<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _______________
Commission file number 1-13626
HORIZON HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2293354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
(Address of principal executive offices, including zip code)
(972) 420-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares outstanding of the registrant's Common Stock, $0.01 par
value, as of December 21, 1999, was 6,241,228.
<PAGE> 2
INDEX
HORIZON HEALTH CORPORATION
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS..................................................3
HORIZON HEALTH CORPORATION
Consolidated Balance Sheets as of August 31, 1999
and November 30, 1999 (unaudited).........................................3
Consolidated Statements of Operations for the three months ended
November 30, 1999 and 1998 (each unaudited)...............................5
Consolidated Statements of Cash Flows for the three months
ended November 30, 1999 and 1998 (each unaudited).........................6
Notes to Consolidated Financial Statements (unaudited)....................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................................11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HORIZON HEALTH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, 1999 AUGUST 31, 1999
----------------- ---------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 2,566,451 $ 5,438,510
Accounts receivable less allowance for uncollectible
accounts of $3,630,209 at November 30, 1999 and
$2,980,849 at August 31, 1999 14,500,170 12,885,399
Prepaid expenses and supplies 807,056 842,701
Other receivables 188,682 200,394
Other current assets 475,361 459,256
Income taxes receivable -- 363,920
Current deferred taxes 2,508,745 2,485,296
----------- -----------
TOTAL CURRENT ASSETS 21,046,465 22,675,476
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment 5,716,139 7,028,809
Building improvements 454,902 454,902
----------- -----------
6,171,041 7,483,711
Less accumulated depreciation 3,217,621 4,192,437
----------- -----------
2,953,420 3,291,274
Goodwill, net of accumulated amortization of $4,748,420
at November 30, 1999, and $4,389,113 at August 31, 1999 52,650,185 53,036,992
Contracts, net of accumulated amortization of $6,169,006
at November 30, 1999, and $5,749,991 at August 31, 1999 6,608,761 7,027,775
Other assets 590,185 504,228
----------- -----------
TOTAL ASSETS $83,849,016 $86,535,745
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
HORIZON HEALTH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, 1999 AUGUST 31, 1999
----------------- ---------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 854,472 $ 1,254,577
Employee compensation and benefits 6,334,417 6,929,722
Medical claims payable 4,688,402 4,558,823
Accrued expenses 8,153,471 5,977,704
Note payable 23,371 35,706
Current portion of long term debt 3,520,000 3,338,000
------------ ------------
TOTAL CURRENT LIABILITIES 23,574,133 22,094,532
Other noncurrent liabilities 351,021 355,191
Long-term debt, net of current portion (Note 4) 14,080,000 16,662,000
Deferred income taxes 1,561,772 1,618,169
------------ ------------
TOTAL LIABILITIES 39,566,926 40,729,892
------------ ------------
Commitments and contingencies (Note 5) -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 500,000 shares
authorized; none issued or outstanding -- --
Common stock, $.01 par value, 40,000,000 shares
authorized; 7,267,750 shares issued and 6,241,228 shares
outstanding at November 30, 1999 and 7,267,750 shares
issued and 6,664,428 shares outstanding at August 31, 1999 72,678 72,678
Additional paid-in capital 18,695,466 18,641,228
Retained earnings 33,291,249 31,506,116
Treasury stock, at cost (1,026,522 shares at November 30,
1999 and 603,322 shares at August 31, 1999) (Note 6) (7,777,303) (4,414,169)
------------ ------------
44,282,090 45,805,853
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 83,849,016 $ 86,535,745
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Contract management $23,261,378 $24,171,856
Premiums and fees 11,711,006 11,592,186
Other 313,594 84,520
------------ ------------
Total revenues 35,285,978 35,848,562
Expenses:
Salaries and benefits 17,911,650 18,346,690
Medical claims 4,406,665 5,982,630
Purchased services 3,246,416 3,507,742
Provision for (recovery of) bad debts 774,984 (692,881)
Depreciation and amortization 1,193,464 1,089,942
Other 4,458,360 4,349,641
------------ ------------
Total operating expenses 31,991,539 32,583,764
Operating income 3,294,439 3,264,798
Other income (expense):
Interest expense (327,855) (408,644)
Interest and other income 107,902 61,519
Gain (loss) on disposal of fixed assets (99,263) 800
------------ ------------
Income before income taxes 2,975,223 2,918,473
Income tax provision 1,190,090 1,152,046
------------ ------------
Net income $1,785,133 $
1,766,427
============ ============
Earnings per common share:
Basic $ .27 $ .25
============ ============
Diluted $ .26 $ .24
============ ============
Weighted average shares outstanding:
Basic 6,607,736 7,153,603
============ ============
Diluted 6,875,860 7,513,275
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Operating Activities:
Net income $ 1,785,133 $ 1,766,427
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,193,464 1,089,942
Deferred income taxes (56,397) 46,120
(Gain) loss on disposal of fixed assets 99,263 (800)
Changes in assets and liabilities:
(Increase) in accounts receivable (1,614,771) (3,231,075)
Decrease in other receivables 39,212 259,206
Decrease in income taxes receivables 363,920 --
Decrease (increase) in prepaid expenses and supplies 35,645 (550,528)
(Increase) in other assets (125,511) (253,527)
Increase in accounts payable, employee compensation and benefits,
medical claims payable, and accrued expenses 1,309,936 351,650
Increase (decrease) in other liabilities (4,170) 7,811
----------- -----------
Net cash provided by (used in) operating activities 3,025,724 (514,774)
----------- -----------
Investing activities:
Purchase of property and fixed assets (176,877) (170,565)
Proceeds from sale of fixed assets 325 800
Payment for purchase of ChoiceHealth, Inc., net of cash acquired -- (1,797,692)
----------- -----------
Net cash used in investing activities (176,552) (1,967,457)
----------- -----------
Financing Activities:
Payments on long term debt (2,412,335) (6,009,484)
Proceeds from long term borrowings -- 6,400,000
Net proceeds from issuance of common stock -- 102,253
Tax benefit related to stock options exercise 54,238 320,617
Cash used in purchase of treasury stock (3,363,134) (2,330,212)
----------- -----------
Net cash provided by (used in) financing activities (5,721,231) (1,516,826)
----------- -----------
Net decrease in cash and short term investments (2,872,059) (3,999,057)
Cash and short-term investments at beginning period 5,438,510 6,204,297
----------- -----------
Cash and short-term investments at end of period $ 2,566,451 $ 2,205,240
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 325,138 $ 401,022
=========== ===========
Income taxes $ 78,429 $ 52,317
=========== ===========
Supplemental disclosure on non-cash investing activities
Payment for ChoiceHealth:
Fair value of assets acquired $ -- $ 3,594,732
=========== ===========
Cash paid -- (2,000,000)
=========== ===========
Liabilities assumed $ -- $ 1,594,732
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
Horizon Health Corporation (the "Company" or "Horizon"), formerly known
as Horizon Mental Health Management, Inc., is a provider of employee
assistance programs ("EAP") and mental health services to businesses and
managed care organizations as well as a contract manager of clinical and
related services, primarily of mental health and physical rehabilitation
programs, offered by general acute care hospitals in the United States.
