SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
Current Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
Date of Report:December 16, 1995.
HEALTHSOUTH Corporation
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-10315 63-0860407
---------------- -------------- ------------------
(State or Other (Commission (I.R.S. Employer
Jurisdiction of Incorporation File Number) Identification No.)
or Organization)
Two Perimeter Park South
Birmingham, Alabama 35243
--------------- ---------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's Telephone Number, (205) 967-7116
Including Area Code:
ITEM 5. OTHER EVENTS
On December 16, 1995, HEALTHSOUTH Corporation, a Delaware corporation (the
"Company"), entered into an Agreement and Plan of Merger with Advantage Health
Corporation, a Delaware corporation ("Advantage Health"), pursuant to which a
wholly-owned subsidiary of the Company (the "Subsidiary") will be merged (the
"Merger") into Advantage Health. Advantage Health stockholders will be entitled
to receive shares of Company Common Stock for each share of Advantage Health
Common Stock held by them. The estimated value of the transaction, which will be
accounted for as a tax-free pooling of interests, is approximately $325,000,000.
As a result of the Merger, the Company will acquire approximately 150
rehabilitation facilities currently owned or managed by Advantage Health. The
consummation of the transaction is subject to the approval of the stockholders
of Advantage Health, the expiration or termination of the waiting period
required under Hart-Scott-Rodino Antitrust Improvements Act, and certain other
regulatory approvals. Subject to such approvals, the transaction is expected to
close in early 1996, or as soon as practicable after the receipt of such
approvals.
While the above-described transaction has not been consummated, this Current
Report on Form 8-K is being filed by the Company to file certain pro forma
financial statements of the combined companies, in order that such pro forma
financial statements will be publicly available.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The required audited consolidated financial statements of the acquired
business, Advantage Health, for the fiscal year ended August 31, 1995, which
have been filed under Item 8 of Advantage Health Corporation's Annual Report on
Form 10-K for the fiscal year ended August 31, 1995, are hereby incorporated
herein by reference.
(b) Pro Forma Financial Information.
The required pro forma financial information listed on the Index to Financial
Statements included in this Current Report on Form 8-K, is herewith filed.
(c) Exhibits.
2(a) Agreement and Plan of Merger, dated December 16, 1995, among HEALTHSOUTH
Corporation, Aladdin Acquisition Corporation and Advantage Health
Corporation, previously filed as Exhibit 2(a) to the Company's Current
Report on Form 8-K filed January 3, 1996.
.
2(b) Proxy Agreement, dated December 16, 1995, between Raymond J. Dunn, III
and HEALTHSOUTH Corporation, previously filed as Exhibit 2(b) to the
Company's Current Report on Form 8-K filed January 3, 1996.
..
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 hereunto duly authorized.
Date: January 8, 1996.
HEALTHSOUTH Corporation
By: /s/ ANTHONY J. TANNER
-------------------------------
Anthony J. Tanner
Executive Vice President
and Secretary
INDEX TO FINANCIAL STATEMENTS
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Condensed Combined Balance Sheet at September 30, 1995......................................... P-2
Pro Forma Condensed Combined Income Statement for the Year Ended December 31,1994..................... P-3
Pro Forma Condensed Combined Income Statement for the Year Ended December 31, 1993.................... P-4
Pro Forma Condensed Combined Income Statement for the Year Ended December 31, 1992.................... P-5
Pro Forma Condensed Combined Income Statement for the Nine Months Ended September 30, 1995...... P-6
Pro Forma Condensed Combined Income Statement for the Nine Months Ended September 30, 1994...... P-7
Notes to Pro Forma Condensed Financial Information....................................................... P-8
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following pro forma condensed financial information and explanatory notes
are presented to reflect the effect of the Merger of Advantage Health with the
Subsidiary on the historical financial statements of HEALTHSOUTH and Advantage
Health. The Merger is reflected in the pro forma condensed financial information
as a pooling of interests. The HEALTHSOUTH historical amounts reflect the
combination of HEALTHSOUTH, ReLife, Inc. ("ReLife") and Surgical Health
Corporation ("SHC") for all periods presented, as HEALTHSOUTH acquired ReLife in
December 1994 and SHC in June 1995 in transactions accounted for as poolings of
interests.
