, LLC - Glen Burnie, MD
(trading as Allegis Health and Rehabilitation Center - Glen Burnie)
o Camden Yards Nursing and Rehabilitation Center, LLC - Baltimore, MD
(trading as Allegis Health and Rehabilitation Center - Baltimore)
o Circle Manor Nursing Home, Inc. - Kensington, MD
(trading as Allegis Healthcare Center - Circle Manor)
o Global Healthcare Center - Bethesda, LLC - Bethesda, MD
(trading as Allegis Health and Rehabilitation Center - Bethesda)
o Global Healthcare Center - Overlea, LLC - Baltimore, MD
(trading as Allegis Health and Rehabilitation Center - Overlea)
o Kensington Gardens Nursing and Rehabilitation Center, LLC - Kensington, MD
(trading as Allegis Health and Rehabilitation Center - Kensington)
o Wellington Manor Nursing and Rehabilitation Center, Inc. - Clinton, MD
(trading as Allegis Health and Rehabilitation Center - Southern Maryland)
These facilities provide skilled nursing care, comprehensive rehabilitation
services, and special programs for patients with chronic or debilitating
conditions. Allegis also maintains its own in-house pharmacy and rehabilitation
services. Allegis owns 51 percent of Technicare, LLC ("Technicare"), an
institutional pharmacy that provides pharmaceuticals, medical supplies, and
infusion therapy services to all Allegis facilities and other outside nursing
homes. Allegis owns 85 percent of Rehab Solutions, LLC ("Rehab"). Rehab provides
contract rehabilitation services to all Allegis facilities and other outside
entities.
-5-
On January 1, 1996, Wellington Manor Nursing and Rehabilitation Center, Inc. was
reorganized as a limited liability company, Allegis Health and Rehabilitation
Center-Southern Maryland, LLC ("Southern Maryland"). Allegis and its
stockholders maintained all ownership interests in Southern Maryland subsequent
to the reorganization.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts
of Allegis and the affiliated entities discussed in Note 1 (together the
"Company"), all of which are commonly controlled. All significant intercompany
transactions have been eliminated.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable amounts
from residents, third-party payors, and others for services rendered.
Revenue under third-party payor agreements is subject to audit and retroactive
adjustment. Provisions for estimated third-party payor settlements are recorded
in the period the related services are rendered. Differences between the
estimated provisions and the actual settlements are recorded in operations in
the year of settlement.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Buildings and leasehold
improvements are depreciated using the straight-line method over 39 and 15
years, respectively. Furniture, fixtures, and equipment are depreciated over
their estimated useful lives using accelerated methods.
DEFERRED COSTS
Deferred costs that are eligible for amortization are amortized using the
straight-line method over the following years:
YEARS
-----
Organization costs 5
Mortgage acquisition costs 6
Patient lists 5
Goodwill 15
INCOME TAXES
In lieu of income taxes, the stockholders (for incorporated affiliates) and
members (for LLC affiliates) are allocated their proportionate share of the
Company's taxable income. Therefore, no provision for income taxes has been
included in these combined financial statements.
-6-
USE OF ESTIMATES
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at December 31, 1995:
Land $ 3,238,140
Building 25,763,964
Leasehold improvements 824,584
Furniture, fixtures, and equipment 5,576,295
Less- Accumulated depreciation (4,535,048)
----------
Property, plant, and equipment, net $30,867,935
===========
Depreciation expense was $1,535,010 for the year ended December 31, 1995:
4. DEFERRED COSTS:
Deferred costs consist of the following at December 31, 1995:
Organization costs $ 118,084
Loan origination fees 42,296
Mortgage acquisition costs 716,347
Patient lists 745,933
Goodwill 343,149
Other 56,787
Less- Accumulated amortization (608,277)
--------
Deferred costs, net $1,414,319
==========
Amortization expense was $214,784 for the year ended December 31, 1995.
5. SHORT-TERM BORROWINGS:
Short-term borrowings include bank lines of credit with variable interest rates
equal to prime plus 0.5-1.5 percent. Borrowings under the lines of credit were
$963,964 at December 31, 1995.