The management contracts are generally for initial 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; Denver, Colorado;
Orlando, Florida; and Philadelphia, Pennsylvania metropolitan areas. The
Company's National Support Center is in Lewisville, Texas.
Information regarding the Company's recent acquisitions are included in
Note 3 hereof.
BASIS OF PRESENTATION:
The accompanying consolidated balance sheet at November 30, 1999, the
consolidated statements of operations for the three months ended November
30, 1999 and 1998, and the consolidated statements of cash flows for the
three months ended November 30, 1999 and 1998 are unaudited. These
financial statements should be read in conjunction with the Company's
audited financial statements for the year ended August 31, 1999. In the
opinion of Company management, the unaudited consolidated financial
statements include all adjustments, consisting only of normal recurring
accruals, which the Company considers necessary for a fair presentation
of the financial position of the Company as of November 30, 1999, and the
results of operations for the three months ended November 30, 1999 and
1998.
Operating results for the three month periods are not necessarily
indicative of the results that may be expected for a full year or
portions thereof.
2. 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 are computed by dividing income available to
common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflect the
potential dilution that could occur if the Company's stock options were
exercised. Such potential dilutive common shares are calculated using the
treasury stock method.
The following is a reconciliation of the numerators and the denominators
of the basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
For the three months ended November 30,
-----------------------------------------------------------------------------
1999 1998
------------------------------------- --------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
Numerator Denominator Amount Numerator Denominator Amount
----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS............. $ 1,785,133 6,607,736 $ .27 $ 1,766,425 7,153,603 $ .25
----------- --------- ----------- ---------
DILUTIVE SECURITIES
Options............. 268,124 359,672
----------- ----------
DILUTED EPS............ $ 1,785,133 6,875,860 $ .26 $ 1,766,425 7,513,275 $ .24
----------- ----------- --------- ----------- ----------- ---------
</TABLE>
For the fiscal quarters ended November 30, 1999 and 1998, respectively,
certain shares subject to options were not included in the computation of
EPS because the option exercise price was greater than the average market
price of the common shares for the quarter. The computation for the
quarter ended November 30, 1999 excluded 772,910 shares subject to
options with exercise prices ranging from $6.90 to $23.75. The
computation for the quarter ended November 30, 1998 excluded 163,390
shares subject to options with exercise prices ranging from $7.41 to
$23.75.
7
<PAGE> 8
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. ACQUISITIONS
REACH
Effective April 1, 1999, the Company acquired all of the outstanding
capital stock of Resources in Employee Assistance and Corporate Health,
Inc. ("REACH") of Murray Hill, New Jersey, and REACH has been
consolidated with the Company as of April 1, 1999. The Company accounted
for the acquisition of REACH by the purchase method. REACH provides
employee assistance programs and other related behavioral health care
services to self-insured employers. REACH had total revenues of
approximately $1.4 million (unaudited) for the ten months ending March
31, 1999. The purchase price of approximately $2.0 million in cash was
funded by a $2.0 million advance under the Company's existing term loan
credit facility. As of November 30, 1999, the preliminary allocation of
the purchase price exceeded the fair value of REACH's tangible net assets
by $2,326,846, of which $2,054,791 is recorded as goodwill and $272,055
as service contracts. Tangible assets acquired and liabilities assumed
totaled $150,496 and $477,342, respectively.
CHOICEHEALTH, INC.
Effective October 5, 1998, the Company acquired all of the outstanding
capital stock of ChoiceHealth, Inc. ("ChoiceHealth") of Westminster,
Colorado, and ChoiceHealth has been consolidated with the Company as of
October 5, 1998. The Company accounted for the acquisition of
ChoiceHealth by the purchase method. ChoiceHealth provides managed
behavioral health care services, employee assistance programs and other
related behavioral health care services to health maintenance
organizations and self-insured employers. ChoiceHealth has total revenues
of approximately $7.6 million (unaudited) for the eight months ended
August 31, 1998. The purchase price of approximately $2.0 million in cash
was funded by a $2.0 million advance under the Company's existing term
loan credit facility. The allocation of the purchase price exceeded the
fair value of ChoiceHealth's tangible net assets by $3,086,936, of which
$2,907,927 is recorded as goodwill and $179,009 as service contracts.
Tangible assets acquired and liabilities assumed totaled $809,848 and
$1,877,069, respectively.
4. LONG-TERM DEBT
At November 30, 1999 and August 31, 1999, the Company had the following
long-term debt:
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1999 1999
----------- -----------
<S> <C> <C>
Term Loan Facility $17,600,000 $20,000,000
Revolving Credit Facility -- --
Borealis Note 23,371 35,706
----------- -----------
17,623,371 20,035,706
Less current maturities 3,543,371 3,373,706
----------- -----------
$14,080,000 $16,662,000
=========== ===========
</TABLE>
On December 9, 1997, the Company entered into a Credit Agreement (the
"Credit Agreement") with Chase Bank of Texas, 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 "Credit Facility"). The Credit Facility consists of a $10.0
million revolving credit facility to fund ongoing working capital
requirements and an initial $40.0 million term loan facility to refinance
certain existing debt and to finance future acquisitions by the Company.
