<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
JUNE 2, 1998
Date of Report (Date of earliest event reported)
HORIZON HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-13626 75-2293354
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1500 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057-6011
(Address of principal executive offices and zip code)
(972) 420-8200
(Registrant's telephone number,
including area code)
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<PAGE> 2
This Form 8-K/A is being filed to include the financial statements and
pro forma financial information omitted from the Current Report on Form 8-K
filed on June 17, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of FPM Behavioral Health, Inc.
See Page F-1 of this Report for the Index to Financial
Statements as a part of this report.
(b) Pro Forma Financial Information
See Page F-1 of this Report for the Index to Financial
Statements as a part of this report.
* * *
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
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<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON HEALTH CORPORATION
Date: October 16, 1998 By: /s/ James W. McAtee
----------------------------------
James W. McAtee
Executive Vice President, Finance
& Administration (Principal
Financial Officer)
-3-
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FPM Behavioral Health, Inc.
Report of Independent Accountants.................................................... F-2
Consolidated Balance Sheet as of March 31, 1998 and June 30, 1997.................... F-3
Consolidated Statement of Operations and Changes in Retained Earnings for the
nine months ended March 31, 1998, for the period June 10, 1997
through June 30, 1997 and for the period July 1, 1996 through June 9, 1997......... F-4
Consolidated Statement of Cash Flows
for the nine months ended March 31, 1998 and for the year ended June 30, 1997...... F-5
Notes to Consolidated Financial Statements........................................... F-6
Unaudited Pro Forma Condensed Combined Financial Statements
Introduction to Unaudited Pro Forma Condensed Combined
Financial Statements............................................................... F-13
Unaudited Pro Forma Condensed Combined Balance Sheet as of
May 31, 1998....................................................................... F-14
Unaudited Pro Forma Condensed Combined Statement of Income
for the nine months ended May 31, 1998............................................. F-15
Unaudited Pro Forma Condensed Combined Statement of Income
for the year ended August 31, 1997................................................. F-16
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements......................................................................... F-17
</TABLE>
F-1
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Horizon Health Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in stockholder's equity and of
cash flows present fairly, in all material respects, the financial position of
FPM Behavioral Health, Inc. and its subsidiary (the "Company"), a subsidiary of
Ramsay Managed Care, Inc. ("RMCI"), at March 31, 1998 and June 30, 1997 and the
results of their operations and their cash flows for the nine month period ended
March 31, 1998, the period from June 10, 1997 through June 30, 1997, and the
period from July 1, 1996 through June 9, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
October 13, 1998
F-2
<PAGE> 6
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 925,268 $ 213,599
Accounts receivable, less allowance for doubtful accounts
of $906,000 and $454,000, respectively 1,123,237 969,545
Prepaid expenses 233,430 155,005
Other current assets 44,226 44,107
------------ ------------
Total current assets 2,326,161 1,382,256
------------ ------------
Noncurrent assets:
Goodwill and other intangible assets, net of accumulated
amortization of $987,368 and $68,094, respectively 23,945,214 24,872,206
Property and equipment, net of accumulated depreciation
of $273,350 and $17,293, respectively 1,828,249 793,128
Deferred tax asset 1,393,289 1,230,109
------------ ------------
Total noncurrent assets 27,166,752 26,895,443
------------ ------------
Total assets $ 29,492,913 $ 28,277,699
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 535,886 $ 683,958
Medical claims payable 4,049,679 1,865,219
Unearned income 179,729 214,795
Income taxes payable 1,220,273 903,933
Accrued salaries and wages 600,020 512,718
Other current liabilities 137,450 5,598
Due to affiliate 6,287,941 7,069,999
------------ ------------
Total current liabilities 13,010,978 11,256,220
Minority interest 120,409 89,208
------------ ------------
Total liabilities 13,131,387 11,345,428
------------ ------------
Stockholder's equity:
Common stock, $.01 par value
1,000 shares authorized, issued and outstanding 10 10
Additional paid-in capital 18,754,947 18,754,947
Retained earnings (2,393,431) (1,822,686)
------------ ------------
Total stockholder's equity 16,361,526 16,932,271
