<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ---------------------
Commission File number 1-13626
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HORIZON MENTAL HEALTH MANAGEMENT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 75-2293354
- ------------------------------- ---------------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(972) 420-8200
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
The number of shares outstanding of the registrant's Common Stock, $0.01 Par
Value, as of July 11, 1997 was 5,566,762 shares.
<PAGE> 2
INDEX
HORIZON MENTAL HEALTH MANAGEMENT, INC.
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
HORIZON MENTAL HEALTH MANAGEMENT, INC.
Consolidated Balance Sheets as of August 31, 1996,
and May 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three months ended
May 31, 1996 and May 31, 1997 (each unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Operations for the nine months ended
May 31, 1996 and May 31, 1997 (each unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows for the nine months ended
May 31, 1996 and May 31, 1997 (each unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HORIZON MENTAL HEALTH MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, May 31,
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 7,940,232 $ 3,894,900
Accounts receivable less allowance for uncollectible
accounts of $627,142 at August 31, 1996 and
$1,270,804 at May 31, 1997 7,096,964 10,754,948
Receivable from employees 89,126 70,743
Prepaid expenses and supplies 234,028 207,014
Other receivables 29,426 329,149
Other current assets 71,940 98,483
Current deferred taxes 1,018,602 1,562,725
----------- -----------
TOTAL CURRENT ASSETS 16,480,318 16,917,962
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment 2,325,320 3,321,681
Buildings and improvements 109,467 68,402
----------- -----------
2,434,787 3,390,083
Less accumulated depreciation 1,552,975 1,963,949
----------- -----------
881,812 1,426,134
Goodwill, net of accumulated amortization of
$1,525,015 at August 31, 1996 and $1,854,751
at May 31, 1997 13,388,738 19,471,713
Management contracts, net of accumulated
amortization of $1,475,375 at August 31, 1996
and $1,960,976 at May 31, 1997 1,925,029 2,227,442
Other assets 195,630 510,595
----------- -----------
TOTAL ASSETS $32,871,527 $40,553,846
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
HORIZON MENTAL HEALTH MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31, May 31,
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,193,048 $ 463,202
Employee compensation and benefits 4,018,951 4,791,507
Accrued third party payor liabilities 142,918 142,918
Income taxes payable 9,598 26,883
Accrued expenses 4,981,386 7,389,066
Payable to health insurance program 661,248 ---
----------- -----------
TOTAL CURRENT LIABILITIES 11,007,149 12,813,576
Deferred income taxes 1,496,214 1,249,526
----------- -----------
TOTAL LIABILITIES 12,503,363 14,063,102
Commitments and contingencies - (Note 7) --- ---
Minority interest 8,755 83,845
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, authorized 500,000
shares; none issued or outstanding --- ---
Common stock, $.01 par value, 10,000,000 and 40,000,000
shares authorized at August 31, 1996 and
May 31, 1997, respectively; 5,476,027 and 5,566,762
shares issued and outstanding at August 31, 1996
and May 31, 1997, respectively 54,760 55,668
Additional paid-in capital 13,849,408 14,413,073
Retained earnings 6,455,241 11,938,158
----------- -----------
TOTAL EQUITY 20,359,409 26,406,899
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $32,871,527 $40,553,846
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
HORIZON MENTAL HEALTH MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended May 31
----------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues:
Contract management $15,683,782 $18,952,845
Patient services 129,336 1,547,560
Other 6,747 34,782
----------- -----------
Total revenues 15,819,865 20,535,187
Expenses:
Salaries and benefits 8,688,352 10,970,634
Purchased services 2,182,160 3,305,851
Provision for bad debts 39,329 277,519
Depreciation and amortization 332,085 402,746
Other 2,259,108 2,504,154
----------- -----------
Total operating expenses 13,501,034 17,460,904
Other income (expense):
Interest expense --- (450)
Interest and other income 86,968 121,802
Gain on sale of fixed assets --- 1,173
----------- -----------
Income before income taxes and minority interest 2,405,799 3,196,808
Income tax expense (Note 6) 960,948 1,273,444
----------- -----------
Income before minority interest 1,444,851 1,923,364
Minority interest (Note 3) --- 23,531
----------- -----------
Net income $ 1,444,851 $ 1,899,833
=========== ===========
Earnings per common share:
Net income $ .22 $ .29
=========== ===========
Weighted average shares outstanding 6,560,729 6,629,675
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
HORIZON MENTAL HEALTH MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended May 31
------------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues:
Contract management $45,167,746 $52,736,576
Patient services 315,539 4,353,685
Other 20,882 803,397
----------- -----------
Total revenues 45,504,167 57,893,658
Expenses:
Salaries and benefits 25,087,954 31,087,736
Purchased services 6,524,349 8,552,753
Provision for bad debts 42,389 742,969
Depreciation and amortization 974,124 1,201,652
Other 6,395,236 7,533,088
----------- -----------
Total operating expenses 39,024,052 49,118,198
Other income (expense):
Interest expense - related party (24,298) ---
Interest expense - other (4,944) (802)
Interest and other income 226,638 426,483
Loss on sale of fixed assets --- (1,888)
----------- -----------
Income before income taxes and minority interest 6,677,511 9,199,253
Income tax expense (Note 6) 2,648,126 3,641,245
----------- -----------
Income before minority interest 4,029,385 5,558,008
Minority interest (Note 3) --- 75,091
----------- -----------
Net income $ 4,029,385 $ 5,482,917
=========== ===========
Earnings per common share:
Net income $ .62 $ .83
=========== ===========
Weighted average shares outstanding 6,505,147 6,637,785
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 7
HORIZON MENTAL HEALTH MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
May 31, May 31,
1996 1997
----------------- ----------------
<S> <C> <C>
Operating activities:
Net income $ 4,029,385 5,482,917
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 974,124 1,201,652
Loss on sale of equipment --- 1,888
Minority interest --- 75,091
Changes in net assets and liabilities:
Increase in accounts receivable (1,810,775) (2,990,741)
Decrease (increase) in other receivables 154,225 (281,340)
Decrease (increase) in prepaid expenses and supplies (254,027) 36,633
Increase in other assets (415,432) (465,067)
Increase in accounts payable, accrued expenses and
other liabilities 1,205,353 709,513
Decrease in payable to health insurance program --- (661,248)
----------- -----------
Net cash provided by operating activities 3,882,853 3,109,298
Investing activities:
Purchase of property and equipment (344,438) (1,073,090)
Proceeds from sale of equipment --- 13,485
Payment for Purchase of Professional Psychological Services, Inc. --- (1,099,000)
Payment for Purchase of Clay Care, Inc., net of cash acquired --- (913,634)
Payment for Geriatric Medical Care, Inc., net of cash acquired --- (4,577,970)
----------- -----------
Net cash used in investing activities (344,438) (7,650,209)
Financing activities:
Payments of long-term debt (3,807,248) (68,994)
Proceeds from line of credit 1,300,000 ---
Net proceeds from issuance of common stock 92,386 164,239
Tax benefit related to stock option exercise 27,769 400,334
----------- -----------
Net cash provided by (used in) financing activities (2,387,093) 495,579
----------- -----------
Net increase (decrease) in cash and short term investments 1,151,322 (4,045,332)
----------- -----------
Cash and short-term investments at beginning of period 3,167,036 7,940,232
----------- -----------
Cash and short-term investments at end of period $ 4,318,358 $ 3,894,900
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 29,242 $ 802
=========== ===========
Income taxes $ 3,067,779 $ 3,540,963
=========== ===========
Supplemental disclosure of non-cash investing activities:
- ---------------------------------------------------------
Payment for Professional Psychological Services, Inc.
Fair value of assets acquired $ 1,099,000
Cash paid (1,099,000)
-----------
Liabilities assumed $ 0
===========
Purchase of Geriatric Medical Care, Inc.
Fair value of assets acquired $ 6,048,669
Cash paid (4,626,738)
-----------
Liabilities assumed $ 1,421,931
===========
Purchase of Clay Care, Inc.
Fair value of assets acquired $ 1,057,532
Cash paid through June 1997 (1,000,000)
-----------
Liabilities assumed $ 57,532
===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 8
HORIZON MENTAL HEALTH MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
Horizon Mental Health Management, Inc. ("Horizon" or the "Company") is a
contract manager of mental health programs offered by general acute care
hospitals in the United States. These management contracts are
generally for terms ranging from three to five years, the majority of
which have automatic renewal provisions. Horizon currently has
regional operations offices in the metropolitan areas of Dallas, Texas;
Chicago, Illinois; Tampa, Florida; Boston, Massachusetts; and San
Francisco, California which will move to Los Angeles, California on or
about September 1, 1997. Horizon's National Support Center is in
Lewisville, Texas.
