<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DECEMBER 31, 1997
Date of Report (Date of earliest event reported)
HORIZON HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
DELAWARE 1-13626 75-2293354
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
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)
================================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS
(A) DECEMBER 1997 FINANCIAL RESULTS
Included below is a Consolidated Statement of Income of the Registrant for
the month ended December 31, 1997 (unaudited). As required, the Registrant has
adopted Statement of Financial Accounting Standards No. 128, "Earnings Per
Share."
HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE MONTH ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
<S> <C>
REVENUES:
Contract management revenue............................... $8,427,108
Other..................................................... 1,419,807
----------
Total Revenue............................................... 9,846,915
EXPENSES:
Salaries and benefits..................................... 5,506,948
Purchased services........................................ 1,533,668
Provision for bad debts................................... (243,798)
Other..................................................... 1,248,141
Depreciation and amortization............................. 247,113
----------
Total operating expenses.................................... 8,292,072
Operating income............................................ 1,554,843
Other income (expense):
Interest income and other................................. (26,888)
Income before income taxes and minority interest............ 1,527,955
Income tax expense.......................................... 627,765
Income before minority interest............................. 900,190
Minority interest........................................... 21,717
----------
Net income.................................................. 878,473
==========
Basic earnings per share.................................... $ 0.12
==========
Weighted average shares outstanding......................... 7,058,585
==========
Diluted earnings per share.................................. $ 0.11
==========
Weighted average shares and dilutive potential common shares
outstanding............................................... 7,744,806
==========
</TABLE>
(B) CONSOLIDATED FINANCIAL STATEMENTS
In order to comply with SFAS No. 128, the Registrant is required to restate
its earnings per share information for the Registrant's 1996 and 1997 fiscal
years. See Page F-1 of this Report for the Index to Financial Statements filed
as a part of this Report.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.1 -- Consent of Price Waterhouse LLP.*
27.1 -- Restated Financial Data Schedule for fiscal quarter ended
November 30, 1997.*
27.2 -- Restated Financial Data Schedule for fiscal year ended
August 31, 1997.*
27.3 -- Restated Financial Data Schedule for fiscal quarter ended
November 30, 1996.*
27.4 -- Restated Financial Data Schedule for fiscal year ended
August 31, 1996.*
</TABLE>
- ---------------
* Filed herewith
3
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HORIZON HEALTH CORPORATION
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of August 31, 1996 and 1997
and November 30, 1997 (unaudited)...................... F-3
Consolidated Statements of Income for the years ended
August 31, 1995, 1996, and 1997
and for the three months ended November 30, 1996
(unaudited) and November 30, 1997
(unaudited)............................................ F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended August 31, 1995, 1996 and
1997 and for the three months ended November 30, 1997
(unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the years ended
August 31, 1995, 1996, and 1997
and for the three months ended November 30, 1996
(unaudited) and November 30, 1997 (unaudited).......... F-6
Notes to Consolidated Financial Statements................ F-7
</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 income, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Horizon Health Corporation and its subsidiaries at August
31, 1996 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended August 31, 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.
As discussed in Note 11 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share".
PRICE WATERHOUSE LLP
Dallas, Texas
October 13, 1997, except as to Note 11, which is as of December 23, 1997
F-2
<PAGE> 6
HORIZON HEALTH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
-------------------------- ------------
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and short-term investments........................... $ 8,346,373 $ 5,516,575 $ 1,757,868
Accounts receivable less allowance for uncollectible
accounts of $2,387,622, $1,357,423 and $1,800,494 at
August 31, 1996, 1997, and November 30, 1997
(unaudited), respectively............................... 12,720,429 11,995,254 16,895,430
Receivable from employees................................. 89,126 63,303 49,001
Prepaid expenses and supplies............................. 173,131 182,208 249,933
Income taxes receivable................................... 96,210 951,256 --
Other receivables......................................... 89,383 51,877 155,583
Other current assets...................................... 71,940 170,154 51,340
Current deferred taxes.................................... 2,116,582 1,687,512 1,865,980
----------- ----------- -----------
TOTAL CURRENT ASSETS................................ 23,703,174 20,618,139 21,025,135
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Equipment................................................. 2,704,225 3,694,717 4,065,763
Building improvements..................................... 109,467 255,406 260,298
----------- ----------- -----------
2,813,692 3,950,123 4,326,061
Less accumulated depreciation............................. 1,729,440 2,208,083 2,393,171
----------- ----------- -----------
1,084,252 1,742,040 1,932,890
Restricted cash............................................. 344,404 -- --
Goodwill, net of accumulated amortization of $1,564,195,
$2,078,177 and $2,245,188 at August 31, 1996, 1997, and
November 30, 1997 (unaudited), respectively............... 15,330,555 21,553,594 30,645,096
Management contracts, net of accumulated amortization of
$1,991,093, $2,744,666 and 3,004,464 at August 31, 1996,
1997 and November 30, 1997 (unaudited), respectively...... 4,555,985 4,451,426 7,562,376
Other assets................................................ 195,630 363,208 413,028
----------- ----------- -----------
TOTAL ASSETS........................................ $45,214,000 $48,728,407 $61,578,525
=========== =========== ===========
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,687,805 $ 1,747,393 $ 872,273
Employee compensation and benefits........................ 5,276,659 6,233,477 5,853,081
Income taxes payable...................................... 84,942 -- 734,839
Accrued expenses (Note 5)................................. 5,721,827 7,572,929 6,994,407
Payable to Health Insurance Program....................... 661,248 -- --
Current debt maturities................................... 519,600 -- 22,290
----------- ----------- -----------
TOTAL CURRENT LIABILITIES........................... 14,952,081 15,553,799 14,476,890
Other liabilities......................................... 724,511 355,803 425,488
Long-term debt, net of current debt maturities............ 3,056,714 -- 11,023,973
Deferred income taxes..................................... 1,322,635 987,704 993,247
----------- ----------- -----------
TOTAL LIABILITIES................................... 20,055,941 16,897,306 26,919,598
----------- ----------- -----------
Commitments and contingencies (Note 9)
Minority interest........................................... 8,755 148,648 154,836
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, authorized 500,000
shares; none issued or outstanding...................... -- -- --
Common stock, $.01 par value, 10,000,000, 40,000,000, and
40,000,000 shares authorized at August 31, 1996, 1997
and November 30, 1997 (unaudited), respectively;
6,702,305 shares issued and 6,696,849 shares outstanding
at August 31, 1996, 6,966,762 shares issued and
outstanding at August 31, 1997 and 7,026,262 shares
issued and outstanding at November 30, 1997
(unaudited)............................................. 67,023 69,668 70,263
Additional paid-in capital................................ 16,046,163 16,739,425 17,036,473
Retained earnings......................................... 9,066,399 14,873,360 17,397,355