------------ ------------
Total liabilities and stockholder's equity $ 29,492,913 $ 28,277,699
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 7
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS AND
CHANGES IN STOCKHOLDER'S EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
NINE MONTHS JUNE 10, 1997 JULY 1, 1996
ENDED THROUGH THROUGH
MARCH 31, 1998 JUNE 30, 1997 JUNE 9, 1997
-------------- -------------- -------------
<S> <C> <C> <C>
REVENUES:
Managed care revenue $ 18,176,898 $ 1,089,044 $ 19,529,269
Clinical and other revenue, net of
contractual discounts 1,683,740 217,218 2,547,930
------------ ------------ ------------
Total revenues 19,860,638 1,306,262 22,077,199
------------ ------------ ------------
OPERATING EXPENSES:
Contracted provider services 9,319,874 326,431 8,341,452
Salaries, wages and benefits 6,646,920 508,579 8,428,686
General and administrative expenses 3,129,713 237,937 4,440,239
Depreciation and amortization 1,183,048 85,387 983,856
------------ ------------ ------------
Total operating expenses 20,279,555 1,158,334 22,194,233
Income (loss) from continuing operations before
income taxes (418,917) 147,928 (117,034)
Income tax expense 120,627 58,125 231,885
------------ ------------ ------------
Income (loss) from continuing operations (539,544) 89,803 (348,919)
Minority interest 31,201 1,281 30,111
------------ ------------ ------------
Net income (loss) (570,745) 88,522 (379,030)
Retained earnings (deficit), beginning of period 1,822,686 (1,911,208) (1,532,178)
------------ ------------ ------------
Retained earnings (deficit), end of period (2,393,431) (1,822,686) 1,911,208
============ ============ ============
Additional paid-in capital, beginning of period 18,754,947 799,546 799,546
Investment by RHCI (Note 1) -- 17,955,401 --
------------ ------------ ------------
Additional paid-in capital, end of period $ 18,754,947 $ 18,754,947 $ 799,546
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 8
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR
NINE MONTHS ENDED
MARCH 31, JUNE 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (570,745) $ (290,508)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,183,048 1,069,243
Loss on disposal of fixed assets 1,122 125,438
Minority interest 31,201 31,392
(Increase)/Decrease in:
Accounts receivable, net (153,692) (123,610)
Prepaid expenses (78,425) 172,860
Other current assets -- 13,470
Deferred tax asset (163,180) (602,893)
Other noncurrent assets -- 60,000
Accounts payable (148,072) (1,959,484)
Medical claims payable 2,184,460 198,515
Unearned income (35,066) 56,099
Income taxes payable 316,340 1,008,102
Accrued salaries and wages 87,302 (123,151)
Other accrued liabilities 131,852 (55,925)
Due to affiliate (782,058) 2,275,951
Deferred tax liability -- 154,282
------------ ------------
Net cash provided by operating activities 2,004,087 2,009,781
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of fixed assets 44,683 --
Additions to property and equipment, net (1,337,101) (475,343)
------------ ------------
Net cash used in investing activities (1,292,418) (475,343)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt -- (1,542,043)
------------ ------------
Net cash used for financing activities -- (1,542,043)
Net increase in cash and cash equivalents 711,669 (7,605)
Cash and cash equivalents at beginning of period 213,599 221,204
------------ ------------
Cash and cash equivalents at end of period $ 925,268 $ 213,599
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest $ -- $ 181,771
Income taxes --
Change in goodwill, net as result of Investment by RHCI $ -- $ 17,955,401
</TABLE>
F-5
<PAGE> 9
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
FPM Behavioral Health, Inc. (the "Company") is a wholly-owned subsidiary of
Ramsay Managed Care Inc. ("RMCI"). RMCI began operations in October 1993
and became a publicly traded company in April 1995.
On June 10, 1997, Ramsay Health Care, Inc. (RHCI) acquired the outstanding
stock of RMCI and recorded this transaction using the purchase accounting
method. RMCI at the time owned 100% of the outstanding stock of the
Company. The Company adjusted the carrying value of its assets and
liabilities to fair value. The purchase price in excess of fair value of
net assets acquired of $24,906,000 has been "pushed down" to the separate
accounts of the Company and recorded as goodwill on the financial
statements of the Company. The Company assigned value to goodwill of
$20,166,000 and to intangible assets including managed care contracts and
clinical protocols totaling $4,740,000. The acquisition by RHCI and related
push down of RHCI's investment was recorded as an adjustment to beginning
retained earnings at June 10, 1997. As a result of the RHCI acquisition of
RMCI and the related push down accounting, the Statement of Operations and
Changes in Retained Earnings is presented for the period prior to the
acquisition, July 1, 1996 to June 9, 1997, and for the period subsequent to
the acquisition, June 10, 1997 to June 30, 1997.