As of November 30, 1999, the Company had borrowings of $17.6 million
outstanding against the term loan facility against which it can no longer
draw, and $10.0 million available under the revolving credit facility.
8
<PAGE> 9
HORIZON HEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The credit facility bears interest at (1) the Base Rate plus the Base
Rate Margin, as defined or (2) the LIBOR Rate plus the LIBOR Margin, as
defined. At November 30, 1999, the interest rate on outstanding
indebtedness under the credit facility was 7.125%. The Base Rate Margin
and LIBOR Margins vary depending on the debt coverage ratio of the
Company. The revolving credit facility matures on November 30, 2000. The
advance term loan facility requires quarterly payments of principal
beginning February 29, 2000 and continuing through maturity on November
30, 2002.
The company acquired a custom software system upon the acquisition of
ChoiceHealth (see Note 3). The software system is financed by a note to
Borealis Software Systems, Inc., the company that designed the system.
The note will be paid off by May 1, 2000.
5. 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>
<S> <C>
Nine months ending August 31, 2000 $1,372,066
For the year ending August 31, 2001 1,455,217
For the year ending August 31, 2002 880,193
For the year ending August 31, 2003 618,984
For the years ending August 31, 2004 and thereafter 376,548
----------
$4,703,008
==========
</TABLE>
Rent expense for the three months ended November 30, 1999 and 1998
totaled $630,726 and $510,519 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 in September 2001, if it is not sold
to a third party, or the Company does not extend its lease. The Company's
current intention is to extend the lease.
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,
net of any applicable insurance, would not be significantly in excess of
any reserves or have a material adverse effect on the Company's financial
position or results of operations.
6. STOCK REPURCHASES
On September 21, 1998, the Board of Directors of the Company authorized
the repurchase of up to 1,000,000 shares of its common stock and on
November 19, 1999 authorized the repurchase of an additional 200,000
shares of its common stock. The stock repurchase plan authorized the
Company to make purchases of its outstanding common stock from time to
time in the open market or through privately negotiated transactions,
depending on market conditions and applicable securities regulations. The
repurchased shares were added to the treasury shares of the Company and
may be used for employee stock plans and for other corporate purposes.
The shares were repurchased utilizing available cash and borrowings under
the Company's credit facility. The Company had repurchased 1,189,300
shares of its common stock as of November 30, 1999, of which 162,778 has
been reissued pursuant to the exercise of certain stock options.
9
<PAGE> 10
The Company completed the stock repurchase plan in November 1999. In
accordance with certain provisions of its term loan facility agreement,
no further purchases can be made after November 1999.
7. SEGMENT INFORMATION
The following schedule represents revenues and operating results for the
three months ended November 30, 1999 and 1998 by operating subsidiary:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
Horizon
Horizon Mental Specialty Mental
Behavioral Health Rehab Health Intercompany
Services Management Management Outcomes Other Eliminations Consolidated
------------ ------------ ----------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NOVEMBER 30, 1999
Revenues $ 11,729,528 $ 20,335,650 $ 2,877,481 $ 295,447 $ 47,873 $ -- $ 35,285,978
Inter Company Revenues 18,405 -- -- 382,576 -- (400,981) --
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 1,531,604 5,093,790 320,164 30,334 (2,487,989) -- 4,487,903
Total Assets 43,318,800 60,336,089 5,379,557 376,296 25,176,334 (50,738,060) 83,849,016
NOVEMBER 30, 1998
Revenues $ 11,517,043 $ 21,912,507 $ 2,278,603 $ 91,985 $ 48,424 $ -- $ 35,848,562
Inter Company Revenue 12,930 -- -- 427,495 -- (440,425) --
Earnings before interest,
taxes, depreciation, and
amortization (EBITDA) 505,349 4,424,351 570,853 178,023 (1,323,836) -- 4,354,740
Total Assets 46,829,051 53,309,146 3,885,222 493,659 41,594,002 (57,189,372) 88,921,978
</TABLE>
(A) Horizon Behavioral Services provides managed behavioral care and employee
assistance programs.
(B) Horizon Mental Health Management provides mental health contract management
services to general acute care hospitals.
(C) Specialty Rehab Management provides physical rehabilitation contract
management services to general acute care hospitals.
(D) Mental Health Outcomes provides outcome measurement information regarding
the effectiveness of mental health treatment programs and data base
services.
(E) "Other" represents the Company's corporate offices and National Support
Center located in Lewisville, Texas which provides management, financial,
human resource, and information system support for the Company and its
subsidiaries.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a provider of employee assistance plans ("EAP") and
behavioral health services to businesses and managed care organizations, as well
as a leading contract manager of psychiatric and physical rehabilitation
clinical programs offered by general acute care hospitals in the United States.
The Company has grown both internally and through acquisitions, increasing both
the variety of its treatment programs and services and the number of its
management contracts. Over the last seven years, the Company has increased its
management contracts from 43 to a total of 151 as of November 30, 1999 and
currently has contract locations in 34 states. Of its management contracts, 126
relate to mental health treatment programs and 25 relate to physical
rehabilitation programs. The Company has also developed a proprietary mental
health outcomes measurement system known as CQI+. At November 30, 1999, the
Company provided outcome measurement services as well as data services under 110
contracts.
Through its subsidiary Horizon Behavioral Services, Inc., at November
30, 1999, the Company had 271 contracts to provide EAP and managed behavioral
health services covering over 2.3 million lives. The Company offers an array of
managed care products to corporate clients, self-funded employer groups,
commercial HMO and PPO plans, government agencies, and third party payors.
Revenues are derived from EAP services, administrative only services, and at
risk managed behavioral health services.