On December 13, 1995, the Company entered into an $8,500,000 revolving credit
facility with a financial institution. The interest rate on the facility is
equal to prime plus 1.5 percent. The facility is secured by all assets and
licenses of Allegis and three affiliates and the receivables of certain
affiliates. Borrowings under the facility are limited to 90 percent of eligible
accounts receivable. The maximum amount available for borrowing at December 31,
1995 was $6,662,275. At December 31, 1995, borrowings under the credit facility
amounted to $4,200,000.
-7-
Beginning in fiscal year 1996, the credit facility agreement requires a combined
debt service coverage ratio of 1.25 to 1 and an occupancy rate of 90 percent or
more in all facilities.
6. LONG-TERM DEBT:
Long-term debt at December 31, 1995, was as follows:
Mortgages $29,922,656
Subordinated mortgage 840,000
Notes payable 551,003
Capital lease obligations 191,933
-------
Total long-term debt 31,505,592
Less- Current maturities of long-term debt (571,281)
--------
Long-term debt net of current maturities $30,934,311
===========
Interest expense incurred on short-term borrowings and long-term debt for the
year ended December 31, 1995, was $3,227,428.
Maturities of long-term debt at December 31, 1995, were as follows:
YEAR
1996 $ 571,281
1997 838,499
1998 658,623
1999 1,492,512
2000 939,723
2001 - 2009 27,004,954
----------
$31,505,592
===========
Interest rates on mortgages and notes payable range from 9 to 10.9 percent. In
addition, several of the mortgages have variable interest rates equal to prime
plus 1-2 percent and are cross-collateralized by other affiliates. The average
interest rate on capital lease obligations was 14.8 percent during the year
ended December 31, 1995.
Several of the agreements impose certain restrictions regarding financial ratios
and facility occupancy levels. At December 31, 1995, the Company was in
compliance with all financial covenants and occupancy requirements.
7. MINORITY INTERESTS:
The amounts reported for minority interests on the combined balance sheet and
the combined statement of income represent the outside ownership interests of
Technicare and Rehab.
-8-
8. VALUATION AND QUALIFYING ACCOUNTS:
<TABLE>
<CAPTION>
AMOUNT CHARGED
BALANCE AT AMOUNT CHARGED TO OTHER BALANCE AT
DESCRIPTION DECEMBER 31, 1994 TO EXPENSE ACCOUNTS DECEMBER 31, 1995
----------- ----------------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ - $(240,000) $ - $(240,000)
</TABLE>
9. ACQUISITIONS:
On September 30, 1995, Allegis acquired Global Healthcare Center-Bethesda
("Bethesda") for $6.1 million. The acquisition was accounted for as a purchase.
Acquisition costs in excess of fair market value were allocated to goodwill and
are being amortized over 15 years.
The combined statement of income includes the results of operations of Bethesda
for the three months since acquisition. Had this affiliate been combined as of
January 1, 1995, the unaudited pro forma effect on operations would have been to
increase net income by approximately $460,000.
10. RETIREMENT PLAN:
The Company has a 401(k) plan that covers all of its employees who have reached
age 21 and have completed one year of service. Employees who elect to
participate in the plan enter into a salary reduction agreement. The Company
will contribute an amount equal to one-half of each participant's contribution
up to 3 percent of his or her compensation. In addition, the Company may
contribute discretionary amounts to the plan irrespective of the amount
contributed above.
For the year ended December 31, 1995, the Company's retirement expense was
$74,822.
11. RELATED-PARTY TRANSACTIONS:
During 1995, the Company acquired $184,294 of fixed assets and interior design
services from a related vendor.
Four of the stockholders of Allegis have personally guaranteed the debt of the
Company. The Company is obligated to pay these stockholders a guarantee fee of 1
percent of the amount guaranteed for all debt guaranteed after January 1, 1994.
Total guarantee fees expense for 1995 amounted to $231,650. Accrued guarantee
fees are $257,710 at December 31, 1995.