Horizon was formed in July 1989 for the purpose of acquiring all the
assets of two companies. One of the companies, known as Horizon Health
Management Company, had been formed in 1981 and since that time had been
engaged in the mental health contract management business. The other
company owned and operated a freestanding psychiatric hospital in
California. Effective March 1, 1990, the assets constituting the
contract management business and the psychiatric hospital were
transferred to Horizon. Horizon sold the freestanding psychiatric
hospital in 1992.
A subsidiary of Horizon leased and began operating Mountain Crest
Hospital ("MCH") in December 1990. In July 1994, Horizon subleased MCH
to Mental Health Management, Inc. ("MHM") for a period commencing July
31, 1994 through December 31, 2000. Horizon, which had previously
guaranteed the obligations under the primary lease, has provided the
substitute guaranty of MHM to the lessor. Management believes it has
satisfied the conditions in the primary lease for release of Horizon's
guaranty. The sublease requires monthly rental payments to Horizon of
50% of operating cash flow, as defined, subject to a minimum monthly
payment of $20,000, not to exceed $1,200,000 in the aggregate over the
sublease life which expires upon expiration of the primary lease on
December 31, 2000. As of May 31, 1997, Horizon has received $783,686
of the $1,200,000 resulting in future receipts of $416,314 to be
received on or before February 1, 1999 assuming minimum monthly
payments of $20,000.
On August 1, 1994 Horizon signed a contract with Horizon Mental Health
Management, L.L.C. (the "Horizon LLC") to have it manage all of
Horizon's then existing management contract obligations for a 72.5%
interest in the Horizon LLC. Prior to March 20, 1995, the remaining
27.5% interest in the Horizon LLC was held by MHM which signed a
contract with the Horizon LLC to have it manage all of MHM's then
existing management contract obligations. Upon completion of its
initial public offering of common stock, Horizon became contractually
obligated to acquire the minority interest of MHM in the Horizon LLC.
March 13, 1995 was the effective date of the initial public offering.
The acquisition of the minority interest of MHM was effective March 20,
1995. As such, the Horizon LLC became a wholly-owned subsidiary of
Horizon. Effective September 1, 1995, the Horizon LLC was dissolved
and its operations combined with Horizon.
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<PAGE> 9
On July 31, 1996, Horizon acquired eighty percent (80%) of the
outstanding common stock of Florida Professional Psychological
Services, Inc., also known as Professional Psychological Services, Inc.
("PPS") for an amount yet to be determined which Horizon estimates will
be between $2,500,000 and $2,900,000. Based in Clearwater, Florida,
PPS specializes in full risk, capitated managed behavioral health
programs and employee assistance programs. (See Note 3)
Effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Geriatric Medical Care, Inc., a Tennessee corporation
("Geriatric"), and Geriatric has been consolidated with Horizon as of
March 15, 1997. Horizon accounted for the acquisition of Geriatric by
the purchase method as required by generally accepted accounting
principles. Geriatric is a contract manager of mental health services
for acute care hospitals. Geriatric had total revenues of
approximately $5.7 million in 1996 and, at March 15, 1997, had 18
management contract locations, of which three were not yet in
operation. The purchase price of approximately $4.6 million, of which
approximately $4.3 million was paid at closing from existing cash of
Horizon, included retiring essentially all of Geriatric's outstanding
debt. The final purchase price payment of $270,000 was made on April
16, 1997. The purchase price exceeded the fair value of Geriatric's
tangible net assets by $5,005,986, of which $4,498,038 is recorded as
goodwill and $507,948 as contract valuation. Tangible assets acquired
and liabilities assumed totaled $1,042,683 and $1,421,931,
respectively.
Also effective March 15, 1997, the Company purchased all of the
outstanding capital stock of Clay Care, Inc., a Texas corporation
("CCI"), and CCI has been consolidated with Horizon as of March 15,
1997. Horizon accounted for the acquisition of CCI by the purchase
method as required by generally accepted accounting principles. CCI is
a contract manager of mental health services for acute care hospitals.
At March 15, 1997, CCI had management contracts with five hospitals of
which four were in operation and one of which opened in April 1997.
CCI had total revenues of approximately $1.3 million in 1996. A total
of $475,000 of the $1,000,000 purchase price was paid at the closing
from existing cash of the Company. The remaining $525,000 of the total
purchase price was paid by Horizon in April 1997 and June 1997. The
purchase price exceeded the fair value of CCI's tangible net assets by
$855,738, of which $714,672 is recorded as goodwill and $141,066 as
contract valuation. Tangible assets acquired and liabilities assumed
totaled $201,794 and $57,532, respectively.
BASIS OF PRESENTATION
The accompanying consolidated balance sheet at May 31, 1997, the
consolidated statements of operations for the three and nine month
periods ended May 31, 1996 and 1997, and the consolidated statements of
cash flows for the nine months ended May 31, 1996 and 1997 are
unaudited. These financial statements should be read in conjunction
with the Company's audited financial statements for the year ended
August 31, 1996. In the opinion of Company management, the unaudited
consolidated financial statements include all adjustments, consisting
only of normal recurring accruals, which the Company considers
necessary for a fair presentation of the financial position of the
Company as of May 31, 1997, and the results of operations for the three
months and nine months ended May 31, 1996 and 1997.
Operating results for the three and nine month periods are not
necessarily indicative of the results that may be expected for a full
year or any portion thereof.
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<PAGE> 10
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND SHORT-TERM INVESTMENTS: Cash and short-term investments
include securities with original maturities of three months or less
when purchased.
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation expense is provided on the straight-line basis over the
assets' estimated useful lives. The useful life of furniture and
fixtures and computer equipment are estimated to be five years and
three years, respectively. Routine maintenance and repair items are
charged to current operations.
REVENUE: Contract management revenue is reported at the estimated net
realizable amounts from contracted hospitals for contract management
services rendered. Adjustments are accrued on an estimated basis in
the period the related services are rendered and adjusted in future
periods as final settlement is determined. Contract management revenue
is based on a per diem calculation using patients per day, a fixed fee,
admissions, discharges, direct expenses, or any combination of the
preceding depending on a specific contract.
Some management contracts include a clause which states that Horizon
will indemnify the hospital for any third- party payor denials,
including Medicare. At the time the charges are denied, an allowance
for 100% of the disputed amount is recorded by Horizon. Management
believes it has adequately provided for any potential adjustments that
may result from final settlement of these denials.
At May 31, 1997, Horizon had management contracts with 39 hospitals
directly or indirectly owned by Columbia/HCA Healthcare Corporation
("Columbia/HCA"), of which 35 had programs in operation. These 35
contracts accounted for 22.4 % of the Company's net revenues for the
nine months ended May 31, 1997. In the aggregate, including terminated
contracts, revenues generated by hospitals directly or indirectly owned
by Columbia/HCA accounted for 23.6% of the Company's net revenues for
the nine months ended May 31, 1997. Of the 39 Columbia/HCA contracts
at May 31, 1997, 18 contracts contain a provision limiting the number
of contracts which Columbia/HCA can cancel without cause to 33.3%
during any calendar year. The termination or non-renewal of all or a
substantial part of the management contracts with hospitals owned by
Columbia/HCA could have a material adverse effect on the Company's
business, financial condition or results of operations. In addition,
at May 31, 1997, Horizon had eight management contracts with hospitals
owned by Community Health Systems, which accounted for 5.5 % of the
Company's net revenues for the nine months ended May 31, 1997. In
addition, Horizon had six management contracts with hospitals
affiliated with Tenet, which accounted for 4.4% of the Company's net
revenues for the nine months ended May, 31, 1997.
Patient service revenue is recorded on an accrual basis at the
established rates. Provisions recognizing contractual adjustments and
other adjustments are recorded on an accrual basis and deducted from
gross revenue to determine net patient service revenue.
The customers of Horizon are not concentrated in any specific
geographic region, but are concentrated in the health care industry.
Horizon generally does not require collateral to support outstanding
accounts receivable.
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<PAGE> 11
HEALTH INSURANCE PROGRAM REIMBURSEMENT: Services were provided under
Horizon's management to patients who are eligible for coverage under
Title XVIII (Medicare) Health Insurance Programs. Amounts received are
generally less than the standard billing rates of the hospital and
receivables are recorded in the consolidated balance sheet at the
estimated amount to be reimbursed.