The Company's business consists of behavioral health care services, through
which it manages and provides for the delivery of mental health and
substance abuse services given by both independent and affiliated providers
on behalf of its clients - insurance carriers, health maintenance
organizations and self-insured employers.
The Company consists of a psychiatric managed care division and psychiatric
clinics. Approximately fifty percent of the Company's managed care business
is generated in Florida. The remainder of the Company's managed care
clients are located in approximately ten states within the United States.
The majority of the Company's clinical revenues are generated in Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company provides clinical services to self-insured patients without
requiring collateral. Exposure to losses on receivables is principally
dependent on each patient's financial condition. The Company monitors its
exposure for credit losses and maintains allowances for anticipated losses.
F-6
<PAGE> 10
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the nine months period ended March 31, 1998, approximately 36% of
revenue was earned from three managed care customers. One customer in the
entertainment industry comprised approximately $3,098,000 or 16% of
revenue. The other two customers, both in the healthcare industry,
comprised approximately $1,998,000 and $1,892,000 of revenue, respectively,
or approximately 10% each.
For the period June 10, 1997 through June 30, 1997, approximately 43% of
revenue was earned from three managed care customers. One customer in the
entertainment industry comprised approximately $215,000 or 19% of revenue.
One customer in the healthcare industry comprised approximately $142,000 or
13% of revenue. The other customer, also in the healthcare industry,
comprised approximately $123,000 or 11% of revenue.
For the period July 1, 1996 through June 9, 1997, approximately 43% of
revenue was earned from three managed care customers. One customer in the
entertainment industry comprised approximately $3,717,000 or 19% of
revenue. One customer in the healthcare industry comprised approximately
$2,449,000 or 13% of revenue. The other customer, also in the healthcare
industry, comprised approximately $2,116,000 or 11% of revenue.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as highly liquid investments which
have original maturities of three months or less. Cash and cash equivalents
consist of bank deposits to meet anticipated short-term needs with the
remaining amount being invested in an overnight investment account.
PROPERTY AND EQUIPMENT
Property and equipment consists primarily of office furniture, telephone
equipment, computer equipment and software. Depreciation is computed using
the double declining balance method over the estimated useful lives of the
related assets for all property and equipment except software. Software
costs are depreciated using the straight line method. Expenditures for
maintenance and repairs are expensed as incurred. Major improvements which
increase the estimated useful life of an asset are capitalized.
LONG-LIVED AND INTANGIBLE ASSETS
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
Assets to be Disposed of." Under SFAS 121, the Company recognizes
impairment losses on property and equipment and intangible assets 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 using
estimated fair value or 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.
F-7
<PAGE> 11
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill consists of cost in excess of the net asset value of purchased
businesses. Other intangible assets represent the value assigned to
clinical protocols, established provider networks and contracts acquired.
These costs are generally amortized over 5 to 40 years.
REVENUES
Revenues consist primarily of managed care and clinical fee for service
revenue. Managed care revenue represents capitated amounts received for
behavioral health services provided to patients covered by certain managed
care contracts as well as amounts received for case management, utilization
review and quality assurance oversight on the delivery of behavioral health
services given by independent providers on behalf of clients. Managed care
revenue is recognized during the period in which enrolled lives are covered
for capitated payments received. The Company bears the economic risk if
capitated revenue is insufficient to meet the cost of behavioral health
care services incurred by covered members. At March 31, 1998, capitated
revenue was sufficient to meet these costs.
Clinical revenue represents professional fees for outpatient services
rendered to patients through the Company's clinics, which are provided on a
fee for service basis. Clinical revenue is billed and recognized as
services are provided. Contractual discounts are recognized when the
clinical revenue is recorded and is reflected on the statement of
operations as a reduction in revenue.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board (FASB) Statement No. 109, Accounting for Income
Taxes. Under this method, deferred income taxes at the end of each period
are determined based on the differences between the financial statement and
tax basis of assets and liabilities using the enacted tax rates for the
years in which the taxes are expected to be paid or recovered.
CONTRACTED PROVIDER SERVICES
The Company provides behavioral health care services through both its
clinics and contracts with various health care providers. The Company
provides for claims incurred but not yet reported based on past experience,
together with current factors. Estimates are adjusted as changes in these
factors occur and such adjustments are reported in the year of
determination. Although considerable variability is inherent in such
estimates, management believes that these reserves are adequate.