Included in long-term debt is a $172,500 note payable to a partnership owned by
a stockholder of Allegis. The note accrues interest at the rate of prime plus 1
percent and matures on June 1, 1997.
-9-
12. COMMITMENTS AND CONTINGENCIES:
The Company leases various facilities, office space and equipment through
operating leases from several vendors. Future minimum lease payments, which are
subject to adjustment for increases in the Consumer Price Index and lessor
operating costs, are as follows:
YEAR AMOUNT
---- ------
1996 $1,431,625
1997 1,367,524
1998 1,363,628
1999 1,359,710
2000 and thereafter 3,208,336
---------
Total future minimum lease payments $8,730,823
==========
The Company is a defendant in a number of lawsuits arising in the ordinary
course of business. In the opinion of management and counsel to the Company, the
ultimate outcome of such litigation will not have a material adverse effect on
the Company's financial position or results of operations. Additionally, all
such claims and any legal costs incurred in defending them are covered by the
Company's insurance policies.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The combined balance sheet carrying amounts of cash, accounts receivable, due
from third-party payors, accounts payable and accrued expenses, and due to
third-party payors approximate fair value due to the short-term nature of these
items. Interest rates on short-term borrowings adjust frequently based on
current market rates; accordingly, the carrying amount of short-term borrowings
is equivalent to fair value. Fair value for long-term debt was determined by
discounting future cash flows using the Company's current market rate for
long-term debt.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT VALUE
------ -----
<S> <C> <C>
Cash $ 2,499,581 $ 2,499,581
Accounts receivable, net 8,986,399 8,986,399
Due from third-party payors 252,824 252,824
Accounts payable and accrued expenses 5,502,630 5,502,630
Short-term borrowings 5,163,964 5,163,964
Due to third-party payors 841,814 841,814
Long-term debt (including current maturities) 31,505,592 31,596,855
</TABLE>
-10-
14. CONCENTRATION OF REVENUES IN D.C. MEDICAID PROGRAM:
During 1995, approximately 11 percent of the Company's net patient service
revenue was derived from the District of Columbia's Medicaid program. The
current funding of this program is 60 to 90 days behind filed claims. Reduction
of this lag is subject to future budgetary appropriations. However, the delays
in payment have not had a material impact on the Company's operations.
15. CONCENTRATIONS OF CREDIT RISK:
The mix of receivables from patients and third-party payors for 1995 was as
follows:
Maryland Medicaid 60%
D.C. Medicaid 20
Medicare 9
Other third-party payors 3
Private payors 8
----
100%
====
-11-
EXHIBIT 99.2
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 2,099,859
Accounts receivable (net of allowance of $418,994) 11,317,602
Prepaid expenses 357,773
Inventory 339,583
Due from third-party payors 643,078
Other 93,225
------
Total current assets 14,851,120
----------
NONCURRENT ASSETS:
Property, plant and equipment, net 31,804,641
Deferred costs, net of accumulated amortization 1,280,323
Other 239,519
-------
Total noncurrent assets 33,324,483
----------
Total assets 48,175,603
==========
LIABILITIES AND STOCKHOLDER'S AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,832,977
Wages and payroll taxes payable 1,177,752
Accrued vacation 386,444
Short-term borrowings 6,209,651
Due to third-party payors 1,215,210
Current maturities of long-term debt 565,589
Other 143,957
-------
Total current liabilities 14,531,580
----------
LONG-TERM DEBT, net of current maturities 30,892,252
MINORITY INTERESTS 336,402
-------
Total liabilities 45,760,234
----------
STOCKHOLDERS' AND MEMBERS' EQUITY:
Common stock 7,250
Additional paid-in capital 1,271,278
Retained earnings and members' equity 1,136,841
---------
Total stockholders' and members' equity 2,415,369
---------
Total liabilities and stockholders' and members' equity $48,175,603
===========
</TABLE>
-1-
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
REVENUES:
Net patient service revenue $34,394,797
Other revenue 204,719
-------
Total revenues 34,599,516
----------
EXPENSES:
Facility operating costs 26,107,301
Corporate, general and administrative 2,816,045