Amounts due to/from Health Insurance Programs under Medicare are
subject to final determination through an audit by a fiscal
intermediary. Any difference between the final determination and
estimated amounts accrued is accounted for as an adjustment to patient
service revenue in the year of final determination. Management
believes it has adequately provided for any potential adjustments
resulting from an audit.
LONG-LIVED AND INTANGIBLE ASSETS: The Company has adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS
No. 121), effective September 1, 1994. Under SFAS 121, the Company
recognizes impairment losses on property and equipment whenever events
or changes in circumstances indicate that the carrying amount of
long-lived assets, on an individual property basis, may not be
recoverable through undiscounted future cash flows. Such losses are
determined by comparing the sum of the expected future discounted net
cash flows to the carrying amount of the asset. Impairment losses are
recognized in operating income as they are determined. As of May 31,
1997, no impairment losses have been incurred.
INCOME TAXES: Horizon has adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS 109
generally requires an asset and liability approach and requires
recognition of deferred tax assets and liabilities resulting from
differing book and tax bases of assets and liabilities. It requires
that deferred tax assets and liabilities be determined using the tax
rate expected to apply to taxable income in the periods in which
the deferred tax asset or liability is expected to be realized or
settled. Under this method, future financial results will be impacted
by the effect of changes in income tax rates on cumulative deferred
income tax balances.
NET INCOME PER SHARE: Net income per common share is calculated using
the weighted average number of common and common equivalent shares
outstanding during the respective periods. Dilutive common equivalents
consist of stock options calculated using the treasury stock method.
All shares and per share data, except par value per share, have been
retroactively adjusted to reflect a three-for-two stock split effected
as a 50% stock dividend by the Company (see Note 8).
USE OF ESTIMATES: The Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
3. INVESTMENT IN PPS
On July 31, 1996, Horizon acquired eighty percent (80%) of the
outstanding common stock of Florida Professional Psychological Services,
Inc., also known as Professional Psychological Services, Inc. ("PPS"),
and PPS has been consolidated with Horizon as of August 1, 1996.
Horizon accounted for the acquisition of PPS by the purchase method as
required by generally
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<PAGE> 12
accepted accounting principles. Based in Clearwater, Florida, PPS
specializes in full risk, capitated managed behavioral health programs
and employee assistance programs. The purchase price is based
primarily on a multiple of the 1996 pre-tax income of PPS. Horizon
currently estimates the purchase price will be between $2,500,000 and
$2,900,000, of which interim payments of $1,225,000 and $1,099,000 were
paid on July 31, 1996 and April 9, 1997, respectively. The purchase
price exceeded the fair value of PPS' net assets by $2,974,575 which is
recorded as goodwill. Assets acquired and liabilities assumed totaled
$541,000 and $515,000. The final reconciliation statement of income of
PPS for the twelve months ended December 31, 1996 is to be delivered on
or before July 15, 1997 or the earliest practical date thereafter, and
any remaining purchase price is to be paid on or before August 14,
1997.
In addition, Horizon also obtained an option to acquire the remaining
twenty percent (20%) of the outstanding PPS common stock at a future
date. The sellers, constituting all the shareholders of PPS, also
obtained the right to put to Horizon such shares on certain dates. The
option and put prices for the remaining PPS shares are based on a
multiple of the pre-tax income of PPS in future years.
The following table presents the revenue of PPS for fiscal years 1995
and 1996. PPS's effect on Horizon's net income and earnings per share
has been deemed negligible for the periods and not presented.
Historical Revenue Summary (unaudited)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C>
$4,475,000 $5,050,000
</TABLE>
For the three and nine months ended May 31, 1997, PPS generated
$1,432,937 and $3,978,120 in gross revenues, respectively, and net
income of $117,651 and $375,451, respectively.
4. LONG-TERM DEBT
Effective September 29, 1995, the Company entered into a loan agreement
with Texas Commerce Bank (TCB) for a revolving line of credit with a
maximum advance commitment of $11,000,000. On December 12, 1995, the
Company paid TCB the outstanding balance of $1,300,000 originally
advanced to the Company during the quarter ended November 30, 1995,
plus accrued interest. As of May 31, 1997, the Company has borrowed $0
against the available line of credit, and has $10.1 million available
for advances under the revolving credit facility.
The line of credit bears interest at (1) the lesser of the Floating
Base Rate or the maximum non-usurious interest rate permitted by law
and/or (2) the lesser of the LIBOR Rate plus LIBOR Margin or the
maximum nonusurious interest rate permitted by law.
Floating Base Rate means the greater of (i) TCB's prime rate of
interest or (ii) the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged
by federal funds brokers plus one-half of one percent (.5%). LIBOR
Rate means the quotient of (i) the Interbank Offered Rate divided by
(ii) the remainder of 1.0 minus the LIBOR reserve requirement. LIBOR
Margin is 1.25% to 1.75% depending on the debt coverage ratio.
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<PAGE> 13
The original maturity date of this line of credit is December 15, 1998;
however, it may be extended to December 15, 2000 if certain debt
coverage ratios are met.
5. STOCK OPTIONS
In accordance with Horizon's 1989 and 1995 Stock Option Plans, there
are 1,931,843 shares of common stock reserved for grant to key
employees, of which 256,016 were granted and previously exercised as
of August 31, 1996. In addition, 1,411,268 options and 1,461,327
options were issued and outstanding at August 31, 1995 and 1996,
respectively. During fiscal 1995 nonstatutory stock options to purchase
168,000 shares of common stock were granted with an exercise price of
$4.00, $6.6667, $7.4167 or $8.9167 per share, respectively. On
September 1, 1995, the Company granted an additional 127,500 options
under the 1995 Stock Option Plan at $9.75 per share subject to
shareholder approval which was received on January 11, 1996. An
additional 128,250 shares with an exercise price of $14.1667 were
granted on August 15, 1996. An additional 22,500 shares with exercise
prices of $16.3333, $15.375, and $19.000 were granted during the first
nine months of fiscal year 1997. Management believes the exercise
prices of the options approximated or exceeded the market value of the
common stock at the date of grant. As such, no expense is recognized
in the accompanying statements of income as a result of such issuance.
The options are generally exercisable in cumulative installments over a
four or five year period and terminate 10 years from the date of grant.
During fiscal 1995 and 1996, 39,000 and 11,250 options granted to
former officers were canceled respectively. An additional 27,937
options were canceled during the first nine months of fiscal year 1997.
During fiscal 1995, vested options of 101,250 and 17,325 have been
exercised by certain officers at exercise prices of $0.8333 and
$2.1417, respectively. During fiscal 1996, vested options of 42,000 at
$0.50, and 38,816 at $0.8333 and 53,625 at $1.00 have been exercised.
During fiscal 1997, vested options of 22,500 at $1.00, 18,750 at
$3.6157, 3,750 at $4.00, 750 at $6.6667, 42,485 at $0.8333, and 2,500
at $7.4167 have been exercised.
At May 31, 1997 there were 1,931,843 shares reserved, of which 346,750
shares were issued and exercised, 1,365,156 shares were issued and
unexercised and 219,937 shares remain unissued. Of the 1,365,156
shares issued and unexercised, 577,665 shares were exercisable.
On April 28, 1995 the board of directors created a stock option plan
for outside directors owning less than 5% of the stock of the Company.
150,000 shares of common stock are reserved for issuance under this
plan. This plan has been amended and restated to also provide for
3,000 option grants to each eligible director each time they are
re-elected to the board after having served as a director for at least
one year since their initial grant under the plan. At February 28,
1997 there were 150,000 shares reserved under this plan, of which no
shares were issued and exercised, 72,000 shares were issued and
unexercised and 78,000 shares remain unissued. Of the 72,000 shares
issued and unexercised, 21,000 shares were exercisable. 12,000 options
were issued to outside directors during the first nine months of fiscal
year 1997 due to re-election at the January 29, 1997 Annual Meeting of
Stockholders.
On April 1, 1996 the Company filed an S-8 registration statement which
registered 2,054,549 shares granted to or eligible for granting to
employees and directors under the 1989 and 1995 Stock Option Plans, as
amended, and the outside director stock option plan. This registration
includes a separate reoffer prospectus to allow any shares issued in
the future and most previously exercised shares under the 1989 and 1995
Stock Option Plans to be traded at any time without any holding period
or volume restrictions.