Deferred compensation..................................... (25,000) -- --
Treasury stock, at cost................................... (5,281) -- --
----------- ----------- -----------
25,149,304 31,682,453 34,504,091
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $45,214,000 $48,728,407 $61,578,525
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 7
HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEARS ENDED AUGUST 31, NOVEMBER 30,
---------------------------------------- ---------------------------
1995 1996 1997 1996 1997
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Contract management
revenue.................. $68,720,645 $95,244,454 $102,263,283 $ 24,720,109 $ 26,598,903
Other....................... 634,238 994,512 7,003,512 2,159,845 2,723,509
----------- ----------- ------------ ------------ ------------
Total revenues...... 69,354,883 96,238,966 109,266,795 26,879,954 29,322,412
----------- ----------- ------------ ------------ ------------
EXPENSES:
Salaries and benefits....... 40,083,239 55,809,614 60,048,345 14,842,069 15,728,569
Purchased services.......... 10,794,068 13,880,426 16,466,115 3,679,232 4,858,679
Provision for bad debts..... 1,680,396 1,435,049 3,033,693 307,744 355,027
Other....................... 9,188,828 11,848,384 12,795,910 3,394,743 3,574,921
Depreciation and
amortization............. 1,132,604 1,811,790 2,201,450 597,453 611,897
Merger expenses (Note 3).... -- -- 3,527,671 -- --
----------- ----------- ------------ ------------ ------------
Operating expenses.......... 62,879,135 84,785,263 98,073,184 22,821,241 25,129,093
----------- ----------- ------------ ------------ ------------
Operating Income.............. 6,475,748 11,453,703 11,193,611 4,058,713 4,193,319
----------- ----------- ------------ ------------ ------------
Other income (expense)
Interest expense -- related
party.................... (1,190,680) (24,298) -- -- --
Interest expense -- other... (221,439) (395,123) (402,003) (106,303) (61,555)
Interest income and other... 409,047 353,231 523,877 143,540 105,613
Loss on sale of equipment... -- -- (1,888) (2,515) --
----------- ----------- ------------ ------------ ------------
Income before income taxes.... 5,472,676 11,387,513 11,313,597 4,093,435 4,237,377
Income tax expense............ 1,694,534 4,609,360 4,517,688 1,686,382 1,707,194
----------- ----------- ------------ ------------ ------------
Income before equity in net
earnings of Horizon LLC and
minority interest........... 3,778,142 6,778,153 6,795,909 2,407,053 2,530,183
Equity in net earnings of
Horizon LLC................. 1,567,720 -- -- -- --
Minority interest............. -- (2,397) (139,893) (24,074) (6,188)
----------- ----------- ------------ ------------ ------------
Net income.................... $ 5,345,862 $ 6,775,756 $ 6,656,016 $ 2,382,979 $ 2,523,995
=========== =========== ============ ============ ============
Basic earnings per common
share....................... $ 1.05 $ 1.03 $ 0.96 $ 0.35 $ 0.36
=========== =========== ============ ============ ============
Diluted earnings per common
share....................... $ 0.89 $ 0.90 $ 0.87 $ 0.31 $ 0.33
=========== =========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 8
HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED AUGUST 31, 1995, 1996 AND 1997
AND FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON SHARES ADDITIONAL RETAINED
------------------- PAID-IN EARNINGS DEFERRED TREASURY
SHARES AMOUNT CAPITAL (DEFICIT) COMPENSATION STOCK, AT COST TOTAL
--------- ------- ----------- ----------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1994........ 3,565,680 $35,657 $ 1,586,359 $(3,055,219) $ -- $ -- $(1,433,203)
Net income...................... -- -- -- 5,345,862 -- -- 5,345,862
Initial public offering......... 2,100,000 21,000 11,978,528 -- -- -- 11,999,528
Issuance of shares in
conjunction with purchase of
the net assets of NMMS........ 530,419 5,304 883,700 -- -- -- 889,004
Issuance of warrants in
conjunction with purchase..... -- -- 389,350 -- -- -- 389,350
Sale of common shares........... 5,456 55 24,610 -- -- -- 24,665
Acquisition of treasury
shares........................ (5,456) -- -- -- -- (5,281) (5,281)
Notes receivable for purchase of
shares........................ -- -- (75,000) -- -- -- (75,000)
Deferred compensation for
issuance of stock............. -- -- -- -- (75,000) -- (75,000)
Amortization of deferred
compensation.................. -- -- -- -- 25,000 -- 25,000
Tax benefit associated with
stock options................. -- -- 2,313 -- -- -- 2,313
Exercise of stock options....... 118,575 1,186 120,249 -- -- -- 121,435
Sale of rights to purchase
options....................... -- -- 16,750 -- -- -- 16,750
--------- ------- ----------- ----------- -------- ------- -----------
Balance at August 31, 1995........ 6,314,674 63,202 14,926,859 2,290,643 (50,000) (5,281) 17,225,423
Net income...................... -- -- -- 6,775,756 -- -- 6,775,756
Sale of common shares........... 55,298 553 59,446 -- -- -- 59,999
Issuance of shares in
conjunction with purchase of
the Parkside Company.......... 192,437 1,924 868,076 -- -- -- 870,000
Payments on notes receivable.... -- -- 50,000 -- -- -- 50,000
Amortization of deferred
compensation.................. -- -- -- -- 25,000 -- 25,000
Tax benefit associated with
stock options................. -- -- 37,717 -- -- -- 37,717
Exercise of stock options....... 134,440 1,344 104,065 -- -- -- 105,409
--------- ------- ----------- ----------- -------- ------- -----------
Balance at August 31, 1996........ 6,696,849 67,023 16,046,163 9,066,399 (25,000) (5,281) 25,149,304
Net income...................... -- -- -- 6,656,016 -- -- 6,656,016
Adjustment applicable to
transition period (Note 3).... -- -- -- (849,055) -- -- (849,055)
Amortization of deferred
compensation.................. -- -- -- -- 25,000 -- 25,000
Retirement of treasury shares... -- (55) (5,226) -- -- 5,281 --
Payment on note receivable...... -- -- 25,000 -- -- -- 25,000
Exercise of warrants............ 179,178 1,793 (1,793) -- -- -- --
Tax benefit associated with
stock options................. -- -- 511,949 -- -- -- 511,949
Exercise of stock options....... 90,735 907 163,332 -- -- -- 164,239
--------- ------- ----------- ----------- -------- ------- -----------
Balance at August 31, 1997........ 6,966,762 69,668 16,739,425 14,873,360 -- -- 31,682,453
Net income (unaudited).......... -- -- -- 2,523,995 -- -- 2,523,995
Tax benefit associated with
stock options
(unaudited)................... -- -- 177,955 -- -- -- 177,955
Exercise of stock options
(unaudited)................... 59,500 595 119,093 -- -- -- 119,688
--------- ------- ----------- ----------- -------- ------- -----------
Balance at November 30, 1997
(unaudited)..................... 7,026,262 $70,263 $17,036,473 $17,397,355 $ -- $ -- $34,504,091
========= ======= =========== =========== ======== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 9
HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED AUGUST 31, ENDED NOVEMBER 30,
---------------------------------------- --------------------------
1995 1996 1997 1996 1997
------------ ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income............................................... $ 5,345,862 $ 6,775,756 $ 6,656,016 $ 2,382,979 $ 2,523,995
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 1,132,604 1,811,790 2,201,450 597,453 611,897
Loss on sale of equipment.............................. -- -- 1,888 2,515 --
Minority interest...................................... -- 2,397 139,893 24,074 6,188
Horizon LLC investment income.......................... (1,567,720) -- -- -- --
Deferred income taxes.................................. 84,230 9,909 94,139 95,688 5,543
Non-cash expenses...................................... 535,000 25,000 25,000 -- --
Changes in net assets and liabilities:
Decrease (increase) in restricted cash................. (582,689) (205,857) 218,606 (84,828) --
Decrease (increase) in accounts receivable............. 4,832,797 (1,307,286) 1,143,322 (2,643,986) (4,724,025)
Decrease (increase) in other receivables............... (118,035) 285,346 264,589 (14,951) 862,252
Decrease (increase) in prepaid expenses and supplies... 483,751 (80,875) (599,553) (178,948) (54,810)
Decrease (increase) in other assets.................... 171,329 (127,188) (144,101) (349,639) (108,159)
Increase in accounts payable, accrued expenses, and
other liabilities.................................... 1,922,276 1,450,473 1,031,381 569,550 (1,760,922)
Increase (decrease) in income taxes payable............ -- 75,344 (272,649) 786,729 734,839
