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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 9, 2001
MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-6639 58-1076937
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
6950 COLUMBIA GATEWAY DRIVE, SUITE 400, COLUMBIA, MD 21046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 953-1000
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ITEM 2. DISPOSITION OF ASSETS
This Form 8-K and other statements issued or made from time to time
by Magellan Health Services, Inc. or its representatives (the "Company")
contain statements which may constitute "forward-looking statements" under
the Private Securities Litigation Reform Act of 1995. Those statements
include statements regarding the intent, belief or current expectations of
Magellan and members of its management team, as well as the assumptions on
which such statements are based. Words or phrases such as "should result,"
"are expected to," "anticipate," "estimate", "project" or similar expressions
are intended to identify forward-looking statements; however, not all
forward-looking statements contain such phrases. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties and that actual
results may differ materially from those contemplated by such forward-looking
statements. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
are set forth under the heading "Cautionary Statements" in Item 1 of
Magellan's Annual Report on Form 10-K for the fiscal year ended September 30,
2000, which information is hereby incorporated by reference in this Form 8-K.
Magellan undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.
On March 9, 2001, the Company consummated the sale of the stock of
National Mentor, Inc. ("Mentor"), its human services business segment, to an
entity formed by the management of Mentor and Madison Dearborn Partners, a
private equity investment firm. The Company received approximately $113
million in consideration, net of approximately $2 million of transaction
costs. The Company received approximately $103 million in cash and $10
million is in the form of interest bearing notes. In addition, the Company
has maintained certain other liabilities amounting to approximately $3
million. Approximately $50 million of the proceeds were used to retire term
loans, as required by the company's Credit Agreement, with the remainder used
to reduce amounts outstanding under its revolving facility.
ITEM 7(b) UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information
for the Company is included herein:
1) Unaudited Pro Forma Condensed Consolidated Balance Sheet at
December 31, 2000
2) Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the three months ended December 31, 2000; and
3) Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the fiscal year ended September 30, 2000.
The unaudited Pro Forma Consolidated Financial Information set forth
below is based on the historical presentation of the consolidated financial
statements of the Company and the historical operating results of Mentor. The
Unaudited Pro Forma Consolidated Balance Sheet at December 31, 2000, gives
effect to the sale of Mentor as if it had occurred on December 31, 2000. The
Unaudited Pro Forma Consolidated Statements of Operations for the three months
ended December 31, 2000 and the fiscal year ended September 30, 2000 give effect
to the Mentor sale as if it had occurred October 1, 1999. The Unaudited Pro
Forma Consolidated Financial Information and the notes thereto should be read in
conjunction with the historical consolidated financial statements and notes
thereto of the Company, and Management's Discussion and Analysis of Financial
Condition and Results of Operations that appear in the Company's Annual Report
on Form 10K for the fiscal year ended September 30, 2000 and in the Company's
quarterly report on Form 10Q for the quarterly period ended December 31, 2000,
which are incorporated herein by reference.
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MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 27,994 $ (10,192)(A) $ 71,092
53,290 (B)
Accounts receivable, net................................................. 158,572 (34,632)(A) 123,940
Restricted cash and investments.......................................... 101,378 -- 101,378
Refundable income taxes.................................................. 3,012 -- 3,012
Other current assets..................................................... 16,650 (1,059)(A) 15,591
----------- ------------ ------------
Total current assets................................................ 307,606 7,407 315,013
Property and equipment, net................................................. 106,288 (16,018)(A) 90,270
Deferred income taxes....................................................... 95,826 -- 95,826
Investments in unconsolidated subsidiaries.................................. 9,431 -- 9,431
Other long-term assets...................................................... 12,241 (1,005)(A) 21,236
-- 10,000 (B) --
Goodwill, net............................................................... 1,056,416 (74,060)(A) 982,356
Other intangible assets, net................................................ 147,980 -- 147,980
----------- ------------ ------------
$1,735,788 $ (73,676) $1,662,112
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 36,312 $ (5,598)(A) $ 30,714
Accrued liabilities...................................................... 150,909 (19,692)(A) 134,217
3,000 (B)
Medical claims payable................................................... 220,562 -- 220,562
Current maturities of long-term debt and capital lease obligations....... 34,771 -- 34,771
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Total current liabilities........................................... 442,554 (22,290) 420,264
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Long-term debt and capital lease obligations................................ 1,017,703 (50,179)(B) 967,524
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Deferred credits and other long-term liabilities............................ 81,729 (1,207)(A) 80,522
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Minority interest........................................................... 430 -- 430
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Commitments and contingencies
Redeemable preferred stock.................................................. 59,066 -- 59,066
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Stockholders' equity................................................ 134,306 -- 134,306
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$1,735,788 $ (73,676) $1,662,112
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See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
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MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENT CONSOLIDATED
----------- ---------- ------------
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 445,926 $ - $ 445,926
Costs and expenses:
Salaries, cost of care and other operating expenses . . . . . . . . . . 374,812 - 374,812
Equity in earnings of unconsolidated subsidiaries . . . . . . . . . . . (231) - (231)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 17,303 - 17,303