During the next fiscal quarter the Company anticipates the
continuation of the effects of the termination of four significant managed care
contracts, one of which occurred in the quarter ended November 30, 1999 and the
other three will occur in the quarter ending February 29, 2000. These contracts
currently provide annual revenues of approximately $11 million, or about 8% of
the company's total annual revenues. One of the four contract terminations
results from a client insolvency which resulted in a $288,000 charge to bad debt
during the three months ended November 30, 1999. Because of the timing of the
actual termination dates, the full financial impact of the terminations will not
be realized until the third fiscal quarter ending May 31, 2000.
The fees received by the Company for its services under management
contracts are paid directly by its client hospitals. The client hospitals
receive reimbursement under either the Medicare or Medicaid programs or payments
from insurers, self-funded benefit plans or other third-party payors for the
mental health and physical rehabilitation services provided to patients of the
programs managed by the Company. As a result, the availability and amount of
such reimbursement impacts the decisions of general acute care hospitals
regarding whether to offer mental health and physical rehabilitation services
pursuant to management contracts with the Company.
Amendments to the Medicare regulations in 1997 as part of the Balanced
Budget Act, established maximum reimbursement amounts on a per case basis for
both inpatient mental health and physical rehabilitation services. The
reimbursement amounts were raised to $11,100 and $20,129, from $10,787 and
$19,562 respectively, for Medicare fiscal years beginning October 1, 1999 and
later. In addition, these amendments established a new ceiling on the rate of
increase in operating costs per case for mental health and physical
rehabilitation services furnished to Medicare beneficiaries. Prior to these
amendments, the reimbursement limits were tied to the hospital's mental health
or physical rehabilitation unit cost during the unit's first year of operations
under a cost based system, subject to certain adjustments. The limitations have
resulted, in some cases, in decreased amounts reimbursed to the Company's client
hospitals. This decrease in reimbursement has, in some cases, led to the
renegotiation of a lower contract management fee structure for the Company and
in other cases has resulted in the termination or nonrenewal of the management
contract.
Recent amendments to the Medicare statutes also provide for the
elimination of cost based reimbursement of partial hospitalization services
effective upon 90 days notice from Medicare. Thereafter, reimbursement for
partial hospitalization services based on the Medicare outpatient prospective
payment system ("PPS") will utilize a fixed reimbursement amount per patient
day. The currently proposed reimbursement rate per patient day is a
wage-adjusted rate of $206.71, which will lower Medicare reimbursement levels to
many hospitals for partial hospitalization services and therefore cause lower
fees to be paid to the Company under contracts for partial hospitalization
services. In an effort to lessen the potentially significant decrease in
reimbursement amounts to hospitals, additional legislation has been passed that
will allow for supplemental reimbursement to the per patient day amount of
$206.71. The additional reimbursement will be on a tiered system and is
structured to be eventually phased out.
Revenues from partial hospitalization services were $4.0 million, or
17.0% of total contract management revenues for the quarter ended November 30,
1999. Of the 151 management contracts at November 30, 1999, 99 contracts or
65.6% of the contracts include partial hospitalization services. Of the 99
partial contracts, 81 program locations were in operation and had a partial
hospitalization program in operation, 15 program locations were in operation,
but the partial hospitalization programs were not yet in operation, and 3
program locations were not yet in operation for any of the programs. The
termination of all partial hospitalization contracts, while unlikely and not
expected, would reduce operating income by $5.0 million or more annually.
11
<PAGE> 12
A recently enacted amendment to the Medicare statutes provides for a
gradual phase-out of cost-based reimbursement of physical rehabilitation
services over a three-year period beginning October 1, 2000. The resulting
phase-in of reimbursement for physical rehabilitation services based on PPS
could significantly lower Medicare reimbursements to hospitals and thus could
have a material adverse effect on the business, operations and financial results
of the Company.
A number of the Company's client hospitals and managed care customers
are experiencing cash flow problems, increasing the Company's exposure to bad
debts. As a result, pursuant to the Company's general policy of reserving for
accounts receivable balances greater than 90 days outstanding, bad debt expense
in the quarter increased to $775,000 and the ending reserve for bad debts to
$3.6 million or 20% of accounts receivable. The Company is being more vigorous
in its collection efforts.
Information regarding the Company's recent acquisitions are included in
Note 3 of the Notes to Consolidated Financial Statements (unaudited).
SUMMARY STATISTICAL DATA
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31, AUGUST 31, AUGUST 31,
1999 1999 1998 1997
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
EAP AND MENTAL HEALTH SERVICES
Covered Lives 2,357,564 2,472,791 1,894,015 288,519
CONTRACT MANAGEMENT
NUMBER OF CONTRACT LOCATIONS:
Contract locations in operation 141 147 161 181
Contract locations signed and unopened 10 6 11 14
--------- --------- --------- ---------
Total contract locations 151 153 172 195
========= ========= ========= =========
SERVICES COVERED BY CONTRACTS IN OPERATION:
Inpatient 128 133 149 166
Partial Hospitalization 81 86 102 104
Outpatient 26 27 32 24
Home health 8 7 10 17
CQI + and data systems (under contract) 110 106 82 86
TYPES OF TREATMENT PROGRAMS IN OPERATION:
Geropsychiatric 158 165 189 197
Adult psychiatric 50 54 67 75
Substance abuse 4 4 8 10
Physical Rehabilitation 25 25 20 20
Other 6 5 9 9
</TABLE>
12
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth for the three months ended November 30, 1999 and
1998, the percentage relationship to total revenues of certain costs, expenses
and income.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30,
1999 1998
----- -----
<S> <C> <C>
Revenues:
Contract management revenues 65.9 % 67.4 %
Premiums and fees 33.2 32.3
Other .9 .3
----- -----
Total revenues 100.0 100.0
Operating revenues
Salaries and benefits 50.8 51.1
Medical claims 12.5 16.7
Purchased services 9.2 9.8
Provision for (recovery of) bad debts 2.2 (1.9)
Depreciation and amortization 3.4 3.0
Other 12.6 12.2
----- -----
Total operating expenses 90.7 90.9
----- -----
Operating income 9.3 9.1
----- -----
Interest and other income(expenses), net (.9) (1.0)
----- -----
Income before taxes 8.4 8.1
Income tax expense 3.3 3.2
----- -----
Net income 5.1 % 4.9 %
===== =====
</TABLE>
13
<PAGE> 14
THREE MONTHS ENDED NOVEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
NOVEMBER 30, 1998
Revenue. Revenues for the three months ended November 30, 1999 were
$35.3 million representing a decrease of $562,000 or 1.6%, as compared to
revenues of $35.8 million for the corresponding period in the prior fiscal year.