Decrease in payable to health insurance program........ (1,126,208) -- (661,248) (661,248) --
Increase (decrease) in other liabilities............... 243,423 151,872 (749,532) (262,348) 69,685
------------ ----------- ----------- ----------- ------------
Net cash provided by operating activities................. 11,356,620 8,866,681 9,349,201 263,040 (1,833,517)
------------ ----------- ----------- ----------- ------------
Investing Activities:
Purchase of property and equipment....................... (621,201) (393,703) (1,412,441) (669,209) (292,037)
Proceeds from sale of equipment.......................... -- -- 13,485 5,350 --
Payment for purchase of minority interest in Horizon LLC,
net of cash acquired................................... (9,196,249) -- -- -- --
Cash contributed to Horizon LLC.......................... (620,000) -- -- -- --
Increase in goodwill and management contracts............ (37,916) (123,222) -- (47,825) --
Payment for purchase of the Parkside Company, net of cash
acquired............................................... -- (2,600,000) -- -- --
Payment for purchase of net assets of National Medical
Management Services.................................... (3,946,849) (302,817) -- -- --
Payment for purchase of Professional Psychological
Services, Inc., net of cash acquired................... -- (786,767) (1,898,230) -- (200,985)
Payment for purchase of Clay Care, Inc., net of cash
acquired............................................... -- -- (913,634) -- --
Payment for purchase of Geriatric Medical Care, Inc., net
of cash acquired....................................... -- -- (4,577,970) -- --
Payment for purchase of Acorn Behavioral HealthCare
Management Corporation, net of cash acquired........... -- -- -- -- (12,726,120)
------------ ----------- ----------- ----------- ------------
Net cash used in investing activities..................... (14,422,215) (4,206,509) (8,788,790) (711,684) (13,219,142)
------------ ----------- ----------- ----------- ------------
Financing activities:
Payments on long-term debt............................... (11,931,242) (3,108,047) (4,114,862) (337,356) (3,691)
Payment on notes receivable for purchase of common
stock.................................................. -- 50,000 25,000 -- --
Proceeds from long term borrowings....................... 3,203,000 3,291,820 -- -- 11,000,000
Net proceeds from issuance of common stock............... 12,879,351 165,408 164,239 -- 119,688
Sale of rights to purchase options....................... 16,750 -- -- -- --
Tax benefit related to stock option exercise............. 2,313 37,717 511,949 134,410 177,955
------------ ----------- ----------- ----------- ------------
Net cash provided by (used in) financing activities....... 4,170,172 436,898 (3,413,674) (202,946) 11,293,952
------------ ----------- ----------- ----------- ------------
Change in cash during transition period................... -- -- 23,465 -- --
Net Increase (decrease) in cash and short term
investments.............................................. 1,104,577 5,097,070 (2,829,798) (651,590) (3,758,707)
Cash and short-term investments at beginning of year...... 2,144,726 3,249,303 8,346,373 8,369,838 5,516,575
------------ ----------- ----------- ----------- ------------
Cash and short-term investments at end of year............ $ 3,249,303 $ 8,346,373 $ 5,516,575 $ 7,718,248 $ 1,757,868
============ =========== =========== =========== ============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest............................................... $ 1,412,119 $ 419,421 $ 402,003 $ 106,303 $ 61,555
============ =========== =========== =========== ============
Income taxes........................................... $ 2,188,363 $ 4,930,499 $ 4,584,015 $ 405,617 $ 15,777
============ =========== =========== =========== ============
Supplemental disclosure on non-cash investing activities:
Purchase of minority interest in Horizon LLC and the net
assets of National Medical Management Services during
fiscal year 1995; the acquisition of 80% of the common
stock of Professional Psychological Services, Inc. and
100% of the common stock of the Parkside Company during
fiscal year 1996; the acquisition of Geriatric Medical
Care, Inc., Clay Care, Inc., and additional payments
for the acquisition of 80% of the common stock of
Professional Psychological Services, Inc. during fiscal
year 1997; and the acquisition of Acorn Behavioral
HealthCare Management Corporation and additional
payments for the acquisition of 80% of the common stock
of Professional Psychological Services, Inc. during the
three months ended November 30, 1997.
Fair value of assets acquired.......................... $ 24,038,476 $ 5,815,535 $ 9,004,431 -- $ 13,105,174
Cash paid.............................................. (13,630,316) (3,825,000) (7,524,968) -- (12,927,342)
Conversion of equity investment........................ (4,351,737) -- -- -- --
Common stock exchanged................................. -- (870,000) -- -- --
------------ ----------- ----------- ----------- ------------
Liabilities assumed.................................... $ 6,056,423 $ 1,120,535 $ 1,479,463 -- $ 177,832
============ =========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 10
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Horizon Health Corporation (the "Company"), formerly known as Horizon
Mental Health Management, Inc., is a contract manager of clinical and related
services, primarily 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. The Company currently has offices in the Dallas, Texas; Los
Angeles, California; Chicago, Illinois; Tampa, Florida; and Boston,
Massachusetts metropolitan areas. The Company's National Support Center is in
Lewisville, Texas.
The Company was formed in July 1989 for the purpose of acquiring all the
assets of two companies. One of these 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 a
freestanding psychiatric hospital in California. Effective March 1, 1990, the
assets constituting the contract management business and the psychiatric
hospital of the two companies were transferred to the Company. On January 3,
1995, the Company acquired the net assets and operations of National Medical
Management Services, a division of National Medical Enterprises, Inc.
On March 13, 1995, the Company's initial public offering of 3,120,000
shares of common stock at an offering price to the public of $6.67 per share was
declared effective by the Securities and Exchange Commission. Of the 3,120,000
shares of common stock offered, 1,981,850 shares were offered by the Company and
1,138,150 shares were offered by a stockholder of the Company. On March 20,
1995, the Company completed the initial public offering, issued the common stock
and received net proceeds of $11,324,141 (after deducting underwriting discounts
and IPO costs of $1,888,189).
On April 11, 1995, the Company sold an additional 118,150 shares of common
stock at the initial offering price of $6.67 per share pursuant to the exercise
of the overallotment option granted to the underwriters in the initial public
offering. Net proceeds of $675,387 (after deducting underwriting discounts and
IPO costs of $112,283) were received by the Company.
On April 1, 1996, the Company acquired the Parkside Company, ("Parkside"),
a contract manager of mental health services for acute care hospitals. Parkside
has been consolidated with the Company as of April 1, 1996. On July 31, 1996,
the Company 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 the
Company as of August 1, 1996. Effective March 15, 1997, the Company purchased
all of the outstanding capital stock of Geriatric Medical Care, Inc., a
Tennessee corporation ("Geriatric"), and Clay Care, Inc., a Texas corporation
("CCI"), and they have been consolidated with the Company as of March 15, 1997
(see Note 3).
On August 11, 1997, the Company exchanged 1,400,000 shares of its common
stock for all of the outstanding common stock of Specialty Healthcare
Management, Inc. ("Specialty"). Specialty was a privately held contract manager
of mental health and physical rehabilitation treatment programs for general
acute care hospitals. The exchange has been accounted for under the pooling of
interests method. Accordingly, all financial statements presented have been
restated to include the results of Specialty (see Note 3).
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.
RESTRICTED CASH: Restricted cash represents amounts set aside for the
Supplemental Executive Retirement Plan (SERP) and Deferred Compensation Plan of
Specialty Healthcare Management, Inc., which were terminated in connection with
the pooling of interests transaction.