-13-
<PAGE> 14
In October 1995, the Financial Accounting Standards Board issued
statement No. 123 "Accounting for Stock-Based Compensation." FASB
statement No. 123 contains recognition provisions and mandatory
disclosure provisions. Companies electing to adopt the recognition
provisions would be required to measure and recognize compensation cost
based on a fair value based method of accounting. The disclosure
provisions apply to all companies regardless of the method used to
account for stock compensation arrangements and must be adopted for
fiscal years beginning after December 15, 1995. Horizon will continue
to measure and recognize compensation cost based on the accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and will adopt the disclosure provisions of FASB statement
No. 123 during fiscal year 1997.
6. PROVISION FOR INCOME TAXES
The Company recorded federal and state income taxes for the three and
nine months ended May 31, 1997, in the amount of $1,273,444 and
$3,641,245, respectively, resulting in a combined tax rate of 39.8% and
39.6%, respectively.
7. COMMITMENTS AND CONTINGENCIES
Horizon leases various office facilities and equipment under operating
leases. In addition, Horizon leases space for one partial
hospitalization program in association with one management contract.
The following is a schedule, as of May 31, 1997, of minimum rental
payments under these leases which expire at various dates:
<TABLE>
<S> <C>
Three months ending August 31, 1997 $ 202,420
For the year ending August 31, 1998 708,436
For the year ending August 31, 1999 539,761
For the year ending August 31, 2000 494,048
For the years ending August 31, 2001 and thereafter 449,586
------------
$ 2,394,251
============
</TABLE>
On December 20, 1995 the Company entered into a lease agreement
expiring September 26, 2001 for a building to be constructed in
Lewisville, Texas to the Company's specifications. On September 27,
1996, a certificate of occupancy was issued and the Company occupied
the building as its executive offices and National Support Center.
Rental payments commenced the same date. In connection with the lease
transaction, the Company has guaranteed a loan of approximately
$900,000. The loan was by a financial institution to the building
owner. The Company also agreed to purchase the leased building for
approximately $4.5 million at the end of the lease term if it is not
sold to a third party, or the Company does not extend its lease.
On July 31, 1996, Horizon acquired eighty percent (80%) of the
outstanding common stock of Florida Professional Psychological
Services, Inc. ("PPS"). The purchase price is based primarily on a
multiple of the 1996 pre-tax income of PPS. Horizon currently
estimates the purchase price will be between $2,500,000 and $2,900,000,
of which interim payments of $1,225,000 and $1,099,000 were paid on
July 31, 1996 and April 9, 1997, respectively. The final
reconciliation statement of income of PPS for the twelve months ended
December 31, 1996 is to be delivered on or before July 15, 1997 or the
earliest practical date thereafter, and any remaining purchase price is
to be paid on or before August 14, 1997.
-14-
<PAGE> 15
On April 25, 1997 Horizon signed a definitive agreement to acquire
privately held Specialty Healthcare Management, Inc. (Specialty) of
Englewood, Colorado. The definitive agreement contemplates a
transaction to be accounted for as a pooling of interests in which
Specialty would become a wholly owned subsidiary of Horizon. Specialty
is a contract manager of mental health, physical rehabilitation and
chemical dependency treatment programs for general acute care hospitals
and other health care entities. For the year ended December 31, 1996,
Specialty reported revenues of $33.8 million and net income of $1.2
million.
The issuance of 1,400,000 shares of Horizon common stock to
shareholders of Specialty in the transaction is subject to the approval
of Horizon's stockholders at a special stockholders' meeting which is
expected to be held in August 1997.
Horizon is insured for professional and general liability on a
claims-made policy, with additional tail coverage being obtained when
necessary. Management does not believe that any material, estimable,
and probable claims exist against the Company that would cause the
final expenses for professional and general liability to vary
materially from amounts provided.
Horizon is involved in litigation arising in the ordinary course of
business, including matters involving professional liability. It is
the opinion of management that the ultimate disposition of such
litigation would not be in excess of any reserves or have a material
adverse effect on Horizon's financial position or results of
operations.
8. COMMON STOCK
The Board of Directors of the Company approved a three-for-two stock
split effected in the form of a 50% stock dividend, pursuant to which
one additional share of Common Stock of the Company was issued on
January 31, 1997 for every two shares of Common Stock held by
stockholders of record at the close of business on January 22, 1997.
As a result of such stock split/dividend, a total of $18,253 originally
recorded as additional paid in capital was reclassified as common
stock. Such stock split/dividend has been retroactively reflected in
the consolidated financial statements included in this report. Upon
effecting the stock split/dividend, the stock options and their related
exercise prices were adjusted proportionately.
In February 1997, the Certificate of Incorporation, as amended, of the
Company was amended to increase the number of authorized shares of
Common Stock, $.01 par value per share, of the Company from 10,000,000
shares to 40,000,000 shares.
In February 1997, the Company entered into a Rights Agreement pursuant
to which it approved the distribution of one Common Stock purchase
right for each outstanding share of Common Stock of the Company. The
Rights Agreement and the amendment to the Certificate of Incorporation
referred to above were approved by the stockholders of the Company at
the Annual Meeting of Stockholders held on January 29, 1997.
-15-
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in July 1989 for the purpose of acquiring all the
assets of two companies. One company, known as Horizon Health Management
Company, had been formed in 1981 and since that time had been engaged in the
mental health contract management business. The other company owned and
operated a freestanding psychiatric hospital in California. Although Horizon
owned, leased or managed a few freestanding psychiatric or substance abuse
facilities beginning March 1, 1990, the mental health contract management
business formed by Horizon's predecessor in 1981 has been Horizon's primary
business since subleasing its last remaining freestanding psychiatric hospital
on July 31, 1994.
Effective August 1, 1994, Horizon and MHM formed the Horizon LLC.
Horizon signed a contract with the Horizon LLC to have it manage all of
Horizon's then existing management contracts for a 72.5% interest in the
Horizon LLC. Prior to March 20, 1995, the remaining 27.5% interest in the
Horizon LLC was held by MHM which signed a contract with the Horizon LLC to
have it manage all of MHM's then existing 39 management contracts. Upon
completion of its initial public offering of common stock, Horizon became
contractually obligated to acquire the minority interest of MHM in the Horizon
LLC. March 13, 1995 was the effective date of the initial public offering.
The acquisition of the minority interest of MHM was effective March 20, 1995.
As such, the Horizon LLC became a wholly-owned subsidiary of Horizon. The
Horizon LLC was consolidated with the Company effective March 1, 1995.
Effective September 1, 1995, the Horizon LLC was dissolved and its operations
combined with Horizon's.
Mental Health Outcomes, Inc. ("MHO, Inc."), a Delaware corporation, was
formed on August 10, 1995 and is engaged in the design and operation of outcome
measurement systems for psychiatric and chemical dependency providers under the
trade name "CQI+". MHO, Inc. is a wholly owned subsidiary of Horizon.
On July 31, 1996, Horizon acquired eighty percent (80%) of the
outstanding common stock of Florida Professional Psychological Services, Inc.,
also known as Professional Psychological Services, Inc. ("PPS"). PPS has been
consolidated with Horizon as of August 1, 1996. Horizon accounted for the
acquisition of PPS by the purchase method as required by generally accepted
accounting principles. Based in Clearwater, Florida, PPS specializes in full
risk, capitated managed behavioral health programs and employee assistance
programs. The purchase price is based primarily on a multiple of the 1996
pre-tax income of PPS. Horizon currently estimates the purchase price will be
between $2,500,000 and $2,900,000, of which interim payments of $1,225,000 and
$1,099,000 were paid on July 31, 1996 and April 9, 1997, respectively. The
final reconciliation statement of income of PPS for the twelve months ended
December 31, 1996 is to be delivered on or before July 15, 1997 or the earliest
practical date thereafter, and any remaining purchase price is to be paid on or
before August 14, 1997. In addition, Horizon also obtained an option to
acquire the remaining twenty percent (20%) of the outstanding PPS common stock
at a future date. The sellers, constituting all the shareholders of PPS, also
obtained the right to put to Horizon such shares on certain dates. The option
and put prices for the remaining PPS shares are based on a multiple of the
pre-tax income of PPS in future years.
-16-
<PAGE> 17
Effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Geriatric Medical Care, Inc., a Tennessee corporation
("Geriatric"). Geriatric is a contract manager of mental health services for
acute care hospitals. Geriatric had total revenues of approximately $5.7
million in 1996, and at March 15, 1997, had 18 management contract locations,
of which three were not yet in operation. The purchase price of approximately
$4.6 million, of which approximately $4.3 million was paid at closing from
existing cash of Horizon, included retiring essentially all of Geriatric's
outstanding debt. The final purchase price payment of $270,000 was made on
April 16, 1997.
