SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: December 31, 1997
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)
One HEALTHSOUTH Parkway
Birmingham, Alabama 35243
--------------------------- ---------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's Telephone Number,
Including Area Code: (205) 967-7116
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 31, 1997, HEALTHSOUTH Corporation, a Delaware corporation (the
"Company"), consummated the sale of the long-term care assets of the Company's
subsidiary Horizon/CMS Healthcare Corporation, a Delaware corporation
("Horizon/CMS"), to Integrated Health Services, Inc., a Delaware corporation
("IHS"). The assets sold included 139 long-term care facilities, 12 specialty
hospitals, 35 institutional pharmacy locations and over 1,000 rehabilitation
therapy contracts with long-term care facilities. The Company received
approximately $1,150,000,000 in cash and IHS assumed approximately $100,000,000
in debt relating to the transferred assets, for a total consideration of
$1,250,000,000. HEALTHSOUTH acquired Horizon/CMS in a merger transaction on
October 29, 1997. Charles W. Newhall III and Gorge H. Strong are directors of
both the Company and IHS. There are no other material relationships between the
Company and IHS or any of their respective affiliates, directors or officers.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma Financial Information
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following pro forma condensed combined financial information and
explanatory notes are presented to reflect the effect for all periods presented
of the merger of a wholly-owned subsidiary of HEALTHSOUTH with Horizon/CMS in a
transaction to be accounted for as a purchase (the "Merger"), which was
consummated on October 29, 1997. In addition, the pro forma financial
information reflects the effects for all periods presented of the sale of the
long-term care assets acquired from Horizon/CMS to Integrated Health Services,
Inc. ("IHS"), which was consummated on December 31, 1997 (the "Sale").
The pro forma condensed combined balance sheet assumes that the Merger
and the Sale were each consummated on September 30, 1997, and the pro forma
condensed combined income statements assume that the Merger and the Sale were
each consummated on January 1, 1996. The assumptions are described in the
accompanying Notes to Pro Forma Condensed Combined 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%
stock dividend paid on March 17, 1997.
The pro forma information should be read in conjunction with the
historical financial statements of HEALTHSOUTH and Horizon/CMS included in their
respective periodic reports filed with the Securities and Exchange Commission.
The HEALTHSOUTH historical amounts in the accompanying pro forma statements
include the financial position and results of operations of Health Images, Inc.,
which was acquired by HEALTHSOUTH in March 1997 in a transaction accounted for
as a pooling of interests. Certain balance sheet and income statement amounts
from the Horizon/CMS historical financial statements have been reclassified in
order to conform to the HEALTHSOUTH method of presentation. These conforming
reclassifications had no effect on the reported financial position or results of
operations of Horizon/CMS. The pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the combined
financial position or results of operations that would have resulted had the
Merger and the Sale been consummated at the dates indicated, nor is such
information necessarily indicative of the combined financial position of the
Companies or their combined results of operations for future periods.
HEALTHSOUTH Corporation and Subsidiaries
Pro Forma Condensed Combined Balance Sheet (Unaudited)
September 30, 1997
Pro Assets Pro
Pro Forma Forma Sold Forma Pro Forma
HEALTHSOUTH Horizon/CMS Adjustments Combined to IHS Adjustments Combined
----------- ----------- ----------- -------- -------- ------------ ---------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 189,408 $ 54,170 $ 0 $ 243,578 $ (10,000)$ 1,150,000 (7)$ 233,578
(1,150,000)(8)
Other marketable securities 3,639 0 0 3,639 0 0 3,639
Accounts receivable 659,415 365,652 0 1,025,067 (253,820) 0 771,247
0
Inventories, prepaid expenses
and other
current assets 224,478 70,469 (17,256)(2) 277,691 (48,810) 0 228,881
Deferred income taxes 19,514 15,036 0 34,550 0 0 34,550
---------- --------- --------- --------- ---------- -------- ----------
Total current assets 1,096,454 505,327 (17,256) 1,584,525 (312,630) 0 1,271,895
Other assets 114,517 130,229 (11,074)(1) 204,610 (30,610) 0 174,000
(29,062)(2)
0
Property, plant and equipment,
net 1,659,300 630,383 136,067 (2) 2,425,750 (434,446) 0 1,991,304
Intangible assets, net 1,379,500 347,043 280,080 (2) 2,049,201 (118,405) (106,325)(7) 1,824,471
42,578 (3)
---------- --------- --------- --------- ---------- -------- ----------
Total assets $4,249,771 $1,612,982 $401,333 $6,264,086 $(896,091) $ (106,325) $ 5,261,670
========== ========= ========= ========= ========== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 97,158 $ 28,082 $ 0 $ 125,240 $(32,619) $ 0 $ 92,621
Salaries and wages payable 67,774 23,579 27,100 (3) 118,453 (19,000) 0 99,453
Accrued interest payable and
other liabilities 98,155 143,285 15,478 (3) 256,918 (43,666) 350,000 (7) 563,252
0
Current portion of long-term debt 40,220 8,790 0 49,010 0 0 49,010
---------- --------- --------- --------- ---------- -------- ----------
Total current liabilities 303,307 203,736 42,578 549,621 (95,285) 350,000 804,336
Long-term debt 1,882,466 733,876 0 2,616,342 (94,400) (1,150,000)(8) 1,371,942
Deferred income taxes 43,862 0 (11,074)(1) 32,788 0 0 32,788
Other long-term liabilities 2,655 20,212 0 22,867 (11,944) 0 10,923
Deferred revenue 16 786 0 802 0 0 802
Minority interests 80,054 18,915 0 98,969 (787) 0 98,182
Stockholders' equity:
Preferred Stock, $.10 par 0 0 0 0 0 0 0
Common Stock, $.01 par 3,413 53 400 (2) 3,866 0 0 3,866
Additional paid-in capital 1,197,230 600,707 404,126 (2) 2,202,063 (642,811) 642,811 (7) 2,202,063
Retained earnings 754,754 43,402 (43,402)(2) 754,754 (50,864) 50,864 (7) 754,754
Treasury stock (323) (8,705) 8,705 (2) (323) 0 0 (323)
Receivable from Employee Stock
Ownership Plan (12,247) 0 0 (12,247) 0 0 (12,247)
Notes receivable from
stockholders (5,416) 0 0 (5,416) 0 0 (5,416)
---------- --------- -------- --------- ---------- -------- ----------
Total stockholders' equity 1,937,411 635,457 369,829 2,942,697 (693,675) 693,675 2,942,697
---------- --------- -------- --------- ---------- -------- ----------
Total liabilities and
stockholders' equity $4,249,771 $1,612,982 $401,333 $ 6,264,086 $(896,091) $(106,325) $ 5,261,670
========== ========= ======= ========= ========= ======== ==========
See accompanying notes.