Contract management revenue decreased $1.0 million, or 2.7%, due to a decline in
the average number of contract locations in operation from 156.5 for the three
months ended November 30, 1998, to 143.0 for the three months ended November 30,
1999. The decrease of $1.0 million or 2.7% was offset by an increase in same
store sales, that is management contracts in operation for both the entire
quarters ended November 30, 1998 and November 30, 1999, of $197,000. Premiums
and fees increased $119,000 primarily as a result of the acquisitions of
ChoiceHealth and REACH. Horizon acquired 100% of the outstanding capital stock
of ChoiceHealth and REACH effective October 5, 1998, and April 1, 1999,
respectively. Other revenue increased $203,000 as a result of an increase in
"third party" outcomes measurement contracts with facilities other than those
managed by the Company from six at November 30, 1998 to forty-seven at November
30, 1999.
Salaries and Benefits. Salaries and benefits for the three months ended
November 30, 1999 were $17.9 million representing a decrease of $400,000, or
2.2%, as compared to salaries and benefits of $18.3 million for the three months
ended November 30, 1998. Average full time equivalents for the three months
ended November 30, 1999 were 1,226 representing a decrease of 30, as compared to
average full time equivalents of 1,256 for the three months ended November 30,
1998. Salary and benefit cost per full time equivalent for the three months
ended November 30, 1999, was $14,611, as compared to $14,576 for the three
months ended November 30, 1998.
Depreciation and Amortization. Depreciation and amortization expenses
for the three months ended November 30, 1999 were $1,193,000 representing an
increase of $103,000, or 9.4%, as compared to depreciation and amortization
expenses of $1,090,000 for the corresponding period in the prior fiscal year. An
increase of $31,000 is due to the amortization of goodwill of $2.6 million and
$2.0 million resulting from the acquisitions of ChoiceHealth and REACH,
respectively. Amortization expense also increased $16,000 in relation to the
value placed on the contracts of ChoiceHealth and REACH. The remaining increase
results from the depreciation expense of additional equipment acquired by
acquisition or purchased for the operation of the Company's contract management
and managed care business.
Other Operating Expenses (Including Medical Claims, Purchased Services
and Provision for Bad Debts). Other operating expenses for the three months
ended November 30, 1999 were $12.9 million representing a decrease of $261,000
or 2.0%, as compared to other operating expenses of $13.1 million for the
corresponding period in the prior fiscal year. The following components identify
the variances between the periods reported.
Medical Claims expense for the three months ended November 30, 1999 was
$4.4 million representing a decrease of $1.6 million or 26.3%, as compared to
medical claims expense of $6.0 million for the corresponding period in the prior
fiscal year. This is primarily the result of improved utilization management and
review of patients seeking authorization for treatment. The improved utilization
management resulted in a decrease in inpatient cost, attained primarily by
directing patient care toward lower cost inpatient facilities and the use of
outpatient treatment options. Inpatient days per year per one thousand members
decreased from an average of 23.4 for the three months ended November 30, 1998
to 16.8 for the three months ended November 30, 1999.
Purchased services for the three months ended November 30, 1999 were
$3.2 million representing a decrease of $261,000 or 7.4%, as compared to
purchased services of $3.5 million for the corresponding period in the prior
fiscal year. Medical director stipends decreased $332,000 for the three months
ended November 30, 1999 as compared to the corresponding period in the prior
fiscal year. This decrease is a result of the decrease in the average number of
contract locations in operation, from 156.5 for the three months ended November
30, 1998 to 143.0 for the three months ended November 30, 1999. The decrease in
Medical Director stipends is partially offset by an increase in locum tenen fees
between the periods of $42,000.
Bad debt expense for the three months ended November 30, 1999 was
$775,000 representing an increase of $1.5 million as compared to a net recovery
of bad debt expense of $693,000 for the three months ended November 30, 1998.
Bad debt expense, excluding the recovery of $1,750,000 related to one former
Specialty Healthcare Management, Inc contract, was $1.1 million for the three
months ended November 30, 1998. In the three months ended November 30, 1999 bad
debt expense increased $288,000 due to the reserve of outstanding balances
related to one managed care contract with a HMO that was placed into
receivership during the quarter. Additionally, bad debt expense increased
$218,000 due to fully reserving one contract management location.
14
<PAGE> 15
Interest and Other Income (Expense), Net. Interest income, interest
expense, and other income for the three months ended November 30, 1999 was a net
expense of $319,000, as compared to $346,000 for the corresponding period in the
prior fiscal year. This change results primarily from a decrease in interest
expense of approximately $78,000 related to a decrease in the average
outstanding credit facility balances between the periods. Also, interest income
increased $46,000 due to an increase in average cash on hand during the period.
These increases to other income were offset by a $99,000 loss on disposal of
assets related to the write-off of obsolete computer equipment and software.
Income Tax Expense. For the three-month period ended November 30, 1999,
the Company recorded federal and state income taxes of $1.2 million resulting in
a combined tax rate of 40.0%. For the three-month period ended November 30,
1998, the Company recorded federal and state income taxes of $1.2 million
resulting in a combined tax rate of 39.5%.