Also effective March 15, 1997, the Company purchased all of the
outstanding capital stock of Clay Care, Inc., a Texas corporation ("CCI"). CCI
is a contract manager of mental health services for acute care hospitals. At
March 15, 1997, CCI had management contracts with five hospitals of which four
were in operation and one of which opened in April 1997. CCI had total
revenues of approximately $1.3 million in 1996. A total of $475,000 of the
$1,000,000 purchase price was paid at the closing from existing cash of
Horizon. The remaining $525,000 of the total purchase price was paid by
Horizon in April 1997 and June 1997.
On April 25, 1997 Horizon signed a definitive agreement to acquire
privately held Specialty Healthcare Management, Inc. (Specialty) of Englewood,
Colorado. The definitive agreement contemplates a transaction to be accounted
for as a pooling of interests in which Specialty would become a wholly owned
subsidiary of Horizon.
Specialty is a contract manager of mental health, physical rehabilitation
and chemical dependency treatment programs for general acute care hospitals and
other health care entities. For the year ended December 31, 1996, Specialty
reported revenues of $33.8 million and net income of $1.2 million. The
issuance of 1,4000,000 shares of Horizon common stock to shareholders of
Specialty in the transaction is subject to the approval of Horizon's
stockholders at a special stockholders' meeting which is expected to be held in
August 1997. In addition, at the meeting Horizon stockholders will be asked to
approve an amendment to the Certificate of Incorporation of Horizon to change
its corporate name to "Horizon Health Corporation".
Horizon, which had previously traded on the American Stock Exchange under
the symbol "HMH", began trading on the Nasdaq National Market on May 7, 1996,
under the symbol "HMHM".
At May 31, 1997, the Company had management contracts with 146 general
acute care hospitals located in 36 states, providing for the operation of a
total of 223 various treatment programs.
-17-
<PAGE> 18
SUMMARY STATISTICAL DATA
<TABLE>
<CAPTION>
August 31,
----------------------------- November 30, February 28, May 31,
1994 1995 1996 1996 1997 1997
----------------------------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF CONTRACT LOCATIONS:
Contract locations in operation 99 100 107 104 109 128
Contract locations signed
and unopened 9 12 16 19 10 18
--- --- --- --- --- ---
Total contract locations 108 112 123 123 119 146
=== === === === === ===
SERVICES COVERED BY CONTRACTS
IN OPERATION:
Inpatient (A) 89 91 97 94 97 107
Partial hospitalization (A) 45 55 71 73 73 90
Outpatient 7 8 11 10 12 12
Home health 1 1 12 13 13 14
CQI Plus (under contract) 20 45 64 66 75 83
TYPES OF TREATMENT PROGRAMS
IN OPERATION:
Geropsychiatric (A) 75 92 130 127 132 160
Adult psychiatric (A) 60 57 51 53 54 55
Substance abuse (A) 4 3 7 6 6 5
Other (A) 3 2 3 4 3 3
</TABLE>
(A) Beginning with the quarter ended February 29, 1996 a new methodology
which redefined the statistical definition of an operating service or
program was implemented. To avoid duplicity, multiple
services/treatment programs within each category at one location are
now being reported as a single service/treatment program where the
predominant treatment defines the appropriate categories. As a result
of this reporting change, prior periods have been restated as
estimates based on the new reporting definition.
-18-
<PAGE> 19
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MAY 31, 1996 AND 1997
The following table sets forth for the three month and nine month periods ended
May 31, 1996 and 1997, the percentage relationship to total net revenues of
certain costs, expenses and income.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
------------------------ -----------------------
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Contract management revenues 99.1% 92.3% 99.3% 91.1%
Other revenues 0.9% 7.7% 0.7% 8.9%
----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Operating costs and expenses
Salaries and benefits 54.9% 53.4% 55.1% 53.7%
Purchased services 13.8% 16.1% 14.3% 14.8%
Provision for bad debts 0.2% 1.4% 0.1% 1.3%
Depreciation and amortization 2.1% 2.0% 2.1% 2.1%
Other 14.3% 12.1% 14.1% 12.9%
----- ----- ----- -----
Total operating costs and expenses 85.3% 85.0% 85.7% 84.8%
----- ----- ----- -----
Income from operations 14.7% 15.0% 14.3% 15.2%
Interest (net of other income), and other losses 0.5% 0.6% 0.4% 0.7%
----- ----- ----- -----
Income before income taxes and minority interest 15.2% 15.6% 14.7% 15.9%
Income tax expense 6.1% 6.2% 5.8% 6.3%
Minority interest 0.0% 0.1% 0.0% 0.1%
Net income 9.1% 9.3% 8.9% 9.5%
===== ===== ===== =====
Number of contracts in operation, end of period 104 128 104 128
</TABLE>
-19-
<PAGE> 20
THREE MONTHS ENDED MAY 31, 1997 COMPARED TO THE THREE MONTHS ENDED MAY 31, 1996
Revenue. Revenues for the three months ended May 31, 1997 were $20.5
million, representing an increase of $4.7 million, or 29.7%, as compared to
revenues of $15.8 million for the corresponding period in the prior fiscal
year. An increase in contract management revenues accounted for $3.3 million of
the $4.7 million increase in revenues. $1.5 million of the $3.3 million
increase in contract management revenues results from revenue recorded for
Geriatric Medical Care, Inc. ("Geriatric") and Clay Care, Inc. ("CCI"). Horizon
acquired 100% of the outstanding voting stock of Geriatric and CCI effective
March 15, 1997 and consolidated Geriatric and CCI with Horizon as of the
effective date of acquisition. Contract management revenues also increased $1.3
million at locations that have been under Horizon management during all periods
being reported. This was the result of an average rate increase of 2.2% and the
addition of new programs including a 29.4% increase in CQI Plus revenues, a
102% increase in Home Health revenues and a 35% increase in Outpatient revenues
between the periods. The remaining increase in contract management revenues
results from an increase in the average number of contract locations in
operation for non-acquired units from 103.8 for the three months ended May 31,
1996 to 108.5 for the three months ended May 31, 1997. An increase in patient
service revenue accounted for $1.4 million of the $4.7 million increase in
revenues. The $1.4 million increase in patient service revenue results from
revenue recorded for Florida Psychological Services, Inc. ("PPS"). Horizon
acquired 80% of the outstanding common stock of PPS on July 31, 1996, and
consolidated PPS with Horizon as of August 1, 1996.
Salaries and Benefits. Salaries and benefits for the three months
ended May 31, 1997 were $11.0 million, representing an increase of $2.3
million, or 26.4%, as compared to salaries and benefits of $8.7 million for the
three months ended May 31, 1996. This increase resulted from the increase in
full time equivalents from 607.2 for the three months ended May 31, 1996, to
761.4 for the three months ended May 31, 1997, an increase of 25.4%. Full time
equivalents increased between the periods as follows:
<TABLE>
<CAPTION>
May 31, May 31,
1996 1997 Increase % Increase
------- -------- -------- ----------
<S> <C> <C> <C> <C>
National Support 72.9 85.7 12.8 17.6%
Regional Offices 42.4 42.4 0.0 0.0
PPS 0.0 48.3 48.3 N/A
Contract Locations 491.9 585.0 93.1 19.0%
----- ----- -----
607.2 761.4 154.2 25.4%
</TABLE>
The increase in the National Support Center full time equivalents of
17.6% results from the expansion of the General and Administrative Department,
as well as the expansion of Mental Health Outcomes, Inc. The increase in
contract location full time equivalents of 19.0% results from an increase in
the average number of contract locations in operation from 103.8 for the three
months ended May 31, 1996, to 125.9 for the three months ended May 31, 1997, an
increase of 21.4%. The increase in average number of locations in operation
results from new location openings and the purchase of Geriatric and CCI
effective March 15, 1997. Additionally, Horizon acquired eighty percent (80%)
of the outstanding common stock of PPS on July 31, 1996. PPS's FTE's averaged
48.3, with associated salary of $534,000, for the quarter ended May 31, 1997.