Depreciation and amortization 1,017,888
Interest expense 1,876,517
Facility rent expense 895,402
-------
Total expenses 32,713,153
----------
NET INCOME BEFORE MINORITY INTERESTS 1,886,363
MINORITY INTERESTS (34,129)
-------
Net income $ 1,852,234
============
</TABLE>
-2-
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDERS' AND MEMBERS' EQUITY
AS OF JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS AND
COMMON PAID-IN MEMBERS' EQUITY
STOCK CAPITAL
----- -------
<S> <C> <C> <C>
STOCKHOLDERS' AND MEMBERS' EQUITY, beginning $7,250 $1,271,278 $ 532,603
Net income - - 1,852,234
Distributions - (1,247,996)
------ ---------- -----------
STOCKHOLDERS' AND MEMBERS' EQUITY, ending $7,250 $1,271,278 $1,136,841
====== ========== ==========
</TABLE>
-3-
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,852,234
Adjustments to reconcile net income to net cash from operating activities-
Depreciation and amortization 1,017,888
Increase in accounts receivable (2,331,203)
Decrease in prepaid expenses 131,412
Increase in inventory (84,059)
Increase in due from third-party payors (390,254)
Increase in other assets (5,849)
Increase in accounts payable and accrued expenses 941,543
Increase in due to third-party payors 373,396
Increase in other liabilities 139,199
Increase in minority interests 26,629
------
Net cash from operating activities 1,670,936
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,820,598)
----------
Net cash used in investing activities (1,820,598)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from financing arrangements 1,204,820
Principal payments on debt (206,884)
Distributions (1,247,996)
----------
Net cash used in financing activities (250,060)
--------
DECREASE IN CASH (399,722)
CASH, beginning of period 2,499,581
---------
CASH, end of period $2,099,859
==========
</TABLE>
-4-
ALLEGIS HEALTH SERVICES, INC.
AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
1. SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The combined financial statements as of June 30, 1996 and for the six months
ended June 30, 1996 are unaudited. All adjustments and accruals have been made
which, in the opinion of management, are necessary for a fair presentation; such
adjustments consist of normal, recurring adjustments. Results of operations for
the six months ended June 30, 1996 are not necessarily indicative of those
expected for any future period.
The accompanying unaudited interim combined financial statements have been
prepared with the assumption that users of the interim financial information
have otherwise read or have access to the Company's audited combined financial
statements for the year ended December 31, 1995. Accordingly, footnote
disclosures which would substantially duplicate the disclosures contained in the
Company's December 31, 1995 audited combined financial statements have been
omitted from these unaudited interim combined financial statements. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. Although the Company believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these unaudited
interim combined financial statements be read in conjunction with the audited
combined financial statements and the notes thereto for the year ended December
31, 1995.
THIRD-PARTY PAYOR SETTLEMENTS
Revenue under third-party payor agreements is subject to audit and retroactive
adjustment. Provisions for estimated third-party payor settlements are recorded
in the period the related services are rendered. Differences between the
estimated provisions and the actual settlements are recorded in operations in
the period of settlement. Net patient service revenue for the six months ended
June 30, 1996 includes approximately $600,000 related to actual third-party
settlements.
-5-
2. SHORT-TERM BORROWINGS:
On December 13, 1995, the Company entered into an $8,500,000 revolving credit
facility with a financial institution. The interest rate on the facility is
equal to prime plus 1.5 percent. The facility is secured by all assets and
licenses of Allegis and three affiliates and the receivables of certain
affiliates. Borrowings under the facility are limited to 90 percent of eligible
accounts receivable. The maximum amount available for borrowing at June 30, 1996
was $8,500,000. At June 30, 1996, borrowings under the credit facility amounted
to $5,200,000.