MEDICAL CLAIMS PAYABLE
Medical claims payable include medical claims and related expenses reported
but not paid and an estimate of costs incurred but not reported (IBNR) to
the Company by health care providers. Management of the Company estimated
the IBNR costs utilizing the Company's historical experience and current
factors.
F-8
<PAGE> 12
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31, JUNE 30,
USEFUL LIVES 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Computer equipment and software 5-7 $ 1,121,287 $ 356,293
Furniture and equipment 7 268,013 159,630
Leasehold improvements Lease term 123,631 130,635
Construction in process NA 588,668 163,863
----------- -----------
2,101,599 810,421
Less - accumulated depreciation (273,350) (17,293)
----------- -----------
$ 1,828,249 $ 793,128
----------- -----------
</TABLE>
4. INCOME TAXES
The components of the provision for income taxes on income from continuing
operations was:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FOR THE NINE JUNE 10, 1997 JULY 1, 1996
MONTHS ENDED THROUGH THROUGH
MARCH 31, JUNE 30, JUNE 9,
1998 1997 1997
------------ -------------- --------------
<S> <C> <C> <C>
Current tax expense
Federal $ 238,948 $ -- $ 751,652
State 44,859 -- 141,111
------------ ------------ ------------
283,807 -- 892,763
------------ ------------ ------------
Deferred tax expense
Federal (136,552) 48,947 (556,646)
State (26,628) 9,178 (104,232)
------------ ------------ ------------
(163,180) 58,125 (660,878)
------------ ------------ ------------
Total provision for income taxes $ 120,627 $ 58,125 $ 231,885
============ ============ ============
</TABLE>
F-9
<PAGE> 13
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to
pretax income, as a result of the following differences:
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FOR THE PERIOD
NINE MONTHS JUNE 10, 1997 JULY 1, 1996
ENDED THROUGH THROUGH
MARCH 31, JUNE 30, JUNE 9,
1998 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Statutory U.S. tax rate, net of
minority interest (34%) $ (153,040) $ 50,466 $ (39,575)
Increase (decrease) in rates resulting from:
State income taxes net of federal income
tax benefit 12,033 6,057 24,248
Permanent differences 269,061 1,541 247,768
State rate change (7,916) -- --
Other 489 61 (556)
-------------- -------------- --------------
Effective tax rate $ 120,627 $ 58,125 $ 231,885
============== ============== ==============
</TABLE>
Permanent differences consist primarily of amortization of non-deductible
goodwill.
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the
deferred tax liability and deferred tax asset and their approximate tax
effect are as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
Gross deferred tax assets:
Hospital and medical claims payable $ 743,911 $ 393,865
Accrued employee benefits 117,428 134,609
Property and equipment 97,778 36,664
Allowance for doubtful accounts 398,133 303,934
Change in accounting period 7,751 7,704
Other 65,467 65,056
Net operating loss carryforward -- 325,223
---------- ----------
Total 1,430,468 1,267,055
Gross deferred tax liabilities:
Software development costs 37,179 36,946
---------- ----------
Total 37,179 36,946
---------- ----------
Total net deferred tax asset $1,393,289 $1,230,109
========== ==========
</TABLE>
F-10
<PAGE> 14
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. OPERATING LEASES
The Company leases certain equipment and office space under noncancelable
operating leases that expire in various years through 2004. Future minimum
payments under noncancelable operating leases with initial terms of one
year or more consists of the following at March 31, 1998:
<TABLE>
<S> <C>
12 MONTHS ENDING MARCH 31
1999 $ 783,630
2000 696,689
2001 641,683
2002 433,258
2003 317,772
Thereafter 72,552
----------
Total future minimum lease payments $2,945,584
==========
</TABLE>
Rent expense for the nine months ended March 31, 1998, for the period June
10, 1997 through June 30, 1997, and for the period July 1, 1996 through
June 30, 1997 was $632,412, $50,481, and $871,796, respectively.
6. RELATED PARTY TRANSACTIONS
RHCI provided certain management, accounting, information systems, tax,
insurance and personnel functions to the Company. Certain expenses related
to these functions were allocated to the Company through the intercompany
account which had a balance of $6,287,941 and $7,069,999 at March 31, 1998
and June 30, 1997, respectively. However, other corporate expenses,
primarily related to accounting, treasury, in-house legal counsel,
corporate management and other general and administrative functions
incurred by RHCI, were not allocated to the Company.