F-7
<PAGE> 11
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation expense is recorded on the straight-line basis over the assets'
estimated useful lives. The useful lives of furniture and fixtures and computer
equipment are estimated to be five years and three years, respectively. Building
improvements are recorded at cost and amortized over the estimated useful lives
of the improvements or the terms of the underlying lease, whichever is shorter.
Routine maintenance, repair items, and customer facility and site improvements
are charged to current operations.
MANAGEMENT CONTRACTS: Management contracts represent the fair value of
contracts purchased and are being amortized using the straight-line method over
seven years.
GOODWILL: Goodwill represents the excess of cost over fair value of net
assets acquired and is being amortized using the straight-line method over 40
years.
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.
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.
Other revenue is primarily generated by capitated managed behavioral health
and employee assistance programs. The fees are defined by contract and are
calculated on a per-member/per-month fee, fixed fee and/or a fee for service
basis. Other revenue is accrued in the same manner as contract management
revenue.
Some management contracts include a clause which states that the Company
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 the Company. Management believes it has
adequately provided for any potential adjustments that may result from final
settlement of these denials.
The customers of the Company are not concentrated in any specific
geographic region, but are concentrated in the health care industry. At August
31, 1997 and November 30, 1997 (unaudited), the Company had management contracts
with 39 and 36, hospitals directly or indirectly owned by Columbia/HCA
Healthcare Corporation ("Columbia/HCA"), of which 36 and 34, had programs in
operation. These 36 and 34 contracts accounted for 19.1% and 16.6% of the
Company's net revenues for the year ended August 31, 1997 and the three months
ended November 30, 1997 (unaudited), respectively. In the aggregate, including
terminated contracts, revenues generated by hospitals directly or indirectly
owned by Columbia/HCA accounted for 15.6%, 20.3%, 20.3% and 16.9% of the
Company's net revenues for the years ended August 31, 1995, 1996, 1997 and the
three months ended November 30, 1997 (unaudited), respectively. Of the 39 and 36
Columbia/HCA contracts at August 31, 1997 and November 30, 1997 (unaudited), 14
and 12 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 recent months, Columbia/HCA and its business practices have been under
intense widespread review by governmental agencies. Because the
F-8
<PAGE> 12
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has a significant number of management contracts with Columbia/HCA which
could also be subject to review, the governmental scrutiny of Columbia/HCA could
directly or indirectly affect the Company or its relationship with Columbia/HCA.
At August 31, 1996, 1997 and November 30, 1997 (unaudited), accounts
receivable from hospitals directly or indirectly owned by Columbia/HCA were
approximately $1,966,000, $2,089,000 and $2,700,000 (unaudited), respectively.
The Company generally does not require collateral to support outstanding
accounts receivable.
INCOME TAXES: The Company has adopted 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.
EARNINGS PER SHARE: Earnings per share has been computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Basic earnings per share is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if the Company's stock options and warrants were exercised. Such
dilutive potential common shares are calculated using the treasury stock method.
All prior-period earnings per share data presented has been restated in
accordance with SFAS 128. Pursuant to the requirements of the Securities and
Exchange Commission, common shares and dilutive potential common shares issued
at prices below the public offering price during the twelve months immediately
preceding the date of the initial filing of the Registration Statement have been
included in the calculation of common shares and dilutive potential common
shares, using the treasury stock method, as if they were outstanding for all
periods presented. 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.
SALE OF RIGHTS TO PURCHASE OPTIONS: During the year ended August 31, 1995,
the Company issued rights to purchase nonstatutory stock options to purchase
168,000 shares of common stock. Certain of these options required payment of
$0.67 per option by the recipient prior to issuance of the option. The Company
recognized these payments as an addition to Additional Paid-in Capital.
HEALTH INSURANCE PROGRAM REIMBURSEMENT: Services were provided by the
Company 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. All amounts due were finalized in
fiscal 1997.
FINANCIAL INSTRUMENTS: Financial instruments consist of cash and short-term
investments, restricted cash, accounts receivable, current liabilities and
long-term debt obligations. The carrying amounts reported in the balance sheets
for these financial instruments approximate fair value.
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 at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
F-9
<PAGE> 13
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to the current year presentation.
NEW ACCOUNTING STANDARDS: In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 130 is effective for the
Company for fiscal years beginning after December 15, 1997, and requires
reclassification of financial statements in earlier periods for comparative
purposes. Adoption of this Statement is not expected to have a material impact
on the presentation of the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which establishes standards for the way
that public business enterprises report information about operating segments in
interim and annual financial statements. SFAS No. 131 is effective for the
Company for fiscal years beginning after December 15, 1997, and requires
comparative information for earlier years to be restated. Management has not yet
completed its assessment of how this Statement will impact segment disclosures.
3. ACQUISITIONS
Specialty Healthcare Management, Inc.
On August 11, 1997, the Company exchanged 1,400,000 shares of its common
stock for all of the outstanding common stock of Specialty Healthcare
Management, Inc. The exchange has been accounted for under the pooling of
interests method. Accordingly, all financial statements presented have been
restated to include the results of Specialty. Prior to the exchange Specialty
prepared its financial statements on a December 31 calendar year end which has
subsequently been changed to conform to the Company's fiscal year end.
For purposes of recording the pooling of interests combination, Specialty's
financial statements for the twelve months ended December 31, 1995 and 1996 were
combined with Horizon Health Corporation's ("Horizon") financial statements for
the twelve months ended August 31, 1995 and 1996. Specialty's results of
operations for the twelve months ended August 31, 1997 have been combined with
Horizon's results of operations for the same period. The operations of Specialty
for the four months ended December 31, 1996, resulting in net revenues and net
income of $10.8 million and $849,055, respectively, have been included in the
statement of income for both the year ended August 31, 1996 and 1997. As a
result, an adjustment was made to stockholders' equity in the consolidated
financial statements of the Company to eliminate the effect of including
Specialty's net income for the four months in both periods. Additionally, the
consolidated statement of cash flows was adjusted to reflect the cash flows of
Specialty for the four months ended December 31, 1996.
Combined and separate results of Horizon and Specialty during periods
preceding the exchange were as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS NINE MONTHS
ENDED ENDED ENDED
AUGUST 31, 1995 AUGUST 31, 1996 MAY 31, 1997
--------------- --------------- ------------
(UNAUDITED)
------------
<S> <C> <C> <C>
Revenues:
Horizon................................. $29,350 $62,445 $57,894
Specialty............................... 40,005(a) 33,794(b) 23,286
Combined................................ 69,355 96,239 81,180
Net Income:
Horizon................................. $ 3,946 $ 5,564 $ 5,483
Specialty............................... 1,400(a) 1,212(b) 871
Combined................................ 5,346 6,776 6,354
</TABLE>
- ---------------
(a) For the fiscal year ended December 31, 1995.
(b) For the fiscal year ended December 31, 1996.
F-10
<PAGE> 14
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Merger expenses of $3,527,671, before a related tax benefit of $1,340,515,
include legal, investment banking and accounting fees.
Geriatric Medical Care, Inc.
Effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Geriatric Medical Care, Inc., a Tennessee corporation, and
Geriatric has been consolidated with the Company as of March 15, 1997. The
Company 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 the Company, 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 management contracts. Tangible assets
acquired and liabilities assumed totaled $1,042,683 and $1,421,931,
respectively. Pro forma financial data is not presented because the impact of
this acquisition is not material to the Company's results of operations for any
period presented.
Clay Care, Inc.