-6-
EX-99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial information gives
effect to (i) Mariner's merger (the "CSI Merger") with Convalescent Services,
Inc. ("CSI") in January 1996, (ii) the acquisition by Mariner of six skilled
nursing facilities with an aggregate of 686 beds in central and northern Florida
(the "Heritage Acquisition"), (iii) the acquisition by Mariner of seven skilled
nursing facilities and one assisted living facility with an aggregate of 960
beds in Florida, Tennessee and Kansas (the "1996 Florida Acquisition") and (iv)
the pending acquisition of eight skilled nursing facilities, a rehabilitation
program management company and an institutional pharmacy (the "Allegis
Acquisition"). The CSI Merger, Heritage Acquisition, 1996 Florida Acquisition
and the Allegis Acquisition are referred to herein as the "Acquisitions."
The pro forma information is based on the historical financial
statements of Mariner, the entities that owned four of the facilities (the
"Heritage Facilities") acquired in the Heritage Acquisition, CSI and certain of
its affiliates (the "CSI Entities"), Regency Health Care Center, Inc.
("Regency"), which is the entity acquired in the 1996 Florida Acquisition and
Allegis Health Services, Inc. ("Allegis") the entity acquired in the Allegis
Acquisition. Each of these acquisitions by Mariner is being accounted for under
the purchase method of accounting. All of the entities included in the unaudited
pro forma combined financial information have December 31 fiscal year ends.
The unaudited pro forma combined balance sheet as of June 30, 1996
gives effect to the Allegis Acquisition as if it had been consummated on June
30, 1996. This balance sheet combines the historical balance sheets as of June
30, 1996 of the Company and Allegis. The Company's balance sheet as of June 30,
1996 reflects the Heritage Acquisition, the CSI Merger and the 1996 Florida
Acquisition, which were completed prior to such date.
The unaudited pro forma combined statements of operations for the year
ended December 31, 1995 and the six months ended June 30, 1996 give effect to
the Acquisitions as if they had been consummated on January 1, 1995. These
statements of operations combine the statements of operations of the Company,
the CSI Entities, Regency, Allegis and the statements of operations of the three
entities that owned the Heritage Facilities for the nine months ended September
30, 1995. The Company's statement of operations for the year ended December 31,
1995 reflects the results of operations of the Heritage Facilities from the date
of their acquisition, October 2, 1995.
The unaudited pro forma combined statement of operations for the year
ended December 31, 1995 does not include the results of operations of the 60-bed
skilled nursing facility in St. Petersburg, Florida, which was acquired by
Mariner in March 1995, the 150-bed skilled nursing facility in Nashville,
Tennessee, which was acquired by Mariner in May 1995, the institutional pharmacy
operation based in Dallas, Texas, which was acquired by Mariner in October 1995,
or the acquisitions of two skilled nursing facilities in connection with the
Heritage Acquisition, both of which were acquired during the fourth quarter of
1995, in each case for periods prior to their respective acquisitions. The
1
unaudited pro forma combined financial information also does not
include any information relating to the acquisition of a primary care physical
organization in Florida, which was completed in March 1996. The unaudited pro
forma statement of operations for the six months ended June 30, 1996 includes
the results of operations for Regency for the first three months of 1996.
Mariner's statement of operations includes the results of operations from the
May 1, 1996 acquisition date. Therefore, one month of operating results is
excluded. In addition, no pro forma adjustment has been made to the December 31,
1995 or the June 30, 1996 unaudited pro forma financial information to reflect a
50% minority interest in Bethesda, which may or may not be acquired by Mariner
under the terms of the Asset Purchase Agreement dated as of July 31, 1996.
Inclusion of this information would not result in material changes to the
information presented.
The pro forma statements may not be indicative of the results that
would actually have been obtained had the acquisitions reflected therein
occurred on the dates indicated or that may be obtained in the future. This
unaudited pro forma combined financial information should be read in conjunction
with the historical financial statements and related notes of the Company and
the historical financial statements and related notes of the CSI Entities,
Regency, the entities that previously owned the Heritage Facilities and Allegis,
which are included or incorporated by reference in this filing.