In the nine months ended March 31, 1998, the Company charged approximately
$604,646 in severance and other costs related to the closing of Company
clinics in Hawaii, Arizona and South Florida to RHCI through the
intercompany account. In addition, benefits were provided to Company
employees in Texas, Arizona and Utah through local RHCI affiliated
hospitals.
During the nine months ended March 31, 1998, the period June 10, 1997
through June 30, 1997, and the period July 1, 1996 through June 10, 1997,
the Company paid approximately $451,013, $307,732 and $54,359,
respectively, in claims to RHCI affiliated hospitals for services provided
to their managed care patients as a result of negotiated provider
agreements between the hospitals and the Company.
In September 1997, the Company entered into a subcapitated agreement with
certain RHCI facilities in Utah in order to service the Company's managed
care contract with Pacificare of Utah. Global capitation payments to RHCI
totaled approximately $319,000 for the period from September 1, 1997
through March 31, 1998.
F-11
<PAGE> 15
FPM BEHAVIORAL HEALTH, INC.
(A SUBSIDIARY OF RAMSAY MANAGED CARE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. MINORITY INTEREST
In September 1995, the Company made a capital contribution of $35,700 to
FPM Behavioral Health of Ohio, Inc., a newly formed limited liability
company (the "joint venture"), in exchange for a 51% interest.
Additionally, an outside company contributed a contract to the joint
venture with an agreed value of $34,300 in exchange for a 49% interest. FPM
Behavioral Health of Ohio services behavioral health contracts in the State
of Ohio.
For financial reporting purposes, the assets, liabilities and earnings of
the joint venture are consolidated in the Company's financial statements.
The outside company's limited interest in the joint venture has been
recorded as minority interest.
8. SUBSEQUENT EVENTS
On June 1, 1998, the Company was acquired by Horizon Health Corporation
("Horizon") through a stock purchase in which Horizon acquired all of the
issued and outstanding capital stock of the Company for $20 million payable
in cash and subject to certain post closing adjustments. As a result of the
transaction, the Company became a wholly owned subsidiary of Horizon.
F-12
<PAGE> 16
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
acquisition by the Company of FPM Behavioral Health, Inc. (FPMBH) on June 1,
1998 in a transaction to be accounted for as a purchase and the acquisition by
the Company of Acorn Behavioral HealthCare Management Corporation (Acorn) on
October 31, 1997 in a transaction accounted for as a purchase. The unaudited pro
forma balance sheet is based on the individual balance sheets of the Company
included in the Company's Form 10-Q as of May 31, 1998 and of FPMBH as of March
31, 1998 appearing elsewhere in this Form 8-K and have been prepared to reflect
the acquisition by the Company of FPMBH as of May 31, 1998. The unaudited pro
forma statements of income are based on the individual statements of income of
the Company for the year ended August 31, 1997 and for the nine months ended May
31, 1998 appearing in the Company's Form 10-K as of August 31, 1997 and Form
10-Q as of May 31, 1998, respectively, of FPMBH for the year ended June 30, 1997
and for the nine months ended March 31, 1998 appearing elsewhere in this Form
8-K and of Acorn for the year ended August 31, 1997 appearing in the Company's
Form 8-K dated October 31, 1997 and for the two months ended October 31, 1997.
The results of operations of the Company for the year ended August 31, 1997 are
combined with the results of operations of FPMBH and Acorn for the year ended
June 30, 1997 and August 31, 1997, respectively, as if the acquisitions occurred
on September 1, 1996. These unaudited pro forma financial statements should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
of the Company included in the Company's Form 10-K as of August 31, 1997 and
Form 10-Q as of May 31, 1998, the Financial Statements and Notes thereto of
FPMBH included elsewhere in this Form 8-K and the Financial Statements and Notes
thereto of Acorn included in the Company's Form 8-K dated October 31, 1997.