The pro forma condensed financial information also reflects the acquisitions
by HEALTHSOUTH of Sutter Surgery Centers, Inc. ("SSCI") and Surgical Care
Affiliates ("SCA") for all periods presented. HEALTHSOUTH acquired SSCI in
October 1995 in a transaction that will be accounted for as a pooling of
interests. SSCI operates 12 surgery centers. Also in October 1995, HEALTHSOUTH
agreed to acquire SCA in a transaction that will be accounted for as a pooling
of interests. SCA operates 67 surgery centers.
In addition, the pro forma condensed financial information reflects the
impact of HEALTHSOUTH's acquisition, effective April 1, 1995, from NovaCare,
Inc. ("NovaCare") of 11 rehabilitation hospitals, 12 other facilities and two
Certificates of Need (the "NovaCare Rehabilitation Hospitals Acquisition") on
the results of operations for the year ended December 31, 1994 and the nine
months ended September 30, 1995.
The pro forma condensed balance sheet assumes that the Merger was consummated
on September 30, 1995, and the pro forma condensed income statements assume that
the Merger was consummated on January 1, 1992. The assumptions are described in
the accompanying Notes to Pro Forma Condensed Financial Information.
All HEALTHSOUTH shares outstanding and per share amounts have been adjusted
to reflect a two-for-one stock split effected in the form of a 100 percent stock
dividend payable on April 17, 1995.
The pro forma information should be read in conjunction with the historical
financial statements of HEALTHSOUTH and Advantage Health and the related notes
thereto appearing in the periodic reports filed by each company. The pro forma
financial information is presented for informational purposes only and is not
necessarily indicative of the results of operations or combined financial
position that would have resulted had the Merger described above been
consummated at the date indicated, nor is it necessarily indicative of the
results of operations of future periods or future combined financial position.
P-1
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1995
PRO FORMA PRO FORMA ADVANTAGE PRO FORMA PRO FORMA
HEALTHSOUTH SSCI ADJUSTMENTS SCA ADJUSTMENTS HEALTH ADJUSTMENTS COMBINED
------------- ---------- ------------ ----------- ------------ --------- ----------- ---------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.......... $ 86,952 $ 5,024 $ 0 $ 39,047 $ 0 $ 7,668 $ 0 $ 138,691
Other marketable securities ....... 6,217 0 0 295 0 0 0 6,512
Accounts receivable................ 298,178 4,047 0 30,764 0 33,621 0 366,610
Inventories, prepaid expenses and
other current assets............... 102,906 2,714 0 16,283 0 7,005 0 128,908
------------- ---------- ---------- ---------- ------ ----------- --------- ----------
Total current assets............... 494,253 11,785 0 86,389 0 48,294 0 640,721
Other assets....................... 58,127 0 0 2,262 0 8,510 0 68,899
Deferred income taxes ............. 7,559 0 0 0 0 0 (7,559)(3) 0
Property, plant and equipment, net 1,049,375 14,630 0 158,501 0 32,449 0 1,254,955
Intangible assets, net............. 541,366 15,230 0 124,270 0 42,401 0 723,267
------------- ---------- ---------- ---------- ------ ----------- --------- ----------
Total assets....................... $2,150,680 $41,645 $ 0 $371,422 $ 0 $131,654 $(7,559) $2,687,842
============= ========== ============= ========== ======= =========== ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 83,246 $ 1,391 $3,000 (1) $ 4,441 $15,000 (1) $ 10,036 $10,000 (1) $ 127,114
Salaries and wages payable......... 44,668 947 0 963 0 7,615 0 54,193
Accrued interest payable and other
liabilities........................ 49,462 361 (1,170)(1) 30,690 (5,850)(1) 419 (3,900)(1) 70,012
Current portion of long-term debt . 17,720 2,799 0 729 0 5,797 0 27,045
------------- ---------- ---------- --------- -------- --------- ---------- ---------
Total current liabilities.......... 195,096 5,498 1,830 36,823 9,150 23,867 6,100 278,364
Long-term debt..................... 1,386,450 14,955 0 65,119 0 39,802 0 1,506,326
Deferred income taxes.............. 0 509 0 3,846 0 8,018 (7,559)(3) 4,814
Other long-term liabilities........ 5,470 0 0 0 0 2,713 0 8,183
Deferred revenue................... 7,137 0 0 0 0 0 0 7,137
Minority interests................. 8,980 5,375 0 36,404 0 0 0 50,759
Stockholders' equity: .............