Also effective March 15, 1997, the Company purchased all of the outstanding
capital stock of Clay Care, Inc., a Texas corporation, and CCI has been
consolidated with the Company as of March 15, 1997. The Company 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 the Company 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 management contracts. Tangible assets acquired and
liabilities assumed totaled $201,794 and $57,532, respectively. Pro forma
financial data is not presented because the impact of this acquisition is not
material to the Company's results of operations for any period presented.
Investment in PPS
On July 31, 1996, the Company acquired eighty percent (80%) of the
outstanding common stock of Florida Professional Psychological Services, Inc.,
also known as Professional Psychological Services, Inc., and PPS has been
consolidated with the Company as of August 1, 1996. The Company 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 final purchase price of $3,324,310 was based primarily on a
multiple of the 1996 pre-tax income of PPS. The purchase price exceeded the fair
value of PPS' net assets by $3,298,885 which is recorded as goodwill. Assets
acquired and liabilities assumed totaled $540,960 and $515,535, respectively.
Cash payments for the purchase of PPS, net of cash acquired, were $786,767 and
$1,898,230 during 1996 and 1997, respectively. The final payment of $200,985 was
made on September 30, 1997.
In addition, the Company 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 the Company 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.
F-11
<PAGE> 15
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the revenue of PPS for fiscal years 1995 and
1996. PPS's effect on the Company's net income and earnings per share has been
deemed negligible for the periods and not presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
AUGUST 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Historical Revenues (unaudited)............................. $4,475,000 $5,050,000
</TABLE>
For the year ended August 31, 1997 and the three months ended November 30,
1997, PPS generated $5,682,323 and $1,863,523 (unaudited) in gross revenues, and
net income of $699,467 and $93,994 (unaudited), respectively.
Parkside Company
Effective April 1, 1996, the Company purchased all of the outstanding
capital stock of the Parkside Company, and Parkside has been consolidated with
the Company as of April 1, 1996. The Company accounted for the acquisition of
Parkside by the purchase method as required by generally accepted accounted
principles. Parkside is a contract manager of mental health services for acute
care hospitals. The purchase price of $3.5 million included approximately
$2,600,000 in cash and 192,437 shares of the Company's common stock. The
purchase price exceeded the fair value of Parkside's tangible net assets by
$3,500,000, of which $1,400,000 is recorded as goodwill and $2,100,000 as
management contracts.
National Medical Management Services
Effective January 3, 1995, the Company acquired the net assets and
operations of National Medical Management Services, a division of National
Medical Enterprises, Inc. (the "Division") and the Division has been
consolidated with the Company as of January 3, 1995 (see Note 10). The Company
accounted for the acquisition by the purchase method as required by generally
accepted accounting principles. The purchase price exceeded the fair value of
the net assets acquired by $1,120,350, of which $120,350 is recorded as goodwill
and $1,000,000 as management contacts. Tangible assets acquired and liabilities
assumed totaled $6,755,415 and $2,808,566, respectively.
4. INVESTMENT IN HORIZON LLC
On August 1, 1994 the Company signed a contract with Horizon Mental Health
Management LLC ("Horizon LLC") to have it manage all of the Company's then
existing management contract obligations for a 72.5% interest in Horizon LLC.
Prior to March 20, 1995, the remaining 27.5% interest in Horizon LLC was held by
Mental Health Management, Inc. ("MHM"). Prior to the Company's acquisition of
the minority interest of MHM in Horizon LLC, as discussed below, certain
provisions of the limited liability company agreement of Horizon LLC which
required the consent of MHM for certain transactions prevented the Company from
having the ability to control Horizon LLC under generally accepted accounting
principles, and therefore Horizon LLC was not consolidated with the Company and
the Company accounted for its investment in Horizon LLC by the equity method
through the six months ended February 28, 1995.
Upon completion of its initial public offering of common stock on March 13,
1995, the Company became contractually obligated to acquire the minority
interest of MHM in Horizon LLC. Effective March 20, 1995, $9,683,467 of the
$11,324,141 in net proceeds to the Company from its initial public offering were
used to purchase MHM's minority interest in Horizon LLC. The purchase
transaction eliminated MHM's equity interest in Horizon LLC ($2,794,715) and
recognized an increase in intangible assets based upon the value of Horizon LLC
management contracts ($2,355,000). The remaining purchase price was recorded as
goodwill ($4,533,752). As such, Horizon LLC became a wholly-owned subsidiary of
the Company. Horizon LLC has
F-12
<PAGE> 16
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
been consolidated with the Company effective March 1, 1995 through August 31,
1995. Effective September 1, 1995, Horizon LLC was dissolved and its operations
combined with the Company.
Summarized financial information for Horizon LLC is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28,
1995
------------
(UNAUDITED)
<S> <C>
Net revenues................................................ $26,869,535
Operating expenses.......................................... 23,566,024
Other income................................................ 44,507
-----------
Income before income taxes.................................. 3,348,018
Income tax expense.......................................... 30,298
-----------
Net income.................................................. $ 3,317,720
===========
</TABLE>
The Company's share of Horizon LLC's net earnings was $1,567,720 for the
six months ended February 28, 1995. Horizon LLC contract stipulated that MHM was
allocated the first $1,750,000 of Horizon LLC net earnings for the fiscal year
ending August 31, 1995.
5. ACCRUED EXPENSES
Accrued expenses consisted of the following at August 31, 1996, 1997 and
November 30, 1997:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------- NOVEMBER 30,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Outstanding claims............................... $ -- $ 416,552 $ 834,628
Reserve for contract adjustments................. 1,036,084 1,287,664 1,051,315
Health insurance................................. 396,926 936,639 883,454
Other............................................ 4,288,817 4,932,074 4,225,010
---------- ---------- ----------
$5,721,827 $7,572,929 $6,994,407
========== ========== ==========
</TABLE>
F-13
<PAGE> 17
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
At August 31, 1996, 1997 and November 30, 1997 (unaudited), the Company had
the following long-term debt:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, NOVEMBER 30,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, bearing interest at the Citibank,
N.A. base rate plus 2% per annum with interest
and principal payments due monthly through
January 1, 1998................................. $ 637,800 $ -- $ --
Revolving line of credit, bearing interest at the
Citibank N.A. base rate plus 2% per annum, with
interest payable monthly and any outstanding
borrowing due January 1, 1998................... 2,938,514 -- --
Texas Commerce Bank -- Revolving Credit
Facility........................................ -- -- 11,000,000
SANWA Leasing Corporation......................... -- -- 46,263
---------- ---- -----------
3,576,314 -- 11,046,263
---------- ---- -----------
Less current maturities........................... (519,600) -- (22,290)
---------- ---- -----------
$3,056,714 $ -- $11,023,973
========== ==== ===========
</TABLE>
During 1995, the Company entered into a credit facility with Finova Capital
Corporation ("Finova") that provided for a $700,000 term loan and a line of
credit up to the lesser of $4,300,000 or an amount equal to 70% of the net
amount of eligible receivables. During 1996, the Company increased the total
credit facility to $6,000,000, which provides for a $1,027,500 term loan and a
line of credit up to the lesser of $4,972,500 or an amount equal to 75% of the
net amount of eligible receivables. Borrowings under the credit facility bear
interest as described above with the Company being subject to an annual minimum
interest charge of $120,000. In addition, the Company pays an annual credit
facility fee of 0.25% on the amount of the total facility. The credit facility
agreement also requires the Company to meet certain financial ratios on
leverage, debt service coverage, net worth, etc., and contains certain covenants
which restrict capital expenditures and the incurrence of additional
indebtedness. Substantially all of the Company's assets were pledged as
collateral.