F-13
<PAGE> 17
HORIZON HEALTH CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
MAY 31, 1998
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HORIZON FPMBH ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and short-term investments $ 1,533,489 $ 925,268 $ 2,458,757
Accounts receivable less allowance
for uncollectible amounts 15,938,617 1,123,237 17,061,854
Receivable from employees 100,872 -- 100,872
Prepaid expenses and other assets 1,528,758 277,656 1,806,414
Current deferred taxes 2,032,615 -- 2,032,615
------------ ------------ ------------ ------------
Total current assets 21,134,351 2,326,161 23,460,512
------------ ------------ ------------ ------------
Property and equipment 4,556,112 2,101,599 $ (273,350)(f) 6,384,361
Less accumulated depreciation (2,613,479) (273,350) 273,350 (f) (2,613,479)
------------ ------------ ------------ ------------
1,942,633 1,828,249 -- 3,770,882
Goodwill, net of accumulated amortization 30,929,993 23,945,214 (23,945,214)(c)
19,790,991 (e) 50,720,984
Management contracts, net of
accumulated amortization 7,125,837 -- 1,504,756 (e) 8,630,593
Deferred tax asset -- 1,393,289 1,393,289
Other assets 699,121 -- 699,121
------------ ------------ ------------ ------------
Total assets $ 61,831,935 $ 29,492,913 $ (2,649,467) $ 88,675,381
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 627,990 $ 535,886 $ 1,163,876
Employee compensation and benefits 5,908,617 600,020 6,508,637
Accrued expenses 5,413,411 4,366,858 9,780,269
Current debt maturities 18,470 -- 18,470
Income taxes payable -- 1,220,273 1,220,273
Due to affiliate -- 6,287,941 $ (6,287,941)(a) --
------------ ------------ ------------ ------------
Total current liabilities 11,968,488 13,010,978 (6,287,941) 18,691,525
Other liabilities 196,224 -- -- 196,224
Deferred income taxes 1,090,567 -- -- 1,090,567
Long-term debt 8,013,951 -- 20,000,000 (b) 28,013,951
Minority interest -- 120,409 120,409
------------ ------------ ------------ ------------
Total liabilities 21,269,230 13,131,387 13,712,059 48,112,676
------------ ------------ ------------ ------------
Stockholders' equity:
Common stock 72,318 10 (10)(d) 72,318
Additional paid-in capital 17,810,811 799,546 6,287,941 (a)
(7,087,487)(d) 17,810,811
Retained earnings 22,679,576 15,561,970 (15,561,970)(d) 22,679,576
------------ ------------ ------------ ------------
Total stockholders' equity 40,562,705 16,361,526 (16,361,526)(d) 40,562,705
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity $ 61,831,935 $ 29,492,913 $ (2,649,467) $ 88,675,381
============ ============ ============ ============
</TABLE>
F-14
<PAGE> 18
HORIZON HEALTH CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED MAY 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HORIZON FPMBH ACORN ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract management revenue $ 76,636,988 $ -- $ $ $ 76,636,988
Patient services and other 10,913,501 19,860,638 1,384,980 32,159,119
------------- ------------- ------------- ------------- -------------
Total revenue 87,550,489 19,860,638 1,384,980 108,796,107
------------- ------------- ------------- ------------- -------------
Operating expenses:
Salaries and benefits 47,835,754 6,646,920 435,519 (25,000)(i) 54,893,193
Purchased services 14,618,312 9,319,874 325,784 24,263,970
Provision for bad debts 84,708 403,935 488,643
Depreciation and amortization 2,109,688 1,183,048 5,696 (345,765)(h) 2,952,667
Other 10,210,405 2,725,778 138,012 13,074,195
------------- ------------- ------------- ------------- -------------
Total operating expenses 74,858,867 20,279,555 905,011 (370,765) 95,672,668
------------- ------------- ------------- ------------- -------------
Operating income (loss) 12,691,622 (418,917) 479,969 370,765 13,123,439
Interest and other income (expenses), net 426,179 -- (1,110,044)(g) (683,865)
------------- ------------- ------------- ------------- -------------
Net income before income taxes 13,117,801 (418,917) 479,969 (739,279) 12,439,574
Income tax benefit (expense) (5,277,625) (187,886) 411,032 (j) (5,054,479)
------------- ------------- ------------- ------------- -------------
Net income before minority interest 7,840,176 (606,803) 479,969 (328,247) 7,385,095
Minority interest (33,960) (31,201) (65,161)
------------- ------------- ------------- ------------- -------------
Net income $ 7,806,216 $ (638,004) $ 479,969 $ (328,247) $ 7,319,934
============= ============= ============= ============= =============