Preferred Stock, $.10 par value.... 0 0 0 0 0 0 0 $ 0
Common Stock, $.01 par value ...... 954 196 (178)(2) 9,867 (9,385)(2) 61 31 (2) 1,546
Additional paid-in capital......... 719,296 18,905 178 (2) 96,126 9,385 (2) 41,296 (31)(2) 885,155
Retained earnings.................. 178,929 1,481 (1,830)(1) 129,288 (9,150)(1) 25,524 (6,100)(1) 318,142
Common stock subscription receivable (335,423) 0 0 0 0 0 0 (335,423)
Treasury stock..................... (323) 0 0 (6,051) 0 (9,627) 0 (16,001)
Receivable from Employee Stock
Ownership Plan..................... (15,886) 0 0 0 0 0 0 (15,886)
Notes receivable from stockholders . 0 (5,274) 0 0 0 0 0 (5,274)
------------- ---------- ---------- -------- -------- -------- -------- ----------
Total stockholders' equity.......... 547,547 15,308 (1,830) 229,230 (9,150) 57,254 (6,100) 832,259
------------- ---------- ----------- --------- -------- -------- -------- ----------
Total liabilities and stockholders'
equity.............................. $2,150,680 $41,645 $ 0 $371,422 $ 0 $131,654 $(7,559) $2,687,842
============= ========== =========== ========= ======== ======== ======== ==========
See accompanying notes.
P-2
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
ACQUISITION
--------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA ADVANTAGE PRO FORMA PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS COMBINED SSCI ADJUSTMENTS SCA ADJUSTMENTS HEALTH ADJUSTMENTS COMBINED
----------- -------- ----------- -------- ---- ----------- --- ---------- ------ --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues............. $1,236,190 $142,548 $ 8,058 (5) $1,386,796 $38,175 $ 0 $239,272 $ 0 $135,562 $ 0 $1,799,805
Operating expenses:
Operating units.... 906,712 128,233 (12,406)(2) 1,022,539 24,133 0 129,037 0 105,384 0 1,281,093
Corporate general and
administrative.... 45,895 0 0 45,895 2,711 0 5,464 0 7,570 0 61,640
Provision for doubtful
accounts............. 23,739 1,269 0 25,008 3,907 0 3,061 0 2,197 0 34,173
Depreciation and
amortization ..... 86,678 7,041 (1,918)(1) 99,327 2,627 0 17,392 0 3,772 0 123,118
7,526 (3)
Interest expense.... 65,286 11,096 10,100 (4) 86,482 1,588 0 5,144 0 1,626 0 94,840
Interest income..... (4,308) 0 0 (4,308) (258) 0 (1,632) 0 (189) 0 (6,387)
Merger expenses..... 6,520 0 0 6,520 0 0 0 0 0 0 6,520
Gain on sale of MCA Stock 0 0 0 0 0 0 (7,727) 0 0 0 (7,727)
Loss on impairment of
assets ........... 10,500 0 0 10,500 0 0 0 0 0 0 10,500
Loss on abandonment of
computer project.. 4,500 0 0 4,500 0 0 0 0 0 0 4,500
Loss on disposal of
Surgery Centers... 0 0 0 0 0 0 13,197 0 0 0 13,197
----------- -------- -------- --------- ------- ------ -------- ------ ------ ----- -------
1,145,522 147,639 3,302 1,296,463 34,708 0 163,936 0 120,360 0 1,615,467
----------- -------- -------- --------- ------- ------ -------- ------ ------- ----- ---------
Income before income
taxes and minority
interests............. 90,668 (5,091) 4,756 90,333 3,467 0 75,336 0 15,202 0 184,338
Provision for income
taxes .............. 34,305 (1,084) 780 (6) 34,001 473 0 23,636 0 6,707 0 64,817
----------- -------- -------- --------- ------ ------ -------- ------ ------- ----- --------
56,363 (4,007) 3,976 56,332 2,994 0 51,700 0 8,495 0 119,521
Minority interests.... 6,402 445 0 6,847 2,462 0 22,420 0 185 0 31,914
----------- ------- --------- ------ ------ -------- ------ ------- ----- ----- --------
Net income............$ 49,961 $ (4,452)$ 3,976 $ 49,485 $ 532 $ 0 $ 29,280 $ 0 $ 8,310 $ 0 $ 87,607
=========== ======== ========== ========== ====== ====== ======== ====== ======= ===== ========
Weighted average common
and common equivalent
shares outstanding... 84,687 N/A N/A 84,687 19,612 (17,837)(2) 38,892 8,556(2) 6,073 3,084(2) 143,067
=========== ======== ========== ========== ====== ======== ======= ======== ======= ====== =======
Net income per common and
common equivalent
share............. $ 0.59 N/A N/A $ 0.58 $ 0.03 N/A $ 0.75 N/A $ 1.37 N/A $ 0.61
=========== ======== ========== ========== ======= ====== ======= ======== ====== ====== ========
Net income per common
share -- assuming full
dilution.......... $ 0.59 N/A N/A N/A N/A N/A N/A N/A N/A N/A $ 0.61
=========== ======== ========== ========== ======== ======= ======= ======== ====== ====== ========
See accompanying notes.