2
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Pro forma Pro forma
Mariner Allegis Adjustments Combined
-------------------------------------------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $4,601 $2,100 $ (2,100) (a) $4,601
Accounts receivable, net 112,076 11,318 (11,318) (a) 112,076
Estimated settlements due from third parties 32,781 (572) 572 (a) 32,781
Prepaid expenses and other current assets 14,354 790 (790) (a) 14,354
Deferred income tax benefit 9,918 9,918
-------------------------------------------------
Total current assets 173,730 13,636 (13,636) 173,730
Property, plant and equipment, net 331,390 31,805 4,856 (b) 368,051
Goodwill 186,014 73,195 (b) 259,209
Intangible and other assets, net 22,021 1,520 (1,520) (a) 22,021
Restricted cash and cash equivalents 3,100 3,100
Deferred income tax benefit 1,273 1,273
=================================================
Total assets $717,528 $46,961 $62,895 $827,384
=================================================
Pro forma Pro forma
Mariner Allegis Adjustments Combined
-------------------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $5,607 $6,776 ($6,176) (b) $6,207
Accounts payable 23,905 4,833 (4,833) (a) 23,905
Accrued payroll 7,461 1,178 (1,178) (a) 7,461
Accrued vacation 7,647 386 (386) (a) 7,647
Other accrued expenses 34,158 34,158
Deferred income tax 987 987
Other liabilities 4,115 144 (144) (a) 4,115
-------------------------------------------------
Total current liabilities 83,880 13,317 (12,717) 84,480
Long-term debt and capital lease obligations 298,498 30,892 78,364 (b) 407,754
Deferred income taxes 14,913 14,913
Deferred gain 2,056 2,056
Redeemable Stock and other liabilities 1,854 337 (337) (a) 1,854
-------------------------------------------------
Total liabilities 401,201 44,546 65,310 511,057
-------------------------------------------------
Stockholders' equity (deficit)
Common stock 288 7 (7) (a) 288
Additional paid-in-capital 310,960 1,271 (1,271) (a) 310,960
Unearned compensation (12) (12)
Retained earnings (deficit) 5,091 1,137 (1,137) (a) 5,091
-------------------------------------------------
Total stockholders' equity (deficit) 316,327 2,415 (2,415) 316,327
-------------------------------------------------
Total liabilities and stockholders' equity $717,528 $46,961 $62,895 $827,384
(deficit)
=================================================
</TABLE>
See accompanying notes
3
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1995
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
/----------------completed acquisitions--------------/
/-proposed acquisition-/
Pro Pro Pro Pro
forma forma forma forma
Mariner Heritage CSI Regency Adjustments Combined Allegis Adjustments Combined
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net patient service revenue $337,635 $11,911 $134,738 $23,850 $10,056 (i) $518,190 $57,370 $575,560
Other income 17,171 33 8,147 1,023 (10,931)(i) 15,443 785 16,228
----------------------------------------------------------------------------------------------
Total operating revenue 354,806 11,944 142,885 24,873 (875) 533,633 58,155 0 591,788
----------------------------------------------------------------------------------------------
Facility operating costs 276,633 7,321 123,247 18,293 (2,075) (i) 423,419 43,773 467,192
Corporate general and
administrative 39,830 3,138 5,176 1,516 (1,157) (d) 48,503 5,233 53,736
Interest expense, net 3,598 1,325 3,973 1,442 6,726 (e) 17,064 3,227 4,386 (f) 24,677
Facility rent expense, net 1,830 1,202 (8,650) (g) 4,132 1,636 (579)(g) 5,189
9,750
Depreciation and
amortization 11,397 405 2,256 1,338 3,816 (e) 19,212 1,750 190 (f) 21,152
---------------------------------------------------------------------------------------------
Total operating expenses 333,288 12,189 144,402 23,791 (1,340) 512,330 55,619 3,997 571,946
---------------------------------------------------------------------------------------------
Operating income 21,518 (245) (1,517) 1,082 465 21,303 2,536 (3,997) 19,842
Other income (loss) (6) 46 (46) (i) (6) (69) 69 (k) (6)