On August 11, 1997, the Company paid $3,732,110 for the balance of the term
loan and line of credit plus accrued interest and executed a termination
agreement and mutual general release with Finova.
Effective September 29, 1995, the Company entered into a loan agreement
with Texas Commerce Bank (TCB) for a revolving line of credit with maximum
advance commitment of $11,000,000. As of August 31, 1997, the Company has no
borrowings outstanding against the available line of credit and has $10.1
million available for advances under the revolving credit facility.
On October 16, 1997, the Company increased its existing revolving line of
credit from TCB from $11.0 million to $14.0 million.
The line of credit bears interest at (1) the lesser of the Floating Base
Rate, as defined, or (2) the lesser of the LIBOR Rate plus LIBOR Margin, as
defined. The LIBOR margin varies depending on the debt coverage ratio of the
company.
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.
On December 9, 1997, the Company entered into a Credit Agreement (the
"Credit Agreement") with Texas Commerce Bank National Association, as Agent, for
itself and other lenders party to the Credit Agreement for a senior secured
credit facility in an aggregate amount of up to $50.0 million (the "New Credit
F-14
<PAGE> 18
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Facility"). The New Credit Facility consists of a $10.0 million revolving credit
facility to fund ongoing working capital requirements and a $40.0 million
advance term loan facility to refinance certain existing debt and to finance
future acquisitions by the Company. The New Credit Facility replaced the
Company's existing $14.0 million revolving credit facility.
7. STOCK OPTIONS
In accordance with the Company's 1989 and 1995 Stock Option Plans, as
amended, 1,931,843 shares of common stock have been reserved for grant to key
employees. Management believes the exercise prices of the options granted
approximated or exceeded the market value of the common stock at the date of the
grant. The options generally vest ratably over five years from the date of grant
and terminate 10 years from the date of grant.
On April 28, 1995 the board of directors created the 1995 Stock Option Plan
For Eligible Outside Directors 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 provide for 3,000
option grants to each eligible director each time he is re-elected to the board
after having served as a director for at least one year since his initial grant
under the plan. Options vest ratably over five years from the date of grant.
The 1989 and 1995 Stock Option Plans and the 1995 Stock Option Plan For
Eligible Outside Directors are collectively referred to as "The Plans."
The following table summarizes the status of the Plans:
<TABLE>
<CAPTION>
1996 1997
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............ 1,411,268 $ 2.33 1,521,328 $ 4.04
Granted................................... 255,750 11.96 49,500 20.15
Exercised................................. 130,690 0.79 90,735 1.81
Expired or canceled....................... 15,000 6.40 28,250 9.72
Outstanding at end of year.................. 1,521,328 $ 4.04 1,451,843 $ 4.62
Exercisable at end of year.................. 532,452 $ 1.62 728,166 $ 1.98
Available for grant at end of year.......... 304,500 -- 283,250 --
</TABLE>
The following table summarizes information about options outstanding under
the Plans at August 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
----------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.50-$4.00..................... 1,096,343 5.91 $ 2.13 701,353 $1.76
$7.4167-$9.75................... 183,750 7.89 8.97 26,813 7.75
$14.1667-$26.00................. 171,750 9.16 15.89 -- --
</TABLE>
F-15
<PAGE> 19
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB 25 in accounting for the Plans and recognizes no
compensation cost in net earnings from the grant of options as options are
granted at exercise prices equal to the current stock price. Had compensation
cost been determined under the terms of SFAS 123, the Company's pro forma 1996
and 1997 net earnings and earnings per share would have been:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Net Earnings: As reported................................... $6,775,756 $6,656,016
Pro forma (unaudited)..................................... $6,705,592 $6,549,799
Earnings per share:
As reported:
Basic earnings per share............................... $ 1.03 $ 0.96
Diluted earnings per share............................. 0.90 0.87
Pro forma (unaudited):
Basic earnings per share............................... $ 1.02 $ 0.95
Diluted earnings per share............................. 0.89 0.85
</TABLE>
In accordance with SFAS 123, the fair value of options at date of grant was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Risk Free interest rate..................................... 6.2% 6.3%
Expected life (years)....................................... 6.6 6.6
Expected volatility......................................... 33.2% 30.3%
Expected dividend yield..................................... 0.0% 0.0%
</TABLE>
The weighted average fair value of options granted during 1996 and 1997 was
$4.43 and $7.28, respectively.
On April 1, 1996, the Company filed an S-8 registration statement which
registered 2,054,549 shares granted 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 options to be traded at any time
without holding period or volume restrictions.
F-16
<PAGE> 20
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
Deferred taxes are provided for those items reported in different periods
for income tax and financial reporting purposes. Income tax expense comprised
the following components:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- -------- ----------
<S> <C> <C> <C>
Year Ended August 31, 1995
Current..................................... $1,915,529 $575,863 $2,491,392
Deferred.................................... (712,978) (83,880) (796,858)
---------- -------- ----------
$1,202,551 $491,983 $1,694,534
========== ======== ==========
Year Ended August 31, 1996
Current..................................... $3,835,706 $770,743 $4,606,449
Deferred.................................... 2,606 305 2,911
---------- -------- ----------
$3,838,312 $771,048 $4,609,360
========== ======== ==========
Year Ended August 31, 1997
Current..................................... $3,957,913 $465,636 $4,423,549
Deferred.................................... 84,230 9,909 94,139
---------- -------- ----------
$4,042,143 $475,545 $4,517,688
========== ======== ==========
</TABLE>
The components of the net deferred tax asset at August 31, 1996 and 1997
were obtained using the liability method in accordance with SFAS No. 109 and are
as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Management contracts.................................... $(1,613,132) $(1,377,276)
Goodwill................................................ (198,761) (463,159)
----------- -----------
Deferred tax liabilities................................ (1,811,893) (1,840,435)
----------- -----------
Accounts receivable..................................... 1,377,273 693,562
Vacation accruals....................................... 375,532 595,947
Miscellaneous accruals.................................. 422,678 398,004
Fixed assets/intangibles................................ 188,600 332,015
Net operating loss carryforward......................... 241,757 520,715
----------- -----------
Deferred tax assets..................................... 2,605,840 2,540,243
----------- -----------
Net deferred tax asset.................................. $ 793,947 $ 699,808
=========== ===========
</TABLE>
At August 31, 1997, the Company had available estimated, unused net
operating loss carryforwards for tax purposes of approximately $1,400,000. These
carryforwards may be utilized to offset future years' income and will begin to
expire during 2006 if unused prior to that date. These carryforwards are subject
to annual utilization limits in accordance with IRC Section 382.
F-17
<PAGE> 21
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of income taxes at the U.S. federal
income tax rate to the income taxes reflected in the Consolidated Statements of
Income:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes based on 34% of book income
(including equity in net earnings of Horizon
LLC)............................................. $2,393,734 $3,871,753 $3,846,623
Meals and entertainment, goodwill amortization and
other permanent adjustments...................... 153,712 249,236 198,464
Change in valuation allowance...................... (1,389,299) -- --
State income taxes and other adjustments........... 536,387 488,371 472,601
---------- ---------- ----------
$1,694,534 $4,609,360 $4,517,688
========== ========== ==========
</TABLE>
The change in the deferred tax asset valuation allowance is primarily due
to the utilization of net operating loss carryforwards in the year ended August
31, 1995.
The Company recorded federal and state income taxes for the three months
ended November 30, 1997 in the amount of $1,707,000 (unaudited) resulting in a
combined tax rate of 40.3%.