P-3
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
PRO FORMA PRO FORMA ADVANTAGE PRO FORMA PRO FORMA
HEALTHSOUTH SSCI ADJUSTMENTS SCA ADJUSTMENTS HEALTH ADJUSTMENTS COMBINED
---------- ----- ----------- -------- ----------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues.......................... $656,329 $22,096 $ 0 $199,270 $ 0 $101,511 $ 0 $979,206
Operating expenses: ..............
Operating units................... 471,778 14,768 0 103,825 0 77,830 0 668,201
Corporate general and administra-
tive ........................... 24,329 2,264 0 3,880 0 6,570 - 37,043
Provision for doubtful accounts... 16,181 1,766 0 1,068 0 1,011 0 20,026
Depreciation and amortization..... 46,224 1,603 0 12,626 0 3,119 0 63,572
Interest expense.................. 18,495 612 0 3,600 0 1,493 0 24,200
Interest income................... (3,924) (428) 0 (1,219) 0 (332) 0 (5,903)
Merger expense.................... 333 0 0 0 0 0 0 333
NME Selected Hospitals Acquisition
related expense................... 49,742 0 0 0 0 0 0 49,742
Gain on sale of partnership
interest ....................... (1,400) 0 0 0 0 0 0 (1,400)
--------- ------- --------- -------- ------ ------- ------- --------
621,758 20,585 0 123,780 0 89,691 0 855,814
--------- ------- --------- -------- ------ ------- ------- --------
Income before income taxes and
minority interests................ 34,571 1,511 0 75,490 0 11,820 0 123,392
Provision for income taxes......... 11,930 132 0 20,650 0 5,281 0 37,993
--------- ------- --------- -------- ------ ------- ------- --------
22,641 1,379 0 54,840 0 6,539 0 85,399
Minority interests................. 5,444 1,240 0 22,624 0 69 0 29,377
--------- ------- --------- -------- ------ ------- ------- --------
Net income from continuing
operations ...................... 17,197 139 0 32,216 0 6,470 0 56,022
Net income from discontinued
operations......................... 0 0 0 4,452 0 0 0 4,452
--------- ------- --------- -------- ------ ------- ------- --------
Net income......................... $ 17,197 $ 139 $ 0 $ 36,668 $ 0 $ 6,470 0 $ 60,474
========= ======= ========= ======== ====== ======= ======= ========
Weighted average common and common
equivalent shares outstanding...... 77,709 19,608 (17,833)(2) 38,117 8,386 (2) 6,028 3,062 (2) 135,077
========= ======= ========= ======== ====== ======= ======= ========
Net income per common and common
equivalent share.................. $ 0.22 $ 0.01 N/A $ 0.96 N/A $ 1.07 N/A $ 0.45
========= ======= ========= ======== ====== ======== ======= ========
See accompanying notes.
P-4
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
PRO FORMA PRO FORMA ADVANTAGE PRO FORMA PRO FORMA
HEALTHSOUTH SSCI ADJUSTMENTS SCA ADJUSTMENTS HEALTH ADJUSTMENTS COMBINED
--------- ------ ---------- ----- ----------- --------- ------------ --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues ............................... $501,046 $ 2,611 $ 0 $162,179 $ 0 $84,298 $ 0 $750,134
Operating expenses: ....................