LIQUIDITY AND CAPITAL RESOURCES
On December 9, 1997, the Company entered into a Credit Agreement (the
"Credit Agreement") with Chase Bank of Texas, National Association as Agent (the
"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 "Credit Facility"). The Credit Agreement consisted of a $10.0 million
revolving credit facility to fund ongoing working capital requirements (the
"Revolving Credit Facility") and an initial $40.0 million term loan facility to
refinance certain existing debt and to finance future acquisitions by the
Company (the "Term Loan Facility"). At November 30, 1999, the Term Loan Facility
had $17.6 million outstanding, against which it can no longer draw and $10.0
million was available under the revolving credit facility.
The following summary of certain material provisions of the Credit
Agreement does not purport to be complete, and is subject to, and qualified in
its entirety by reference to, the Credit Agreement, a copy of which was filed as
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, for the quarter
ended November 30, 1997, as filed with the Securities and Exchange Commission
(the "Commission") on December 19, 1997.
The Company is the borrower under the Credit Agreement which is
unconditionally guaranteed by all material domestic subsidiaries of the Company.
The Revolving Credit Facility terminates November 30, 2000 and the Term Loan
Facility has a term of five years, with availability no longer existent as of
November 30, 1999. Amounts outstanding under the Term Loan Facility on November
30, 1999 are to be repaid in twelve quarterly principal payments, beginning
February 29, 2000, based upon a five year amortization schedule with the first
eleven principal payments being 1/20th of the outstanding balance on November
30, 1999, and the twelfth being the remaining unpaid principal balance. Based on
the November 30, 1999 term loan balance of $17.6 million, each quarterly
repayment will be $880,000. Principal outstanding under the Credit Agreement
bears interest at either the "Base Rate" (the greater of the Agent's "prime
rate" or the federal funds rate plus .5%) plus 0% to .5% (depending on the
Company's Indebtedness to EBITDA Ratio as defined in the Credit Agreement) or
the "Eurodollar Rate" plus .75% to 1.5% (depending on the Indebtedness to EBITDA
Ratio), as selected by the Company. The Company incurs quarterly commitment fees
ranging from .25% to .375% per annum (depending on the Indebtedness to EBITDA
Ratio) on the unused portion of the Revolving Credit Facility (until November
30, 2000).
The Company is subject to certain covenants which include prohibitions
against (i) incurring additional debt or liens, except specified permitted debt
or permitted liens, (ii) certain material acquisitions, other than specified
permitted acquisitions (including any single acquisition not greater than $10.0
million or cumulative acquisitions not in excess of $30.0 million during any
twelve consecutive monthly periods, (iii) certain mergers, consolidations or
asset dispositions by the Company or changes of control of the Company, (iv)
declaring, ordering or paying any sum for any dividend or other distribution,
(v) certain management vacancies at the Company, and (vi) material change in the
nature of business conducted. In addition, the terms of the Credit Facility
require the Company to satisfy certain ongoing financial covenants. The Credit
Facility is secured by a first lien or first priority security interest in
and/or pledge of substantially all of the assets of the Company and of all
present and future subsidiaries of the Company.
The Company is also subject to a provision requiring certain
prepayments of the outstanding advance term loan balance. If the aggregate
outstanding principal amount of the term loans equals or exceeds $15 million as
of the date ninety days after the end of a fiscal year, then the Company is
required to prepay the term loan in an amount equal to 50% of the excess cash
flow (as defined in the credit agreement) calculated for the fiscal year then
most recently ended based on the audited financial statements of the Company.
All such required prepayments with respect to the 1999 fiscal year were made on
or before November 30, 1999.
15
<PAGE> 16
As of September 30, 1998, the Credit Facility was amended to allow the
Company to utilize advances, under the Term Loan Facility, to repurchase its
capital stock through November 30, 1999. As of November 30, 1999, the Company
had repurchased 1,189,300 shares of its common stock, of which 162,778 shares
had been reissued pursuant to the exercise of certain stock options. Through
November 30, 1999, advances of $4.0 under the term loan had been used for stock
repurchases.
Effective September 1996, the Company entered into a lease agreement
with a term of five years for a building, which had been constructed, to the
Company's specifications for its National Support Center. In connection with the
lease transaction, the Company guaranteed a loan of approximately $900,000. The
loan was by a financial institution to the owner. The Company also agreed to
purchase the leased building for approximately $4.5 million at the end of the
lease term in September 2001 if either the building is not sold to a third party
or the Company does not extend its lease. The Company's current intention is to
extend the lease.
As of November 30, 1999, the Company had $2.6 million of cash on hand
and is required to pay $3.5 million in principal amortization over the next year
and expects $800,000 in capital expenditures; therefore, in order to meet its
obligations, the Company needs positive cash flow of approximately $1.7 million
over the next year. The Company believes that its cash flow will be in excess of
this amount. For the quarter just ended, the Company had operating cash flow of
$3.0 million. However, the Company anticipates the termination of four
significant managed care contracts which currently provide annual revenues of
approximately $11 million, or about 8% of the Company's total annual revenues.
If the Company needs additional cash during the next twelve months it also has
$10 million available under the revolving credit facility which expires November
30, 2000.
Recent amendments to the Medicare statutes provide for the elimination
of cost based reimbursement of partial hospitalization services effective upon
90 days notice from Medicare. The resulting reimbursement for partial
hospitalization services based on the Medicare outpatient prospective payment
system will utilize a fixed reimbursement amount per patient day. The currently
proposed reimbursement rate per patient day is a wage-adjusted rate of $206.71,
which will lower Medicare reimbursement levels to many hospitals for partial
hospitalization services. However, additional legislation has been passed which
will provide additional reimbursement for a percentage of the difference in
reimbursement, as a result of the new methodology. This change will adversely
affect the ability of the Company to obtain management contracts for partial
hospitalization services and the amount of fees paid to the Company under such
contracts.