---------------------------------------------------------------------------------------------
Income (loss) before income
taxes and extraordinary item 21,512 (245) (1,517) 1,128 419 21,297 2,467 (3,928) 19,836
Net benefit from (provision
for) income taxes (7,892) (486) 285 (h) (8,093) 581 (h) (7,512)
---------------------------------------------------------------------------------------------
Income (loss) before
extraordinary items 13,620 (245) (1,517) 642 704 13,204 2,467 (3,347) 12,324
Extraordinary items, net of
income tax benefit (1,138) (1,969) (283) 2,252 (1,138) (1,138)
=============================================================================================
Net income $12,482 ($2,214) ($1,517) $359 $2,956 $12,066 $2,467 ($3,347) $11,186
=============================================================================================
Pro forma income per common share:
Income before extraordinary
item $0.60 $0.46 $0.43
======= ======= ========
Net income $0.55 $0.42 $0.39
======= ======= ========
Weighted average shares
outstanding 22,755 28,609 28,609
======= ======= ========
</TABLE>
See accompanying notes
4
PROFORMA COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1996
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Pro Pro Pro
forma forma forma forma
Mariner Regency Adjustments Combined Allegis Adjustments Combined
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net patient service revenue $275,690 $8,673 $284,363 $34,395 $318,758
Other income 5,093 235 (188)(c) 5,140 204 5,344
--------------------------------------------------------------------
Total operating revenue 280,783 8,908 (188) 289,503 34,599 0 324,102
--------------------------------------------------------------------
Facility operating costs 213,914 7,017 (188)(c) 220,743 26,107 246,850
Corporate general and administrative 28,521 279 28,800 2,816 31,616
Interest expense, net 10,970 520 515 (e) 12,005 1,877 1,930 (f) 15,812
Facility rent expense, net 1,212 371 1,583 895 (367)(g) 2,111
Depreciation and amortization 10,328 421 34 (e) 10,783 1,018 447 (f) 12,248
--------------------------------------------------------------------
Total operating expenses 264,945 8,608 361 273,914 32,713 2,010 308,637
--------------------------------------------------------------------
Operating income 15,838 300 (549) 15,589 1,886 (2,010) 15,465
Other income (loss) (39) 39 (j) (34) 34 (k)
--------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item 15,838 261 (510) 15,589 1,852 (1,976) 15,465
Net benefit from (provision for) income (6,269) (74) 174 (h) (6,169) 63 (h) (6,106)
taxes
--------------------------------------------------------------------
Income (loss) before extraordinary items 9,569 187 (336) 9,420 1,852 (1,913) 9,359
====================================================================
Net income $9,569 $187 ($336) $9,420 $1,852 ($1,913) $9,359
====================================================================
Pro forma income per common share:
Income before extraordinary item $0.33 $0.32
======== ======
Net income $0.33 $0.32
======== ======
Weighted average shares outstanding 29,261 29,261
======== ======
</TABLE>
See accompanying notes
5
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(a) Reflects elimination of Allegis balances not acquired by
Mariner.
(b) Represents pro forma adjustments to reflect Allegis
Acquisition:
Goodwill
--------
Total purchase price $109,856
Less: Allocation to property,
plant and equipment 36,661
--------
Goodwill allocation $ 73,195
========
Property, Plant and Equipment
Facilities purchased $ 31,805
Facility acquired under
capital lease 4,856
--------
$ 36,661
========
<TABLE>
<CAPTION>
Debt
----
Short-term Long-term
---------- ---------
<S> <C> <C>
Credit line draw $ -0- $ 93,878
Capital lease obligation 34 4,822
Debt assumed 566 10,556
Allegis balance (6,776) (30,892)
-------- -------
Pro forma adjustment $ (6,176) $ 78,364
======== ==========
</TABLE>
(c) Reflects reversal of management fees charged by Mariner to Regency
for management services in March, 1996.