Operating units ........................ 372,169 1,815 0 83,871 0 63,764 0 521,619
Corporate general and administrative .. 16,878 476 0 3,804 0 4,509 0 25,667
Provision for doubtful accounts ....... 13,254 177 0 1,442 0 1,680 0 16,553
Depreciation and amortization .......... 29,834 185 0 9,695 0 2,393 0 42,107
Interest expense ....................... 12,623 44 0 3,410 0 2,160 0 18,237
Interest income ........................ (5,415) (19) 0 (2,743) 0 (418) 0 (8,595)
Terminated merger expense .............. 3,665 0 0 0 0 0 0 3,665
Loss on extinguishment of debt ......... 0 0 0 0 0 883 0 883
-------- ------- ------ -------- ------ ------ ----- -------
443,008 2,678 0 99,479 0 74,971 0 620,136
-------- ------- ------ -------- ------ ------ ----- -------
Income before income taxes and minority
interests .............................. 58,038 (67) 0 62,700 0 9,327 0 129,998
Provision for income taxes ............. 18,864 (22) 0 15,663 0 4,045 0 38,550
-------- ------- ------ -------- ------ ------ ----- -------
39,174 (45) 0 47,037 0 5,282 0 91,448
Minority interests ..................... 4,245 185 0 21,481 0 32 0 25,943
-------- ------- ------ -------- ------ ------ ----- -------
Net income from continuing operations . 34,929 (230) 0 25,556 0 5,250 0 65,505
Net income from discontinued operations 0 0 0 3,283 0 0 0 3,283
-------- ------- ------ -------- ------ ------ ----- -------
Net income ............................. $ 34,929 $ (230) $ 0 $ 28,839 $ 0 $ 5,250 $ 0 $ 68,788
======== ======= ====== ======== ====== ====== ===== =======
Weighted average common and common
equivalent shares outstanding .......... 74,214 19,608 (17,833)(2) 37,191 8,182(2) 5,483 2,785(2) 129,630
======== ======= ======= ======== ====== ====== ===== =======
Net income per common and common
equivalent share ....................... $ 0.47 $ (0.01) N/A $ 0.78 N/A $ 0.96 N/A $ 0.53
======== ======= ======= ======== ====== ====== ===== =======
See accompanying notes.
P-5
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
ACQUISITION
---------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA ADVNTAGE PRO FORMA PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS COMBINED SSCI ADJUSTMENTS SCA ADJUSTMENTS HEALTH ADJUSTMENTS COMBINED
----------- -------- ----------- -------- ---- ----------- --- ----------- ------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues............. $1,109,689 $37,942 $1,860 (5) $1,149,491 $29,868 $ 0 $197,413 $ 0 $133,079 $ 0 $1,509,851
Operating expenses:
Operating units...... 788,593 33,065 (910)(2) 820,748 17,661 0 102,383 0 105,665 0 1,046,457
Corporate general
and administrative... 28,463 0 0 28,463 1,820 0 4,236 0 5,960 0 40,479
Provision for doubtful
accounts............. 20,520 322 0 20,842 3,125 0 2,381 0 2,146 0 28,494
Depreciation and
amortization ...... 86,767 1,996 (999)(1) 89,646 2,026 0 12,640 0 3,441 0 107,753
1,882 (3)
Interest expense..... 68,697 2,595 2,684 (4) 73,976 1,258 0 3,413 0 1,667 0 80,314
Interest income...... (4,529) 0 0 (4,529) (274) 0 (1,257) 0 (184) 0 (6,244)
Merger cost.......... 29,194 0 0 29,194 0 0 0 0 0 0 29,194
Loss on impairment of
assets ............ 11,192 0 0 11,192 0 0 0 0 0 0 11,192
-------- ------ ----- ------ ----- ---- ------ ---- ------ ----- ---------
1,028,897 37,978 2,657 1,069,532 25,616 0 123,796 0 118,695 0 1,337,639
-------- ------ ----- ------ ----- ---- ------ ---- ------ ----- ---------
Income before income taxes
and minority interests. 80,792 (36) (797) 79,959 4,252 0 73,617 0 14,384 0 172,212
Provision for income
taxes............. 27,525 (101) (259)(6) 27,165 848 0 21,397 0 6,014 0 55,424
-------- ------ ----- ------ ----- ---- ------ ---- ------ ----- ---------
53,267 65 (538) 52,794 3,404 0 52,220 0 8,370 0 116,788
Minority interests... 8,357 89 0 8,446 2,364 0 19,217 0 828 0 30,855
-------- ------ ----- ------ ----- ---- ------ ---- ------ ----- ---------
Net income........... $ 44,910 $ (24) $ (538) $ 44,348 $ 1,040 $ 0 $ 33,003 $ 0 7,542 $ 0 $ 85,933
======== ====== ====== ======= ====== ==== ====== ==== ====== ===== =========
Weighted average common and
common equivalent shares
outstanding........... 87,773 N/A N/A 87,773 19,615 (17,840)(2) 39,189 8,622(2) 6,108 3,102(2) 146,569
======== ====== ====== ======= ====== ==== ====== ==== ====== ===== =========
Net income per common and
common equivalent
share............... $ 0.51 N/A N/A $ 0.51 $ 0.05 N/A $ 0.84 N/A $ 1.23 N/A $ 0.59
======== ====== ====== ======= ====== ==== ====== ==== ====== ===== =========
Net income per common
share -- assuming full
dilution $ 0.51 N/A N/A $ 0.51 N/A N/A N/A N/A N/A N/A $ 0.59
======== ====== ====== ======= ====== ==== ====== ==== ====== ===== =========
See accompanying notes.