Revenues from partial hospitalization services were $4.0 million, or
17.0% of total contract management revenues for the quarter ended November 30,
1999. Of the 151 management contracts at November 30, 1999, 99 contracts or
65.6% of the contracts include partial hospitalization services. Of the 99
partial contracts, 81 program locations were in operation and had a partial
hospitalization program in operation, 15 program locations were in operation,
but the partial hospitalization programs were not yet in operation, and 3
program locations were not yet in operation for any of the programs. The
termination of all partial hospitalization contracts, while unlikely and not
expected, would reduce operating income by $5.0 million or more annually.
Effective October 5, 1998, the Company acquired all the outstanding
capital stock of ChoiceHealth for approximately $2.0 million. The acquisition
was funded by incurring debt of $2.0 million under the Term Loan Facility.
Effective April 1, 1999, the Company acquired all the outstanding
capital stock of REACH for approximately $2.0 million. The acquisition was
funded by incurring debt of $2.0 million under the Term Loan Facility.
CERTAIN ADJUSTED EARNINGS DATA
The following table sets forth for the three months ended November 30,
1999 and 1998, diluted earnings per share based on net income plus amortization
expense related to goodwill, net of tax, and operating cash flow per share based
on net income plus depreciation and amortization expense, net of tax, less
capital expenditures.
<TABLE>
<CAPTION>
Three Months ended November 30,
-------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Adjusted earnings per share
(Net income plus amortization related to goodwill, net of tax) $ .30 $ .27
Operating cash flow per share
(Net income plus depreciation and amortization, net of tax, $ .41 $ .36
less capital expenditures)
</TABLE>
16
<PAGE> 17
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. The
Company's computer equipment and software and devices with embedded technology
that are time-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failure or miscalculations,
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company has undertaken various initiatives intended to ensure that
the computer equipment and software used by the Company will function properly
with respect to dates in the Year 2000 and thereafter. For this purpose, the
term "computer equipment and software" includes systems thought of as
information technology ("IT") systems, including accounting, data processing and
telephone/PBX systems and other miscellaneous systems that may contain embedded
technology, as well as systems that are not commonly thought of as IT systems,
such as alarm systems, fax machines or other miscellaneous systems that may
contain embedded technology.
Based upon its identification and assessment efforts, the Company
determined that certain of its computer equipment and software systems required
replacement or modification. In addition, in the ordinary course of replacing
computer equipment and software, the Company obtained replacements that are Year
2000 compliant. Utilizing both internal and external resources to identify and
assess needed Year 2000 remediation, the Company currently anticipates that its
Year 2000 identification, assessment, remediation and testing efforts, which
began in April 1998, will be completed by December 31, 1999, prior to any
currently anticipated impact on its computer equipment and software systems. The
Company estimates that as of November 30, 1999, it had substantially completed
the initiatives that it believes will be necessary to fully address potential
Year 2000 issues related to its computer equipment and software. The remaining
initiatives, which are not deemed significant, are in process and are expected
to be completed by December 31, 1999.
The Company has assessed of the Year 2000 readiness of its suppliers,
including hardware, software and service suppliers, and the readiness of its
customers. Such assessment included contacting significant companies regarding
their state of Year 2000 readiness. The Company does not anticipate any
significant issues related to its suppliers.
The Company believes that the costs to modify its computer equipment
and software systems to be Year 2000 compliant, as well as the currently
anticipated costs with respect to Year 2000 issues of third parties, will not
exceed $150,000, which expenditures will be funded from operating cash flows.
The monies relate to analysis, repair or replacement of existing software,
upgrades of existing software or evaluation of information received from
significant suppliers or customers. Such an amount represents an immaterial
percentage of the Company's total actual and anticipated IT expenditures. As of
November 30, 1999, the Company had incurred costs of approximately $100,000
related to its Year 2000 identification, assessment, remediation and testing
efforts. Other non-Year 2000 IT efforts have not been materially delayed or
impacted by Year 2000 initiatives. However, if the Year 2000 issues have not
been properly identified, or assessment, remediation and testing are not
effective, there can be no assurance that the Year 2000 issue will not have a
material adverse effect on the Company's results of operations, or adversely
affect the Company's relationships with customers, suppliers or others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities will not have a material adverse effect on the Company's systems or
results or operations.
The Company has performed an analysis of the operational problems and
costs (including loss of revenues) that would be reasonably likely to result
from the failure by the Company and certain third parties to complete efforts
necessary to achieve Year 2000 compliance on a timely basis. An essential
contingency plan has been developed.
The costs of the Company's Year 2000 identification, assessment,
remediation and testing efforts and the date by which the Company believes it
will complete such efforts are based upon management's best estimates, which are
derived utilizing numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. However, there can be no assurance that these estimates will
prove to be accurate and actual results could differ materially from those
currently anticipated. Specific factors that might cause such material
differences include but are not limited to the availability and cost of
personnel trained in Year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology, and
similar uncertainties.
17
<PAGE> 18
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain written and oral statements made or incorporated by reference
from time to time by the Company or its representatives in this report, other
reports, filings with the Commission, press releases, conferences, or otherwise,
are "forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements include, without limitation, any
statement that may predict, forecast indicate, or imply future results,
performance or achievements, and may contain the words "believe," "anticipate,"
"expect," "estimate," "project," "will be," "will continue," "will likely
result," or words or phrases of similar meaning. Such statements involve risks,
uncertainties or other factors which may cause actual results to differ
materially from the future results, performance or achievements expressed or
implied by such forward looking statements. Certain risks, uncertainties and
other important factors are detailed in this report and will be detailed from
time to time in reports filed by the Company with the Commission, including
Forms 8-K, 10-Q, and 10-K, and include, among others, the following: general
economic and business conditions which are less favorable than expected;
unanticipated changes in industry trends; decreased demand by general hospitals
for the Company's services; the Company's inability to retain existing
management, EAP or managed care contracts or to obtain additional contracts;
adverse changes in reimbursement to general hospitals by Medicare or other
third-party payers for costs of providing mental health or physical
rehabilitation services; adverse changes to other regulatory provisions relating
to mental health or physical rehabilitation services; fluctuations and
difficulty in forecasting operating results; the ability of the Company to
sustain, manage or forecast its growth; heightened competition, including
specifically the intensification of price competition; the entry of new
competitors and the development of new products or services by new and existing
competitors; changes in business strategy or development plans; inability to
carry out marketing and sales plans; business disruptions; liability and other
claims asserted against the Company; loss of key executives; the ability to
attract and retain qualified personnel; customer services; adverse publicity;
demographic changes; and other factors referenced or incorporated by reference
in this report and other reports or filings with the Commission. Moreover, the
Company operates in a very competitive and rapidly changing environment. New
risk factors emerge from time to time and it is not possible for management to
predict all such risk factors, nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward looking statements. These forward-looking statements
represent the estimates and assumptions of management only as of the date of
this report. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward looking statement contained
herein to reflect any change in its expectations with regard thereto or any
change in events, conditions or circumstances on which any statement is based.