9. COMMITMENTS AND CONTINGENCIES
The Company leases various office facilities and equipment under operating
leases. The following is a schedule of minimum rental payments under these
leases which expire at various dates:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------
<S> <C>
1998........................................ $1,107,245
1999........................................ 904,595
2000........................................ 696,781
2001........................................ 576,546
2002........................................ 182,838
----------
$3,468,005
==========
</TABLE>
Rent expense for the years ended August 31, 1995, 1996, and 1997 totaled
$857,794, $846,931, and $980,573, respectively.
The Company leases a building it occupies as its executive offices and
National Support Center in Lewisville, Texas. In connection with this lease
transaction, the Company guaranteed a loan of approximately $900,000 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, the Company acquired eighty-percent (80%) of the
outstanding common stock of Florida Professional Psychological Services, Inc.
The owners of the minority interest (20%) have an option to put to the Company
their remaining interest through January 1998, 1999, or 2000, based upon a
multiple of pre-tax earnings of the preceding fiscal year.
The Company is insured for professional and general liability on a
claims-made policy, with additional tail coverage being obtained when necessary.
Management is unaware of any claims against the Company that would cause the
final expenses for professional and general liability to vary materially from
amounts provided.
The Company 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
F-18
<PAGE> 22
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
would not be in excess of any reserves or have a material adverse effect on the
Company's financial position or results of operations.
10. COMMON STOCK AND WARRANTS
As part of the purchase of National Medical Management Services, effective
January 3, 1995, the Company issued warrants to National Medical Enterprises,
Inc. to purchase 171,793 shares of common stock at an exercise price of
$0.000558 per share. The warrants were exercisable at any time subsequent to
January 3, 1997 and the exercise price and number of shares were adjustable to
maintain proportional ownership of the Company. The value of the warrants at the
date of issuance was determined to be $389,350. The remaining warrants of
179,178 at August 11, 1997 were exercised in connection with the Specialty
exchange (see note 3). In conjunction with the purchase transaction the Company
issued additional shares to existing management shareholders, other senior
management and an outside shareholder. The proceeds from the sale of these
shares were used in the purchase transaction. Certain management acquired shares
through note receivable arrangements and the outstanding balance on these notes
has been reflected as a reduction of shareholders' equity in the statement of
changes in stockholders' equity (deficit).
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,
exercisable under certain conditions, for each outstanding share of Common Stock
of the Company.
11. EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." All prior-period earnings per share
data presented has been restated in accordance with SFAS 128.
The following is a reconciliation of the numerators and the denominators of
the basic and diluted earnings per share computations for net income.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------------------------------------------------
1995 1996
--------------------------------------- ---------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income........... $5,345,862 $6,775,756
BASIC EPS............ 5,345,862 5,110,550 $1.05 6,775,756 6,561,481 $1.03
===== =====
EFFECT OF DILUTIVE
SECURITIES
Warrants and
options............ 886,268 948,567
--------- ---------
DILUTED EPS.......... $5,345,862 5,996,818 $0.89 $6,775,756 7,510,048 $0.90
========== ========= ===== ========== ========= =====
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------
1997
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net Income........... $6,656,016
BASIC EPS............ 6,656,016 6,928,827 $0.96
=====
EFFECT OF DILUTIVE
SECURITIES
Warrants and
options............ 752,442
---------
DILUTED EPS.......... $6,656,016 7,681,269 $0.87
========== ========= =====
</TABLE>
F-19
<PAGE> 23
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED NOVEMBER 30,
---------------------------------------------------------------------------------
1996 1997
--------------------------------------- ---------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income.................................... $2,382,979 $2,523,995
BASIC EPS..................................... 2,382,979 6,876,018 $0.35 2,523,995 6,980,086 $0.36
===== =====
EFFECT OF DILUTIVE SECURITIES
Warrants & options............................ 770,290 781,157
--------- ---------
DILUTED EPS................................... $2,382,979 7,646,308 $0.31 $2,523,995 7,761,243 $0.33
========== ========= ===== ========== ========= =====
</TABLE>
Options to acquire 15,000 shares of common stock at $26.00 per share were
outstanding during the year ended August 31, 1997 and options to acquire 15,000
and 5,000 shares of common stock at $26.00 and $26.375, respectively, were
outstanding during the three months ended November 30, 1997 but were not
included in the computations of diluted EPS because the options' exercise price
was greater than the average market price of the common shares. The options,
which expire on August 1, 2007 and October 6, 2007, were still outstanding at
November 30, 1997.
The Company issued options to acquire 167,500 and 5,000 shares on September
1, 1997 and October 6, 1997, respectively. Options outstanding at August 31,
1997 to acquire 23,000, 48,500 and 42,000 shares were exercised in October 1997,
November 1997 and on December 9, 1997, respectively.
12. UNAUDITED PRO FORMA SUPPLEMENTAL INFORMATION
The following unaudited pro forma information for the year ended August 31,
1995 has been prepared as if the issuance of 1,981,849 shares of common stock
from the initial public offering, and the purchase of the minority interest in
Horizon LLC at a price equal to 1,561,850 times the initial public offering
price per share had occurred on September 1, 1994.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
AUGUST 31,
1995
------------------
(UNAUDITED)
<S> <C>
Net revenue................................................. $96,082,718
===========
Net income.................................................. $ 5,182,890
===========
Share data:
Pro Forma basic earnings per share........................ $ 0.82
===========
Pro Forma diluted earnings per share...................... $ 0.72
===========
</TABLE>
F-20
<PAGE> 24
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal
1996 and 1997(1):
<TABLE>
<CAPTION>
BASIC DILUTED
OPERATING NET EARNINGS EARNINGS
REVENUES INCOME INCOME PER SHARE PER SHARE
----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Quarter Ended:
November 30, 1995..... $22,278,883 $2,432,133 $1,467,121 $0.23 $0.20
February 29, 1996..... 24,109,706 2,419,307 1,419,706 0.22 0.19
May 31, 1996.......... 24,846,620 3,475,500 2,028,465 0.31 0.27
August 31, 1996....... 25,003,757 3,126,763 1,860,464 0.28 0.24
Quarter Ended:
November 30, 1996..... $26,879,954 $4,058,712 $2,382,979 $0.35 $0.31
February 28, 1997..... 26,363,617 3,300,063 2,004,618 0.29 0.26
May 31, 1997.......... 27,936,645 3,284,349 1,966,131 0.28 0.26
August 31, 1997....... 28,086,580 550,487 302,288 0.04 0.04
</TABLE>
- ---------------
(1) For the purposes of recording the pooling of interest combination,
Specialty's financial statements for the quarters ended March 31, 1996, June
30, 1996, September 30, 1996 and December 31, 1996 were combined with
Horizon's Financial Statements for the quarters ended November 30, 1995,
February 29, 1996, May 31, 1996 and August 31, 1996. Specialty's results of
operations for the year ended August 31, 1997 have been combined with
Horizon's results for the same period.
14. RETIREMENT PLAN
The Company sponsors a 401(k) plan that covers substantially all eligible
employees. The Company can elect to make matching contributions at its
discretion. For the years ended August 31, 1995, 1996 and 1997 the Company
recognized matching contributions of approximately $481,000, $350,000, and
$534,000 respectively. For the three months ended November 30, 1996 and 1997 the
Company recognized matching contributions of approximately $59,000 and $84,000,
respectively (unaudited).