P-6
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1994
PRO FORMA PRO FORMA ADVANTAGE PRO FORMA PRO FORMA
HEALTHSOUTH SSCI ADJUSTMENTS SCA ADJUSTMENTS HEALTH ADJUSTMENTS COMBINED
------------- ------- ------------ ----- ---------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues......................... $902,268 $28,357 $ 0 $171,441 $ 0 $96,436 $ 0 $1,198,502
Operating expenses: .............
Operating units.................. 670,607 17,637 0 94,452 0 74,525 0 857,221
Corporate general and administra-
tive .......................... 29,831 2,132 0 4,061 0 5,673 0 41,697
Provision for doubtful accounts.. 16,691 2,950 0 2,079 0 1,569 0 23,289
Depreciation and amortization.... 59,142 1,911 0 12,506 0 2,735 0 76,294
Interest expense................. 45,632 1,146 0 3,875 0 1,139 0 51,792
Interest income.................. (3,256) (359) 0 (1,231) 0 (190) 0 (5,036)
Merger costs..................... 3,571 0 0 0 0 0 0 3,571
Gain on sale of MCA stock........ 0 0 0 (6,882) 0 0 0 (6,882)
-------- ------- ------- ------- ------ ---------- ------ ---------
822,218 25,417 0 108,860 0 85,451 0 1,041,946
-------- ------- ------- ------- ------ --------- ------ ---------
Income before income taxes and
minority interests............... 80,050 2,940 0 62,581 0 10,985 0 156,556
Provision for income taxes....... 30,418 540 0 20,681 0 4,860 0 56,499
-------- ------- ------- ------ ------ --------- ------ ---------
49,632 2,400 0 41,900 0 6,125 0 100,057
Minority interests............... 4,276 1,887 0 15,144 0 73 0 21,380
-------- ------- ------- ------ ------ --------- ------ ---------
Net income....................... $ 45,356 $ 513 $ 0 $ 26,756 $ 0 $ 6,052 $ 0 $ 78,677
======== ======= ======= ====== ====== ========= ====== =========
Weighted average common and common
equivalent shares outstanding..... 84,509 19,610 (17,835)(2) 38,859 8,549(2) 6,042 3,069(2) 142,803
======== ======= ======= ====== ====== ========= ====== =========
Net income per common and common
equivalent share.................. $ 0.54 $ 0.03 N/A $ 0.69 N/A $ 1.00 N/A $ 0.55
======== ======= ======= ====== ====== ========= ====== =========
See accompanying notes.
P-7
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
A. THE NOVACARE REHABILITATION HOSPITALS ACQUISITION
Effective April 1, 1995 HEALTHSOUTH completed the acquisition of the
rehabilitation hospitals division of NovaCare, Inc. ("NovaCare"), consisting of
11 rehabilitation hospitals, 12 other facilities, and certificates of need to
build two additional facilities (the "NovaCare Rehabilitation Hospitals
Acquisition"). The purchase price was approximately $234,807,000. The
transaction was accounted for as a purchase and, accordingly, the results of the
acquired NovaCare facilities are included in HEALTHSOUTH's historical financial
statements from the effective date of the acquisition. HEALTHSOUTH financed the
cost of the NovaCare Rehabilitation Hospitals Acquisition through additional
borrowings under its existing credit facilities, as amended.