Given these risks and uncertainties, investors should not place undue reliance
on forward looking statements as a prediction of actual results.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In its normal operations, the Company has market risk exposure to
interest rates due to its interest bearing debt obligations, which were entered
into for purposes other than trading purposes. To manage its exposure to changes
in interest rates, the Company uses both fixed and variable rate debt. The
Company has estimated its market risk exposure using sensitivity analyses
assuming a 10% change in market rates.
At November 30, 1999, the Company had approximately $17.6 million of
debt obligations outstanding with an interest rate of 7.125%. A hypothetical 10%
change in the effective interest rate for these borrowings, assuming debt levels
as of November 30, 1999, would change interest expense by approximately $125,000
annually. This would be funded out of cash flows from operations, which were
$3.0 million for the three months ended November 30, 1999.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NUMBER EXHIBIT
3.1 Certificate of Incorporation of the Company, as amended (incorporated
herein by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K dated August 11, 1997).
3.2 Amended and Restated Bylaws of the Company, as amended (incorporated
herein by reference to Exhibit 3.2 to Amendment No. 2 as filed with the
Commission on February 16, 1995 to the Company's Registration Statement
on Form S-1 filed with the Commission on January 6, 1995 (Registration
No. 33-88314)).
4.1 Specimen certificate for the Common Stock, $.01 par value of the
Company (incorporated herein by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated August 11, 1997).
4.2 Rights Agreement, dated February 6, 1997, between the Company and
American Stock Transfer & Trust Company, as Rights Agent (incorporated
herein by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A, Registration No. 000-22123, as filed with the
Commission on February 7, 1997).
11.1 Statement Regarding Computation of Per Share Earnings (filed herewith).
27.1 Financial Data Schedule for the Three Months Ended November 30, 1999
(filed herewith).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
20
<PAGE> 21
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.
DATE: DECEMBER 22, 1999
HORIZON HEALTH CORPORATION
BY: /s/ RONALD C. DRABIK
-----------------------------------------
RONALD C. DRABIK
SENIOR VICE PRESIDENT-FINANCE AND
ADMINISTRATION AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (incorporated
herein by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K dated August 11, 1997).
3.2 Amended and Restated Bylaws of the Company, as amended (incorporated
herein by reference to Exhibit 3.2 to Amendment No. 2 as filed with the
Commission on February 16, 1995 to the Company's Registration Statement
on Form S-1 filed with the Commission on January 6, 1995 (Registration
No. 33-88314)).
4.1 Specimen certificate for the Common Stock, $.01 par value of the
Company (incorporated herein by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated August 11, 1997).
4.2 Rights Agreement, dated February 6, 1997, between the Company and
American Stock Transfer & Trust Company, as Rights Agent (incorporated
herein by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A, Registration No. 000-22123, as filed with the
Commission on February 7, 1997).
11.1 Statement Regarding Computation of Per Share Earnings (filed herewith).
27.1 Financial Data Schedule for the Three Months Ended November 30, 1999
(filed herewith).
</TABLE>
<PAGE> 1
EXHIBIT 11.1
HORIZON HEALTH CORPORATION
COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
BASIC
Net income $ 1,785,133 $ 1,766,425
Weighted average shares outstanding (basic) 6,607,736 7,153,603
Basic earnings per share $ .27 $ .25
DILUTED
Net income $ 1,785,133 $ 1,766,425
Effect of dilutive securities 268,124 359,672
Weighted average shares outstanding (diluted) 6,875,860 (1) 7,513,275 (1)
Diluted earnings per share $ .26 $ .24
</TABLE>
(1) In the fiscal quarters ended 1999 and 1998, certain shares subject to
options to acquire common stock were not included in the computation of EPS
because the option exercise price was greater than the average market price
of the common shares for the quarter. The computation for the quarter ended
November 30, 1999 excluded 772,910 shares subject to options, with exercise
prices ranging from $6.90 to $23.75. The computation for the quarter ended
November 30, 1998 excluded 163,390 shares subject to options, with exercise
prices ranging from $7.41 to $23.75.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THREE
MONTHS ENDED NOVEMBER 30, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH YEAR TO DATE 10-Q FILING FOR THE APPLICABLE
PERIOD.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 2,566,451
<SECURITIES> 0
<RECEIVABLES> 18,130,379
<ALLOWANCES> 3,630,209
<INVENTORY> 0
<CURRENT-ASSETS> 21,046,465
<PP&E> 6,171,041
<DEPRECIATION> 3,217,621
<TOTAL-ASSETS> 83,849,016
<CURRENT-LIABILITIES> 23,574,133
<BONDS> 0
0
0
<COMMON> 72,678
<OTHER-SE> 44,209,412
<TOTAL-LIABILITY-AND-EQUITY> 83,849,016
<SALES> 0
<TOTAL-REVENUES> 35,285,979
<CGS> 0
<TOTAL-COSTS> 31,216,555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 774,984
<INTEREST-EXPENSE> 327,855
<INCOME-PRETAX> 2,975,223
<INCOME-TAX> 1,190,090
<INCOME-CONTINUING> 1,785,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,785,133
<EPS-BASIC> .27
<EPS-DILUTED> .26
</TABLE>