The Company's average annualized salaries per full time equivalent for the
three months ended May 31, 1997 were $57,634, representing an increase of $398,
or 0.7%, as compared to average annualized salaries per full time equivalent of
$57,236 for the three months ended May 31, 1996. Benefits for the three months
ended May 31, 1997 were $1.4 million, representing an increase of $200,000, or
16.6%, as compared to benefits of $1.2 million for the three months ended May
31, 1996. This increase included an increase of $33,000 between the periods in
relation to the acquisition of PPS on July 31, 1996. In addition, benefits
increased $79,000 and $8,000, respectively, between the periods in relation to
the acquisitions of Geriatric and CCI effective March 15, 1997.
-20-
<PAGE> 21
Depreciation and Amortization. Depreciation and amortization expenses
for the three months ended May 31, 1997 were $403,000, representing an increase
of $71,000, or 21.4%, as compared to depreciation and amortization expenses of
$332,000 for the corresponding period in the prior fiscal year. $61,000 of this
increase is due to the amortization of goodwill of $3.0 million, $4.5 million,
and $700,000 resulting from the acquisition of PPS, Geriatric and CCI,
respectively. Amortization expense also increased $20,000 in relation to the
value placed on the contracts of Geriatric and CCI. These increases were
offset by a decrease in amortization expense of $37,000 associated with
contracts acquired in 1990 which were fully amortized at February 1997. The
remainder of the increase results from the depreciation expense of additional
equipment acquired by acquisition or purchased for the operation of Horizon's
contract management business.
Other Operating Expenses (Including Purchased Services and Provision
for Bad Debts). Other operating expenses for the three months ended May 31,
1997, were $6.1 million, representing an increase of $1.6 million, or 35.6%, as
compared to other operating expenses of $4.5 million for the corresponding
period in the prior fiscal year. The following components identify the
variances between the periods reported.
Purchased services included a $185,000 increase in Medical Directors'
administrative fees for the three months ended May 31, 1997 as compared to the
same period in the prior fiscal year primarily as a result of the acquisitions
of Geriatric and CCI effective March 15, 1997. Medical Directors'
administrative fees associated with Geriatric and CCI for the three months
ended May 31, 1997 were $103,000 and $52,000, respectively. In addition, an
increase occurred in purchased services due to an increase of $529,000 in
direct service fees related to PPS, which was acquired by the Company on July
31, 1996. Consulting expense increased $319,000 for the three months ended May
31, 1997 as compared to the three months ended May 31, 1996. $24,000 of this
increase is related to a software upgrade for the regional offices and the
National Support Center, and $100,000 is related to fees for a marketing
survey.
Bad debt expense was $278,000 for the three months ended May 31, 1997
as compared to $39,000 bad debt expense for the three months ended May 31,
1996. This increase was primarily due to the non-timely payment by contracted
hospitals.
$64,000 of the increase in other operating expenses was due to rent
expense related to PPS, which was acquired by the Company on July 31, 1996.
Interest and Other Income (Expense), Net. Interest income, net of
interest expense, and other income for the three months ended May 31, 1997 was
$123,000, as compared to $87,000 in net interest income for the corresponding
period in the prior fiscal year. This change results primarily from an
increase in interest income of $35,000.
Income Tax Expense. For the three month period ended May 31, 1997,
the Company recorded federal and state income taxes of $1,273,000 resulting in
a combined tax rate of 39.8%. For the three month period ended May 31, 1996,
the Company recorded federal and state income taxes of $961,000 resulting in a
combined tax rate of 39.9%.
-21-
<PAGE> 22
NINE MONTHS ENDED MAY 31, 1997 COMPARED TO THE NINE MONTHS ENDED MAY 31, 1996
Revenue. Revenues for the nine months ended May 31, 1997 were $57.9
million, representing an increase of $12.4 million, or 27.3%, as compared to
revenues of $45.5 million for the corresponding period in the prior fiscal
year. An increase in contract management revenues accounted for $7.6 million
of the $12.4 million increase in revenues. In part, this increase resulted
from an increase in the average number of contract locations in operation from
102.5 for the nine months ended May 31, 1996, to 114.3 for the nine months
ended May 31, 1997, an increase of 11.6%. Contract management revenue also
increased $3.8 million at locations that have been under Horizon management
during all periods being reported. This was primarily the result of an average
rate increase of 2.5% and the addition of new programs including a 226.3%
increase in Home Health revenues and a 46.3% increase in Outpatient revenues
between the periods. In addition, patient volumes for inpatient and partial
programs increased 1.6% and 4.1% between the periods. An increase in patient
service revenue accounted for $4.0 million of the $12.4 million increase in
revenues. The $4.0 million increase in patient service revenue results from
revenue recorded for Florida Professional Psychological Services, Inc. ("PPS").
Horizon acquired 80% of the outstanding common stock of PPS on July 31, 1996,
and consolidated PPS with Horizon as of August 1, 1996.
Salaries and Benefits. Salaries and benefits for the nine months
ended May 31, 1997 were $31.1 million, representing an increase of $6.0
million, or 23.9%, as compared to salaries and benefits of $25.1 million for
the nine months ended May 31, 1996. This increase resulted from the increase
in full time equivalents from 599.4 for the nine months ended May 31, 1996, to
710.6 for the nine months ended May 31, 1997, an increase of 18.6%. Full time
equivalents increased between the periods as follows:
<TABLE>
<CAPTION>
May 31, May 31,
1996 1997 Increase % Increase
------- ------- -------- ----------
<S> <C> <C> <C> <C>
National Support 69.2 81.2 12.0 17.3%
Regional Offices 43.6 41.4 (2.2) (5.0)%
PPS 0.0 47.2 47.2 N/A
Contract Locations 486.6 540.8 54.2 11.1%
----- ----- -----
599.4 710.6 111.2 18.6%
</TABLE>
The increase in the National Support Center full time equivalents of
17.3% results from the expansion of the General and Administrative Department,
as well as the expansion of Mental Health Outcomes, Inc. The increase in
contract location full time equivalents of 11.1% results from an increase in
the average number of contract locations in operation from 102.5 for the nine
months ended May 31, 1996, to 114.3 for the nine months ended May 31, 1997, an
increase of 11.6%. Additionally, Horizon acquired eighty percent (80%) of the
outstanding common stock of PPS on July 31, 1996. PPS's FTE's averaged 47.2,
with associated salary of $1.5 million, for the nine months ended May 31, 1997.
The Company's average annualized salaries per full time equivalent for the nine
months ended May 31, 1997 were $50,195, representing an increase of $2,189, or
4.6%, as compared to average annualized salaries per full time equivalent of
$48,006 for the nine months ended May 31, 1996. Benefits for the nine months
ended May 31, 1997 were $4.3 million, representing an increase of $826,000, or
23.6%, as compared to benefits of $3.5 million for the nine months ended May
31, 1996. This increase included an increase of $266,000 in medical insurance
premiums and employer payroll taxes paid between the periods. In addition,
benefits also increased due to an increase in the amount accrued for the
Company's 401K match from $131,000 for the nine months ended May 31, 1996, to
$443,000 for the nine months ended May 31, 1997, representing an increase of
$312,000, or 238.2%. This is primarily attributable to a retroactive increase
to January 1, 1996, of the Company's 401K match as a result of an additional
accrual of the potential employer match totaling $237,000 based on employee
401K contributions for calendar 1996. Benefits also increased $161,000,
$79,000, and $8,000 between the periods in relation to the acquisitions of PPS
on July 31, 1996, and Geriatric and CCI on March 15, 1997.
-22-
<PAGE> 23
Depreciation and Amortization. Depreciation and amortization expenses
for the nine months ended May 31, 1997 were $1.2 million, representing an
increase of $226,000, or 23.2%, as compared to depreciation and amortization
expenses of $974,000 for the corresponding period in the prior fiscal year.
$83,000 of this increase is due to the amortization of goodwill of $3.0
million, $4.5 million, and $700,000 resulting from the acquisition of PPS,
Geriatric and CCI, respectively. Amortization expense also increased $20,000 in
relation to the value placed on the contracts of Geriatric and CCI. In
addition, the Company recorded $73,000 of additional depreciation expense due
to a change in the Company's definition of a capital expenditure. The
remainder of this increase results from the depreciation expense of additional
equipment acquired through acquisitions or purchased for the operation of
Horizon's contract management business. Cash expenditures used for the purchase
of property and equipment were $1.1 million for the nine months ended May 31,
1997, an increase of $756,000, as compared to $344,000 for the nine months
ended May 31, 1996.