Interest, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,582 (1,532)(C) 21,750
(300)(D)
Special charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,340 - 3,340
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418,806 (1,832) 416,974
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Income (loss) from continuing operations before provision for
(benefit from) income taxes and minority interest . . . . . . . . . . . 27,120 1,832 28,952
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . 13,260 733(E) 13,993
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Income (loss) from continuing operations before minority interest . . . . 13,860 1,099 14,959
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) - (1)
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Income (loss) from continuing operations. . . . . . . . . . . . . . . . . $ 13,861 $ 1,099 $ 14,960
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Average number of common shares outstanding -- basic. . . . . . . . . . . 32,648 32,648
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Average number of common shares outstanding -- diluted. . . . . . . . . . 39,778 39,778
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Income (loss) per common share -- basic:
Income (loss) from continuing operations. . . . . . . . . . . . . . . . $ 0.39 $ 0.42
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Income per common share -- diluted:
Income (loss) from continuing operations. . . . . . . . . . . . . . . . $ 0.35 $ 0.38
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See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
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MAGELLAN HEALTH SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DISCONTINUED
OPERATIONS PRO FORMA
RESTATEMENT RESTATED PRO FORMA RESTATED
AS REPORTED ADJUSTMENT(F) CONSOLIDATED ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------ ----------- ------------
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . $ 1,873,554 $ (218,453) $ 1,655,101 $ - $1,655,101
Costs and expenses:
Salaries, cost of care and other operating expenses . . . 1,652,582 $ (196,332) $ 1,456,250 - 1,456,250
Equity in earnings of unconsolidated subsidiaries . . . . (9,792) - (9,792) - (9,792)
Depreciation and amortization . . . . . . . . . . . . . . 75,413 (7,152) 68,261 - 68,261
Interest, net . . . . . . . . . . . . . . . . . . . . . . 97,286 - 97,286 (7,406)(C) 88,680
(1,200)(D)
Special charges . . . . . . . . . . . . . . . . . . . . . 25,398 - 25,398 - 25,398
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1,840,887 (203,484) 1,637,403 (8,606) 1,628,797
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Income (loss) from continuing operations before
provision for (benefit from) income taxes
and minority interest . . . . . . . . . . . . . . . . . . 32,667 (14,969) 17,698 8,606 26,304
Provision for (benefit from) income taxes . . . . . . . . . 15,478 (5,987) 9,491 3,442(E) 12,933
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Income (loss) from continuing operations before minority 17,189 (8,982) 8,207 5,164 13,371
interest. . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . 114 - 114 114
----------- ------------ ------------ ----------- -----------
Income (loss) from continuing operations. . . . . . . . . . $ 17,075 $ (8,982) $ 8,093 $ 5,164 $ 13,257
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Average number of common shares outstanding -- basic. . . . 32,144 32,144 32,144
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Average number of common shares outstanding -- diluted. . . 32,386 32,386 32,386
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Income (loss) per common share -- basic:
Income (loss) from continuing operations. . . . . . . . . $ 0.41 $ 0.13 $ 0.29
=========== ============ ===========
Income per common share -- diluted:
Income (loss) from continuing operations. . . . . . . . . $ 0.41 $ 0.13 $ 0.29
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See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
A. ProForma adjustment to remove assets and liabilities of Mentor.
B. ProForma adjustment to record Mentor sale transaction. This includes
the following: (i) receipt of $103 million of cash; (ii) retirement
of approximately $50 million of term loans under the Company's Credit
Agreement (iii) receipt of $10 million of 12% Subordinated Promissory
Note; and (iv) assumption of $3 million other liabilities.
C. Pro Forma interest reduction resulting from the use of sale
proceeds to reduce outstanding Term Loans and amounts outstanding
under the Company's Revolving Facility as if the transaction was
consummated on October 1, 1999. In the calculation of Pro Forma
interest, the Company applied 50% of the net cash proceeds from the
sale to the Term Loans in accordance with the terms of the
Company's Credit Agreement. With regards to the Revolving Facility,
the calculation of Pro Forma interest is based on the monthly
balance outstanding under the Company's Revolving Facility up to a
maximum balance of approximately $50 million per month which
represents the remaining proceeds. The Company used its average
actual quarterly borrowing rates under the Credit Agreement to
compute the pro forma interest reduction. These rates varied between
7.65% and 10.79%.
D. Pro Forma interest income is related to the $10 million 12%
Subordinated Promissory Note the Company received in conjunction with
the Mentor transaction as if the Company received such notes on
October 1, 1999.
E. Income taxes on Pro Forma adjustments reflects the Company's combined
Federal and State rate of approximately 40%.
F. The Company has accounted for the sale of Mentor under Accounting
Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions" ("APB 30"). APB 30 requires that the results of
continuing operations be reported separately from those of
discontinued operations for all periods presented and that any gain or
loss from disposal of a segment of a business be reported in
conjunction with the related results of discontinued operations.
Accordingly, the Company has restated its results of operations for
all prior periods. The restated condensed consolidated financial
information for the fiscal year ended September 30, 2000 is based upon
the audited financial statements set forth in the Company's Annual
Report filed on Form 10-K.
The Unaudited ProForma Condensed Financial Information as of and for
the three months ended December 31, 2000 is based upon the unaudited
financial statements set forth in the Company's quarterly report
filed on form 10-Q. These financial statements reflect Mentor as a
discontinued operation in accordance with Emerging Issues Task Force
No. 95-18 - "Accounting and Reporting for a Discontinued Business
Segment When the Measurement Date Occurs after the Balance Sheet
Date but before the Issuance of Financial Statements". Accordingly
no restatement adjustment is required for the three months ended
December 31, 2000.
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: March 20, 2001
MAGELLAN HEALTH SERVICES, INC.
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By: Thomas C. Hofmeister
Senior Vice President and
Chief Accounting Officer
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