15. MOUNTAIN CREST HOSPITAL
A subsidiary of the Company leased and began operating Mountain Crest
Hospital ("MCH") in December 1990. In July 1994, the Company subleased MCH to
MHM for a period commencing July 31, 1994 through December 31, 2000. The
Company, 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 its
guaranty. The sublease requires monthly rental payments to the Company 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 August
31, 1997, the Company has received $843,686 of the $1,200,000 resulting in
future receipts of $356,314 to be received on or before February 1, 1999
assuming minimum monthly payments of $20,000.
16. SUBSEQUENT EVENTS (UNAUDITED)
Effective October 31, 1997, the Company acquired all of the outstanding
capital stock of Acorn Behavioral HealthCare Management Corporation ("Acorn"), a
Pennsylvania corporation. The Company accounted for the acquisition of Acorn by
the purchase method as required by generally accepted accounting principles.
Acorn provides employee assistance programs and other related services to
self-insured employers. Acorn had total revenues of approximately $7.0 million
for the year ended August 31, 1997. The purchase
F-21
<PAGE> 25
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price of approximately $12.7 million in cash was funded from $1.7 million of
working capital and $11.0 million from an advance under the Company's existing
revolving credit facility with Texas Commerce Bank, N.A. The purchase price
exceeded the fair value of Acorn's tangible net assets by $12,629,261, of which
$9,258,513 is recorded as goodwill and $3,370,748 as contracts.
The unaudited pro forma combined results of operations of the Company and
Acorn for the year ended August 31, 1997 after giving effect to certain pro
forma adjustments are as follows:
<TABLE>
<S> <C>
Revenue..................................................... $116,312,399
============
Net income.................................................. $ 6,942,289
============
Basic earnings per share.................................... $ 1.00
============
Diluted earnings per share.................................. $ .90
============
</TABLE>
The unaudited pro forma combined results of operations of the Company and
Acorn for the three months ended November 30, 1996 and 1997 after giving effect
to certain pro forma adjustments are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
--------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Revenue............................................... $28,400,176 $30,707,392
=========== ===========
Net income............................................ $ 2,396,267 $ 2,677,753
=========== ===========
Basic earnings per share.............................. $ .35 $ .38
=========== ===========
Diluted earnings per share............................ $ .31 $ .35
=========== ===========
</TABLE>
F-22
<PAGE> 26
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
By: /s/ JAMES W. MCATEE
----------------------------------
James W. McAtee
Executive Vice
President -- Finance &
Administration (Principal
Financial Officer)
Date: January 20, 1998
<PAGE> 27
INDEX TO EXHIBITS
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.1 -- Consent of Price Waterhouse LLP.*
27.1 -- Restated Financial Data Schedule for fiscal quarter ended
November 30, 1997.*
27.2 -- Restated Financial Data Schedule for fiscal year ended
August 31, 1997.*
27.3 -- Restated Financial Data Schedule for fiscal quarter ended
November 30, 1996.*
27.4 -- Restated Financial Data Schedule for fiscal year ended
August 31, 1996.*
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-2938) of Horizon Health Corporation and the
Registration Statement on Form S-8 (No. 333-36953) of Horizon Health Corporation
of our report on Horizon Health Corporation dated October 13, 1997, except as to
Note 11, which is as of December 23, 1997, appearing on Page F-2 of this Form
8-K.
PRICE WATERHOUSE LLP
Dallas, Texas
January 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THREE
MONTHS ENDED NOVEMBER 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH YEAR TO DATE 10-Q FILING FOR THE THREE MONTHS
ENDED NOVEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 1,757,868
<SECURITIES> 0
<RECEIVABLES> 18,695,924
<ALLOWANCES> 1,800,494
<INVENTORY> 0
<CURRENT-ASSETS> 21,025,135
<PP&E> 4,326,061
<DEPRECIATION> 2,393,171
<TOTAL-ASSETS> 61,578,525
<CURRENT-LIABILITIES> 14,476,890
<BONDS> 0
0
0
<COMMON> 70,263
<OTHER-SE> 34,433,828
<TOTAL-LIABILITY-AND-EQUITY> 61,578,525
<SALES> 0
<TOTAL-REVENUES> 29,322,412
<CGS> 0
<TOTAL-COSTS> 24,774,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 355,027
<INTEREST-EXPENSE> 61,555
<INCOME-PRETAX> 4,237,377
<INCOME-TAX> 1,707,194
<INCOME-CONTINUING> 2,523,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,523,995
<EPS-PRIMARY> .36<F1>
<EPS-DILUTED> .33
<FN>
<F1>EPS-PRIMARY REPRESENTS EPS-BASIC
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 5,516,575
<SECURITIES> 0
<RECEIVABLES> 13,352,677
<ALLOWANCES> 1,357,423
<INVENTORY> 0
<CURRENT-ASSETS> 20,618,139
<PP&E> 3,950,123
<DEPRECIATION> 2,208,083
<TOTAL-ASSETS> 48,728,407
<CURRENT-LIABILITIES> 15,553,799
<BONDS> 0
0
0
<COMMON> 69,668
<OTHER-SE> 31,612,785
<TOTAL-LIABILITY-AND-EQUITY> 48,728,407
<SALES> 0
<TOTAL-REVENUES> 109,266,795
<CGS> 0
<TOTAL-COSTS> 95,039,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,033,693
<INTEREST-EXPENSE> 402,003
<INCOME-PRETAX> 11,313,597
<INCOME-TAX> 4,517,688
<INCOME-CONTINUING> 6,656,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,656,016
<EPS-PRIMARY> .96<F1>
<EPS-DILUTED> .87
<FN>
<F1>EPS-PRIMARY REPRESENTS EPS-BASIC
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 7,718,248
<SECURITIES> 0
<RECEIVABLES> 17,445,277
<ALLOWANCES> (2,329,960)
<INVENTORY> 0
<CURRENT-ASSETS> 25,933,919
<PP&E> 3,345,734
<DEPRECIATION> 1,804,441
<TOTAL-ASSETS> 47,804,449
<CURRENT-LIABILITIES> 15,957,946
<BONDS> 0
0
0
<COMMON> 67,023
<OTHER-SE> 26,750,611
<TOTAL-LIABILITY-AND-EQUITY> 47,804,449
<SALES> 0
<TOTAL-REVENUES> 26,879,954
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,513,497
<LOSS-PROVISION> 307,744
<INTEREST-EXPENSE> 106,303
<INCOME-PRETAX> 4,093,435
<INCOME-TAX> 1,686,382
<INCOME-CONTINUING> 2,382,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,382,979
<EPS-PRIMARY> .35<F1>
<EPS-DILUTED> .31
<FN>
<F1>EPS-PRIMARY REPRESENTS EPS-BASIC
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 8,346,373
<SECURITIES> 0
<RECEIVABLES> 15,108,051
<ALLOWANCES> 2,387,622
<INVENTORY> 0
<CURRENT-ASSETS> 23,703,174
<PP&E> 2,813,692
<DEPRECIATION> 1,792,440
<TOTAL-ASSETS> 45,214,000
<CURRENT-LIABILITIES> 14,952,081
<BONDS> 0
0
0
<COMMON> 67,023
<OTHER-SE> 25,082,281
<TOTAL-LIABILITY-AND-EQUITY> 45,214,000
<SALES> 0
<TOTAL-REVENUES> 96,238,966
<CGS> 0
<TOTAL-COSTS> 83,350,214
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,435,049
<INTEREST-EXPENSE> 419,421
<INCOME-PRETAX> 11,387,513
<INCOME-TAX> 4,609,360
<INCOME-CONTINUING> 6,775,756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,775,756
<EPS-PRIMARY> 1.03<F1>
<EPS-DILUTED> .90
<FN>
<F1>EPS-PRIMARY REPRESENTS EPS-BASIC
</FN>
</TABLE>