Other Operating Expenses (Including Purchased Services and Provision
for Bad Debts). Other operating expenses for the nine months ended May 31,
1997, were $16.8 million, representing an increase of $3.8 million, or 29.2%,
as compared to other operating expenses of $13.0 million for the corresponding
period in the prior fiscal year. The following components identify the
variances between the periods reported.
Purchased services included a $1.3 million increase in direct service
fees related to PPS, which was acquired by the Company on July 31, 1996.
Consulting expense increased $459,000 for the nine months ended May 31, 1997 as
compared to the nine months ended May 31, 1996. $98,000 of this increase is
related to a software upgrade for the regional offices and the National Support
Center, and $174,000 is related to fees for a marketing survey. The change in
Medical Directors' administrative fees from the previous period was nominal due
to several offsetting factors. First, Medical Director administrative fees
have decreased from successful contract negotiations with physicians on a
permanent basis to provide administrative services which minimized the usage of
locum tenens physicians (i.e., contracting with physicians/physician placement
services to provide qualified individuals to perform administrative duties on a
temporary basis). Additionally, certain physician contracts have been
renegotiated resulting in a general lowering of compensatory fees. Also, the
Company has acquired new contract management businesses which have increased
Medical Directors' administrative fees.
Bad debt expense increased $700,000 for the nine months ended May 31,
1997 as compared to the nine months ended May 31, 1996. This increase was
primarily due to the non-timely payment by contracted hospitals.
Other operating expenses increased due to an increase of $386,000 in
telephone and rent expense for the nine months ended May 31, 1997 as compared
to the nine months ended May 31, 1996. $191,000 of this increase is related to
rent for PPS, which was acquired by the Company on July 31, 1996. The
remaining amount is primarily related to the increased capabilities of the
telephone systems installed in both the regional offices and the newly expanded
National Support Center, which includes the use of video teleconferencing in
each of these locations. The newly expanded National Support Center and the
addition of two outpatient practices resulted in the increase in rent expense.
Other operating expenses experienced an increase of $256,000 due to an increase
in legal settlements for the nine months ended May 31, 1997, as compared to the
corresponding nine months of the prior fiscal year.
Interest and Other Income (Expense), Net. Interest income, net of
interest expense, and other income for the nine months ended May 31, 1997 was
$424,000, as compared to $197,000 in net interest income for the corresponding
period in the prior fiscal year. This change results primarily from a decrease
in interest expense of $24,000 resulting from the retirement of long-term debt
on October 3, 1995 and an increase in interest income of $200,000.
Income Tax Expense. For the nine month period ended May 31, 1997, the
Company recorded federal and state income taxes of $3,641,000, resulting in a
combined tax rate of 39.6%. For the nine month period ended May 31, 1996, the
Company recorded federal and state income taxes of $2,648,000, resulting in a
combined tax rate of 39.7%.
-23-
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Effective September 29, 1995, the Company completed a transaction with
Texas Commerce Bank, N.A. for an $11 million revolving credit facility. The
purpose of the facility is to provide funds to be used for working capital
needs and future acquisitions. The facility is for a three year term with
extension provisions. As of May 31, 1997, the Company had $10.1 million
available under the revolving credit facility, of which the Company had
borrowed $0 as of May 31, 1997. Under the terms of the facility, the principal
outstanding thereunder to the Company from time to time cannot exceed the
lesser of (i) $11.0 million and (ii) the sum of 80% of the Company's
consolidated eligible accounts receivable, as defined, plus additional amounts
up to $3,372,450 based on specified time periods and the Company's debt
coverage ratio, as defined, less certain reserves. Principal outstanding under
the facility will bear interest at a "Floating Base Rate" and/or the "LIBOR
Rate plus Applicable LIBOR Margin", as selected by the Company in accordance
with the terms of the facility. See Note 4 to the Company's Consolidated
Financial Statements included herein. Accrued interest will be payable monthly
during the primary term of the facility, and quarterly thereafter if the term
of the facility is extended. Depending upon the Company's debt coverage ratio
at December 15, 1998, principal borrowed under the facility will either be due
in full on such date, or a portion of such principal will be due on such date,
and the remainder will be due in eight equal quarterly installments thereafter
ending December 15, 2000.
The Company is subject to certain covenants under the agreements
governing the credit facility, including prohibitions against (i) incurring
additional debt or liens, except permitted debt (defined to include purchase
money debt of $1.0 million in the aggregate) or specified permitted liens, (ii)
certain material acquisitions, other than permitted acquisitions as defined
(including acquisitions not exceeding $7.0 million per transaction), (iii)
certain mergers, consolidations, or asset dispositions by the Company, or
changes of control of the Company, (iv) certain management vacancies at the
Company, and (v) entering into any lines of business other than that in which
the Company is presently engaged. In addition, the terms of the facility
require the Company to satisfy certain ongoing financial covenants. The
facility is secured by all of the capital stock of the subsidiaries of the
Company and substantially all other assets of the Company.
The Company has agreed to purchase a leased building for approximately
$4.5 million at September 26, 2001 if it is not sold to a third party, or the
Company does not extend its lease. (See Note 7 to the Company's Consolidated
Financial Statements included herein).
On July 31, 1996, Horizon acquired eighty percent (80%) of the
outstanding common stock of Florida Professional Psychological Services, Inc.
("PPS"). The purchase price is based primarily on a multiple of the 1996
pre-tax income of PPS. Horizon currently estimates the purchase price will be
between $2,500,000 and $2,900,000, of which interim payments of $1,225,000
and $1,099,000 were paid on July 31, 1996 and April 9, 1997, respectively. The
final reconciliation statement of income of PPS for the twelve months ended
December 31, 1996 is to be delivered on or before July 15, 1997, or the
earliest practical date thereafter, and any remaining purchase price is to be
paid on or before August 14, 1997.
Effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Geriatric Medical Care, Inc., a Tennessee corporation
("Geriatric"). Geriatric is a contract manager of mental health services for
acute care hospitals. Geriatric had total revenues of approximately $5.7
million in 1996 and, at March 15, 1997, had 18 management contract locations,
of which three were not yet in operation. The purchase price of approximately
$4.6 million, of which $4.3 million was paid at closing from existing cash of
Horizon, included retiring essentially all of Geriatric's outstanding debt.
The final purchase price payment of $270,000 was made on April 16, 1997.
-24-
<PAGE> 25
Also effective March 15, 1997, the Company purchased all of the
outstanding capital stock of Clay Care, Inc., a Texas corporation ("CCI"). CCI
is a contract manager of mental health services for acute care hospitals. At
March 15, 1997, CCI had management contracts with five hospitals of which four
were in operation and one of which opened in April 1997. CCI had total
revenues of approximately $1.3 million in 1996. A total of $475,000 of the
$1,000,000 purchase price was paid at the closing from existing cash of
Horizon. The remaining $525,000 of the total purchase price was paid by
Horizon in April 1997 and June 1997.
On April 25, 1997 Horizon signed a definitive agreement to acquire
privately held Specialty Healthcare Management, Inc. (Specialty) of Englewood,
Colorado. The definitive agreement contemplates a transaction to be accounted
for as a pooling of interests in which Specialty would become a wholly owned
subsidiary of Horizon.
Specialty is a contract manager of mental health, physical
rehabilitation and chemical dependency treatment programs for general acute
care hospitals and other health care entities. For the year ended December 31,
1996, Specialty reported revenues of $33.8 million and net income of $1.2
million. The transaction is subject to the approval of Horizon's stockholders
at a special stockholders meeting which is expected to be held in August 1997.
At the special meeting, Horizon stockholders will be asked to approve the
issuance of up to 1,400,000 shares of Horizon common stock in exchange for all
of the outstanding shares of common stock of Specialty. In addition Horizon
stockholders will be asked to approve an amendment to the Certificate of
Incorporation of Horizon to change its corporate name to "Horizon Health
Corporation".
It is the Company's intent to pay all the outstanding debt of
Specialty on the date of closing of the acquisition of Specialty, which at May
31, 1997, was $3.2 million, from existing cash of the Company if available. In
addition, the Company anticipates incurring the following estimated charges
associated with the transaction:
<TABLE>
<S> <C>
Severance and related benefits $2,177,050
Lease abandonment 98,764
Non-compatible technology 100,000
Brokerage fees 650,000
Professional fees 200,000
Relocation costs 25,000
----------
Total costs $3,250,814
==========
</TABLE>
As of May 31, 1997, the Company has paid but not yet expensed $257,000
of the above cost.