(d) Represents the elimination of merger costs reflected by CSI as
general and administrative expenses which would not have been incurred by the
Company.
(e) Certain expenses have been adjusted to reflect the transactions as
if they had occurred at the beginning of the period presented, as follows:
6
<TABLE>
<CAPTION>
COST BASIS YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------- --------------- -----------------
<S> <C> <C> <C> <C>
Completed Acquisitions:
Amortization of goodwill over 40 years Heritage $ 9,496 $ 178 ---
CSI 82,817 2,070 ---
Regency 25,470 637 212
Depreciation (approximately 3% per year) Heritage 17,515 394 ---
CSI 126,900 3,807 ---
Regency 24,305 729 243
Less: Historical amortization and depreciation expense $ (3,999) $ (421)
--------- ---------
Incremental increase in amortization and depreciation expense $ 3,816 $ 34
========= =========
Heritage -- interest expense based on new debt
of $27,011 at 6.43% 1,303
CSI -- interest expense based on debt
increasing to $134,197 at 6.75% 9,058
Regency - interest on total debt of $47,256 at 6.57% 3,105 1,035
Less: Historical interest expense (6,740) (520)
--------- ----------
Incremental increase in interest expense $ 6,726 $ 515
========= ==========
</TABLE>
(f) Certain expenses have been adjusted to reflect the Allegis
Acquisition as if it had occurred at the beginning of the period presented, as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
COST DECEMBER 31, JUNE 30,
BASIS 1995 1996
------------ ----------------- -----------------
<S> <C> <C> <C>
Depreciation of fixed assets $ 36,661 $ 1,100 $ 550
Amortization of goodwill 73,195 1,830 915
Less: historical amortization and depreciation
expense (1,750) (1,018)
---------------- ----------------
Incremental increase in amortization and
depreciation expense $ 190 $ 447
=============== ================
Interest expense based on debt of $109,856 at
weighted average rate of 6.93% $ 7,613 $ 3,807
Less: historical interest expense (3,227) (1,877)
--------------- ----------------
Incremental increase in interest expense $ 4,386 $ 1,930
=============== ================
</TABLE>
(g) Adjusts facility rent to eliminate rent expense for facilities
previously managed under operating lease agreements which the Company acquired
under capital leases and to reflect rent expense on two facilities that Mariner
will lease under operating lease agreements with CSI affiliates which were not
included in the Mariner or CSI historical financial statements:
7
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
---------------- --------------
<S> <C> <C>
CSI operating leases $ (9,750)
Operating leases assumed by Mariner 1,100
---------------
Pro-forma adjustment $ (8,650)
===============
Allegis operating leases (1,636) (895)
Operating leases assumed by Mariner 1,057 528
--------------- -------------
Pro forma adjustment $ (579) $ (367)
=============== =============
</TABLE>
(h) Represents pro forma estimated income taxes payable on the
operations of the entities acquired, using Mariner's effective tax rate.
(i) Represents amounts related to management fees recognized under the
CSI management agreement and to facilities purchased as part of the 1996 Florida
Acquisition which were acquired by Regency subsequent to December 31, 1994. Four
facilities were acquired by Regency in June 1995 and one in January 1996.
<TABLE>
<CAPTION>
OPERATION NET
ST. NOT
PALMETTO BONIFAY AUGUSTINE BRADENTON OLATHE TOTAL ACQUIRED CSI ADJUSTMENT
-------- ------- --------- --------- ------ ----- -------- --- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net patient service
revenue $ 2,087 $2,391 $ 2,423 $ 441 $ 2,714 $ 10,056 (10,288) $ 10,056
Other revenue 8 12 10 5 14 49 $ (692) (10,288) (10,931)
Facility operating costs
(excluding management
fees) 1,663 1,866 1,945 296 2,443 8,213 (2,075)
Other income -- -- -- -- -- -- (46) -- (46)
</TABLE>
(j) Represents net loss generated from ventures not acquired by
Mariner.
(k) Represents the minority interest in the earnings of Technicare
Pharmacy, Inc.
8