The accompanying pro forma income statements for the year ended December 31,
1994 and the nine months ended September 30, 1995 assume that the transaction
was consummated at the beginning of each of the periods presented.
Certain assets and liabilities of Rehab Systems Company (a wholly owned
subsidiary of NovaCare, Inc.) were excluded from the NovaCare Rehabilitation
Hospitals Acquisition. The excluded assets and liabilities are as follows (in
thousands):
Cash and cash equivalents............................ $ 4,973
Accounts receivable ................................. 259
Other current assets ................................ 42
Equipment, net ...................................... 4,719
Intangible assets, net .............................. 56,321
Other assets (primarily investments in subsidiaries) 40,637
Accounts payable .................................... (454)
Other current liabilities ........................... (275)
Current portion of long term debt ................... (146)
Long term debt....................................... (38,620)
Payable to affiliates................................ (92,377)
-----------
Net excluded asset (liability) ...................... $(24,921)
===========
The following pro forma adjustments are necessary for the NovaCare
Rehabilitation Hospitals Acquisition:
1. To exclude historical depreciation and amortization expense related to the
excluded assets described above. The total expense excluded amounts to
$1,918,000 for the year ended December 31, 1994 and $999,000 for the nine months
ended September 30, 1995.
2. To eliminate intercompany management fees and royalty fees totaling
$12,406,000 for the year ended December 31, 1994 and $910,000 for the nine
months ended September 30, 1995 of the acquired NovaCare facilities.
P-8
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Financial Information - (Continued)
3. To adjust depreciation and amortization expense to reflect the allocation
of the excess purchase price over the net tangible asset value as follows (in
thousands):
PURCHASE PRICE
ALLOCATION USEFUL ANNUAL QUARTERLY
ADJUSTMENT LIFE AMORTIZATION AMORTIZATION
--------------- ----------- --------------- ---------------
Leasehold value.......... $128,333 20 years $6,417 $1,605
Goodwill................. 44,365 40 years 1,109 277
------- ------
$7,526 $1,882
======= ======
No additional adjustments to NovaCare's historical depreciation and
amortization are necessary. The remaining net assets acquired approximate their
fair value.
Because NovaCare's results of operations before intercompany items (described
in Note 2 above) are profitable, both on a historical and pro forma basis, the
40-year amortization period for goodwill is appropriate and consistent with
HEALTHSOUTH policy. Leasehold value is being amortized over the weighted average
remaining terms of the leases, which is 20 years.
4. To increase interest expense by $19,559,000 for the year ended December
31, 1994 and $4,889,000 for the nine months ended September 30, 1995 to reflect
pro forma borrowings of $234,807,000, described above, at a 8.33% variable
interest rate, which represents HEALTHSOUTH's weighted average cost of debt, as
if they were outstanding for the entire period, and to decrease interest expense
by $9,459,000 for the year ended December 31, 1994 and $2,205,000 for the nine
months ended September 30, 1995, which represents interest on NovaCare debt not
assumed by HEALTHSOUTH. A .125% variance in the assumed interest rate would
change annual pro forma interest expense by approximately $294,000.
5. To adjust estimated Medicare reimbursement for the changes in reimbursable
expenses described in items 1,2, 3 and 4 above. These changes are as follows (in
thousands):
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
1994 SEPTEMBER 30, 1995
----------------- -------------------
Depreciation and amortization (Note 1)...... $(1,918) $ (999)
Intercompany management fees (Note 2)....... (4,196) (910)
Depreciation and amortization (Note 3)...... 7,526 1,882
Interest expense (Note 4)................... 10,100 2,684
------- -------
11,512 2,657
Assumed Medicare utilization................ 70% 70%
------- -------
Increased reimbursement .................... $ 8,058 $1,860
======= =======
The Medicare utilization rate of 70% assumes a slight improvement in
NovaCare's historical Medicare percentage of 78% as a result of bringing these
facilities into the HEALTHSOUTH network.
6. To adjust the NovaCare provision for income taxes to an effective rate
of 39% (net of minority interests).