Earnings per common share:
Basic $ 1.10 N/A N/A -- $ 1.03
Diluted $ 1.01 N/A N/A -- $ 0.94
Average shares outstanding:
Basic 7,083,133 N/A N/A -- 7,083,133
Diluted 7,766,937 N/A N/A -- 7,766,937
</TABLE>
F-15
<PAGE> 19
HORIZON HEALTH CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HORIZON FPMBH ACORN ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract management revenue $ 102,263,283 $ -- $ $ $ 102,263,283
Patient services and other 7,003,512 23,375,696 7,045,604 37,424,812
------------- ------------- ------------- ------------- -------------
Total revenue 109,266,795 23,375,696 7,045,604 -- 139,688,095
------------- ------------- ------------- ------------- -------------
Operating expenses:
Salaries and benefits 60,048,345 8,937,265 3,597,746 (1,473,800)(i) 71,109,556
Purchased services 16,466,115 8,667,883 1,723,954 26,857,952
Provision for bad debts 3,033,693 102,890 -- 3,136,583
Depreciation and amortization 2,201,450 1,069,243 57,656 627,004 (h) 3,955,353
Other 12,795,910 4,408,644 1,034,918 18,239,472
Merger expenses 3,527,671 -- -- 3,527,671
------------- ------------- ------------- ------------- -------------
Total operating expenses 98,073,184 23,185,925 6,414,274 (846,796) 126,826,587
------------- ------------- ------------- ------------- -------------
Operating income 11,193,611 189,771 631,330 846,796 12,861,508
Interest and other income (expenses), net 119,986 (158,877) 25,734 (2,154,013)(g) (2,167,170)
------------- ------------- ------------- ------------- -------------
Net income before income taxes 11,313,597 30,894 657,064 (1,307,217) 10,694,338
Income tax benefit (expense) (4,517,688) (212,333) -- 493,203 (j) (4,236,818)
------------- ------------- ------------- ------------- -------------
Net income before minority interest 6,795,909 (181,439) 657,064 (814,014) 6,457,520
Minority interest (139,893) (31,392) -- -- (171,285)
------------- ------------- ------------- ------------- -------------
Net income $ 6,656,016 $ (212,831) $ 657,064 $ (814,014) $ 6,286,235
============= ============= ============= ============= =============
Earnings per common share:
Basic $ 0.96 N/A N/A -- $ 0.91
Diluted $ 0.87 N/A N/A -- $ 0.82
Average shares outstanding:
Basic 6,928,827 N/A N/A -- 6,928,827
Diluted 7,681,269 N/A N/A -- 7,681,269
</TABLE>
F-16
<PAGE> 20
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The pro forma balance sheet and statements of income have been prepared to
reflect the acquisitions of FPMBH and Acorn by the Company for an aggregate
purchase price of $20,000,000 and $12,727,848, respectively. Pro forma
adjustments are made to reflect the following:
a) An adjustment to due to affiliate in accordance with the Stock Purchase
Agreement by and among Ramsay Managed Care, Inc., Ramsay Health Care, Inc.
and Horizon Health Corporation.
b) The increase in debt for the portion of the purchase price that was
borrowed.
c) The elimination of the FPMBH goodwill and other intangibles.
d) The elimination of the stockholders' equity accounts of FPMBH.
e) The estimated excess of acquisition cost over the fair value of tangible
net assets acquired which has been allocated to management contracts and
goodwill.
f) An adjustment to property and equipment to reflect assets acquired at net
book value.
g) Annual interest charges on $31,000,000 of debt incurred in connection with
the acquisitions and loss of interest income on cash distributed at
closing. Interest was calculated based on annual rate of 6.4375% for the
debt incurred and 5.0% on the cash distributed.
h) Amortization of management contracts on a straight-line basis over 7 years
and goodwill on a straight-line basis over 40 years.
i) An adjustment to salaries and benefits for the differences between the
compensation paid to operating executives of Acorn prior to the acquisition
and the amount that the Company is contractually obligated to pay in
accordance with the acquisition agreement.
j) Adjustment of income taxes relating to adjustments (g), (h) and (i),
utilizing an effective tax rate of 40% and to reflect a provision for
income taxes on the net income of Acorn at an effective rate of 38%. Prior
to the acquisition, Acorn had elected S Corporation status with the
Internal Revenue Service. As such, all income or loss of Acorn accrued
directly to its stockholders and no provision for income taxes had been
made in the historical financial statements.
F-17