Effective April 30, 1997 Horizon's subsidiary, Florida Professional
Psychological Services, Inc., entered into a specialty provider agreement with
Well Care HMO, Inc. to provide behavioral health care services to Florida
Medicaid as well as commercially insured members. The agreement will initially
cover approximately 62,000 Florida Medicaid and commercial lives and calls for
PPS to provide for a full range of inpatient and outpatient mental health
services. It is currently estimated that annual revenues to PPS under the
contract will approximate $2.1 million with services to be provided beginning
May 1, 1997.
The Company believes that its net working capital of $4.1 million at
May 31, 1997 (including cash of $3.9 million at that date) and the $10.1
million available under the revolving credit facility at that date will be
sufficient to cover all cash requirements over the next twelve months
including estimated capital expenditures of $750,000. The Company generated
approximately $3.1 million in net cash from operations during the nine months
ended May 31, 1997.
-25-
<PAGE> 26
Statements contained herein and in various public presentations that
are based on future expectations rather than on historical facts are
forward-looking statements as defined under The Private Securities Litigation
Reform Act of 1995 that involve a number of risks and uncertainties. Factors
that could cause actual results to differ materially from those in any such
forward-looking statement include but are not limited to demand by general
hospitals for the Company's services, the Company's ability to retain existing
management contracts and to obtain additional contracts, changes in
reimbursement to general hospitals by Medicare or other third-party payors for
costs of providing mental health services, changes to other regulatory
provisions relating to mental health services, overall economic conditions and
various other risks as outlined in the Company's Securities and Exchange
Commission filings.
-26-
<PAGE> 27
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are filed as part of this report:
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q as filed with the
Commission on March 31, 1997).
3.2 Amended and Restated Bylaws of the Company, as amended
(incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration
Number 33-88314) as filed with the Commission on February
16, 1995).
4.1 Rights Agreement dated February 6, 1997, between Horizon
Mental Health Management, Inc. and American Stock Transfer &
Trust Company, as Rights Agent (incorporated herein by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A (Registration Number 000-22123) as
filed with the Commission on February 7, 1997).
10.1 Share Exchange Reorganization Agreement dated as of April 25,
1997, among the Company, Howard B. Finkel, John Harrison,
Larry Reiff, Argentum Capital Partners, L.P., Denise Dailey,
Ken Dorman, G. Phillip Woellner, and Michael S. McCarthy, and
Specialty Healthcare Management, Inc., as amended by a First
Amendment to Share Exchange Reorganization Agreement dated as
of July 2, 1997 (incorporated herein by reference to Appendix
A to the definitive Proxy Statement filed with the Commission
by the Company on July 11, 1997, relating to a Special
Meeting of Stockholders of the Company to be held on August
11, 1997).
11.1 Statement Regarding Computation of Per Share Earnings (filed
herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
-27-
<PAGE> 28
(b) Reports on Form 8-K
On May 8, 1997, the Company filed with the Commission a Current
Report on Form 8-K. The items reported were (i) a three-for-two
stock split effected by the Company in the form of a 50% stock
dividend, pursuant to which one additional share of Common Stock of
the Company was issued on January 31, 1997 for every two shares of
Common Stock of the Company held by stockholders of record at the
close of business on January 22, 1997 and (ii) the adoption, and a
summary of the terms, of a Rights Agreement dated February 6, 1997
between the Company and American Stock Transfer & Trust Company, as
Rights Agent, and the distribution of certain Rights thereunder.
The audited consolidated financial statements of the Company
previously filed with the Commission as part of the Annual Report on
Form 10-K of the Company for its fiscal year ended August 31, 1996
were retroactively restated to reflect such stock split/dividend,
and such restated consolidated financial statements were filed as
part of such Current Report on Form 8-K (see also the Form 10-K/A
filed with the Commission by the Company on July 2, 1997).
-28-
<PAGE> 29
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 thereunto duly authorized.
HORIZON MENTAL HEALTH MANAGEMENT, INC.
Date: July 14, 1997 /s/ JAMES W. MCATEE
------------------- ---------------------------------------
By: James W. McAtee
Executive Vice President, Finance &
Administration
(Principal Financial and Chief
Accounting Officer)
-29-
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q as filed with the
Commission on March 31, 1997).
3.2 Amended and Restated Bylaws of the Company, as amended
(incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration
Number 33-88314) as filed with the Commission on February 16,
1995).
4.1 Rights Agreement dated February 6, 1997, between Horizon Mental
Health Management, Inc. and American Stock Transfer & Trust
Company, as Rights Agent (incorporated herein by reference to
Exhibit 4.1 to the Company's Registration Statement on Form 8-A
(Registration Number 000-22123) as filed with the Commission on
February 7, 1997).
10.1 Share Exchange Reorganization Agreement dated as of April 25,
1997, among the Company, Howard B. Finkel, John Harrison, Larry
Reiff, Argentum Capital Partners, L.P., Denise Dailey, Ken
Dorman, G. Phillip Woellner, and Michael S. McCarthy, and
Specialty Healthcare Management, Inc., as amended by a First
Amendment to Share Exchange Reorganization Agreement dated as
of July 2, 1997 (incorporated herein by reference to Appendix A
to the definitive Proxy Statement filed with the Commission by
the Company on July 11, 1997, relating to a Special Meeting of
Stockholders of the Company to be held on August 11, 1997).
11.1 Statement Regarding Computation of Per Share Earnings (filed
herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
-30-
<PAGE> 1
Exhibit 11.1
HORIZON MENTAL HEALTH MANAGEMENT, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May May
------------------- ----------------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
SIMPLE
Net income $ 1,445 $ 1,900 4,030 5,483
Average outstanding shares (2) 5,410 5,564 5,367 5,516
------- ------- ------- -------
Simple net income per share $ 0.27 $ 0.34 $ 0.75 $ 0.99
======= ======= ======= =======
PRIMARY
Net income $ 1,445 $ 1,900 4,030 5,483
Average outstanding shares (2) 5,410 5,564 5,367 5,516
Common stock equivalents assuming
exercise of stock options (A) (2) 1,151 1,066 1,138 1,122
------- ------- ------- -------
Shares for primary 6,561 6,630 6,505 6,638
======= ======= ======= =======
Primary net income per share (1) $ 0.22 $ 0.29 $ 0.62 $ 0.83
======= ======= ======= =======
FULLY DILUTED
Net income $ 1,445 $ 1,900 4,030 5,483
Average outstanding shares (2) 5,410 5,564 5,367 5,516
Common stock equivalents assuming
exercise of stock options (A) (2) 1,159 1,088 1,166 1,130
------- ------- ------- -------
Shares for fully diluted 6,569 6,652 6,533 6,646
======= ======= ======= =======
Fully diluted net income per share (1) $ 0.22 $ 0.29 $ 0.62 $ 0.83
======= ======= ======= =======
</TABLE>
(A) Any computational differences between the primary and fully diluted
EPS are the result of using the average price in the primary
computation and the ending price (which was higher) in the fully
diluted computation.
(1) The calculations for primary and fully diluted net income per share
are submitted in accordance with Regulation S-K Item 601(b)(11).
(2) The Board of Directors of the Company approved a three-for-two stock
split effected in the form of a 50% stock dividend, pursuant to which
one additional share of Common Stock of the Company was issued on
January 31, 1997 for every two shares of Common Stock held by
stockholders of record at the close of business on January 22, 1997.
Upon effecting the stock split/dividend, the stock options and their
related exercise prices were adjusted proportionately. Such stock
split/dividend has been retroactively reflected herein.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE NINE
MONTHS ENDED MAY 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH YEAR TO DATE 10-Q FILING FOR THE NINE MONTHS ENDED MAY 31,
1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 3,894,900
<SECURITIES> 0
<RECEIVABLES> 12,025,752
<ALLOWANCES> 1,270,804
<INVENTORY> 0
<CURRENT-ASSETS> 16,917,962
<PP&E> 3,390,083
<DEPRECIATION> 1,963,949
<TOTAL-ASSETS> 40,553,846
<CURRENT-LIABILITIES> 12,813,576
<BONDS> 0
0
0
<COMMON> 55,668
<OTHER-SE> 26,351,231
<TOTAL-LIABILITY-AND-EQUITY> 40,553,846
<SALES> 0
<TOTAL-REVENUES> 57,893,658
<CGS> 0
<TOTAL-COSTS> 49,118,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 742,969
<INTEREST-EXPENSE> 802
<INCOME-PRETAX> 9,199,253
<INCOME-TAX> 3,641,245
<INCOME-CONTINUING> 5,482,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,482,917
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