B. THE SSCI MERGER
The SSCI Merger was completed in October 1995 and will be accounted for as a
pooling of interests. The pro forma condensed income statements assume that the
SSCI Merger was consummated on January 1, 1992. The pro forma condensed balance
sheet assumes that the SSCI Merger was consummated on September 30, 1995.
P-9
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Financial Information - (Continued)
The pro forma condensed financial information contains no adjustments to
conform the accounting policies of the two companies because any such
adjustments have been determined to be immaterial by the management of
HEALTHSOUTH.
The following pro forma adjustments are necessary for the SSCI Merger:
1. The pro forma condensed income statements do not reflect non-recurring
costs resulting directly from the SSCI Merger. The management of HEALTHSOUTH
estimates that these costs will approximate $3,000,000 and will be charged to
operations in the quarter the SSCI Merger is consummated. The amount includes
costs to merge the two companies and professional fees. However, this estimated
expense, net of taxes of $1,170,000, has been charged to retained earnings in
the accompanying pro forma balance sheet.
2. To adjust pro forma share amounts based on historical share amounts,
converting each outstanding SSCI Share into .0905 shares of HEALTHSOUTH Common
Stock.
C. THE SCA MERGER
The proposed SCA Merger is intended to be accounted for as a pooling of
interests. The pro forma condensed income statements assume that the SCA Merger
was consummated on January 1, 1992. The pro forma condensed balance sheet
assumes that the SCA Merger was consummated on September 30, 1995.
The pro forma condensed financial information contains no adjustments to
conform the accounting policies of the two companies because any such
adjustments have been determined to be immaterial by the management of
HEALTHSOUTH.
The following pro forma adjustments are necessary for the SCA Merger:
1. The pro forma income statements do not reflect non-recurring costs
resulting directly from the SCA Merger. The management of HEALTHSOUTH estimates
that these costs will approximate $15,000,000 and will be charged to operations
in the quarter the SCA Merger is consummated. The amount includes costs to merge
the two companies and professional fees. However, this estimated expense, net of
taxes of $5,850,000, has been charged to retained earnings in the accompanying
pro forma balance sheet.
2. To adjust pro forma share amounts based on historical share amounts,
converting each outstanding SCA Share, par value $.25 per share, into 1.22
shares of HEALTHSOUTH Common Stock, par value $.01 per share. The conversion
ratio is based upon an assumed Base Period Trading Price for HEALTHSOUTH's
Common Stock ranging from $22 to $28 per share.
D. THE ADVANTAGE HEALTH MERGER
The proposed Advantage Health Merger is intended to be accounted for as a
pooling of interests. The pro forma condensed income statements assume that the
Advantage Health Merger was consummated on January 1, 1992. The pro forma
condensed balance sheet assumes that the Advantage Health Merger was consummated
on September 30, 1995.
Advantage Health has historically reported on a fiscal year ending on August
31. The historical results of operations for Advantage Health have been recast
to a November 30 fiscal year end in the accompanying pro forma income statements
to more closely conform to HEALTHSOUTH's fiscal year, which ends on December 31.
Likewise, the accompanying September 30, 1995 pro forma balance sheet includes
Advantage Health's historical August 31, 1995 balance sheet.
The pro forma condensed financial information contains no adjustments to
conform the accounting policies of the two companies because any such
adjustments have been determined to be immaterial by the management of
HEALTHSOUTH.
P-10
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Financial Information - (Continued)
The following pro forma adjustments are necessary for the Advantage Health
Merger:
1. The pro forma income statements do not reflect non-recurring costs
resulting directly from the Advantage Health Merger. The management of
HEALTHSOUTH estimates that these costs will approximate $10,000,000 and will be
charged to operations in the quarter the Advantage Health Merger is consummated.
The amount includes costs to merge the two companies and professional fees.
However, this estimated expense, net of taxes of $3,900,000, has been charged to
retained earnings in the accompanying pro forma balance sheet.
2. To adjust pro forma share amounts based on historical share amounts,
converting each outstanding Advantage Health Share into 1.5079 shares of
HEALTHSOUTH Common Stock. The conversion ratio is based upon an assumed Base
Period Trading Price for HEALTHSOUTH's Common Stock of $31.50, the midpoint of
the range within which the exchange ratio floats.
3. To net HEALTHSOUTH's noncurrent deferred income tax asset against the
noncurrent deferred income tax liabilities of the acquired companies.
P-11