HEALTHSOUTH Corporation and Subsidiaries
Pro Forma Condensed Combined Income Statement (Unaudited)
Year Ended December 31, 1996
Pro Forma Pro Forma Assets Sold
HEALTHSOUTH Horizon/CMS Adjustments Combined to IHS
----------- ----------- ----------- -------- -----------
(In thousands, except per share amounts)
Revenues $ 2,568,155 $ 1,746,504 $ 0 $ 4,314,659 $ (1,029,563)
Operating unit expenses 1,667,248 1,439,567 0 3,106,815 (873,869)
Corporate general and administrative
expenses 79,354 94,687 0 174,041 (39,268)
Provision for doubtful accounts 58,637 27,284 0 85,921 (16,295)
Depreciation and amortization 207,132 58,311 15,134 (4) 287,564 (27,041)
6,987 (5)
Merger and acquisition related expenses 41,515 0 0 41,515 0
Loss on impairment of assets 37,390 11,000 0 48,390 0
Special charge 0 17,150 0 17,150 0
Interest expense 98,751 48,892 0 147,643 (8,968)
Interest income (6,034) (7,611) 0 (13,645) 1,027
------------ ------------ ------------ ------------ ------------
2,183,993 1,689,280 22,121 3,895,394 (964,414)
Income before income taxes, minority
interests and extraordinary item 384,162 57,224 (22,121) 419,265 (65,149)
Provision for income taxes 143,929 27,402 0 171,331 (25,694)
------------ ------------ ------------ ------------ ------------
240,233 29,822 (22,121) 247,934 (39,455)
Minority interests 50,369 7,506 0 57,875 (913)
------------ ------------ ------------ ------------ ------------
Income from continuing operations $ 189,864 $ 22,316 $ (22,121) $ 190,059 $ (38,542)
============ ============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding 336,807 52,266 (8,186) (6) 380,887 N/A
============ ============ ============ ============ ============
Income from continuing operations per
common and common equivalent share $ 0.56 $ 0.43 $ N/A $ 0.50 $ N/A
============ ============ ============ ============ ============
Income from continuing operations per
common share - assuming full
dilution $ 0.55 $ 0.43 $ N/A $ 0.49 $ N/A
============ ============ ============ ============ ============
(Table Continued)
Pro Forma Pro Forma
Adjustments Combined
----------- ---------
Revenues $ 0 $ 3,285,096
Operating unit expenses 0 2,232,946
Corporate general and administrative
expenses 0 134,773
Provision for doubtful accounts 0 69,626
Depreciation and amortization (2,658)(10) 257,864
Merger and acquisition related expenses 0 41,515
Loss on impairment of assets 0 48,390
Special charge 0 17,150
Interest expense (74,750) (9) 63,925
Interest income 0 (12,618)
------------- ------------
(77,408) 2,853,571
Income before income taxes, minority
interests and extraordinary item 77,408 431,525
Provision for income taxes 29,153 (11) 174,789
------------- ------------
48,256 256,735
Minority interests 0 56,962
------------- ------------
Income from continuing operations $ 48,256 $ 199,773
============= ============
Weighted average common and common
equivalent shares outstanding N/A 380,887
============= ============
Income from continuing operations per
common and common equivalent share $ N/A $ 0.52
============= ============
Income from continuing operations per
common share - assuming full
dilution $ N/A $ 0.52
============= ============
See accompanying notes.
HEALTHSOUTH Corporation and Subsidiaries
Pro Forma Condensed Combined Income Statement (Unaudited)
Nine Months Ended September 30, 1997
Pro Forma Pro Forma Assets Sold
HEALTHSOUTH Horizon/CMS Adjustments Combined to IHS
----------- ----------- ----------- --------- -----------
(In thousands, except per share amounts)
Revenues $ 2,163,018 $ 1,351,125 $ 0 $ 3,514,143 $ (813,056)
Operating unit expenses 1,354,082 1,114,297 0 2,468,379 (696,332)
Corporate general and administrative
expenses 55,926 69,674 0 125,600 (27,500)
Provision for doubtful accounts 51,811 27,042 0 78,853 (18,841)
Depreciation and amortization 181,259 50,163 11,350 (4) 248,012 (21,516)
5,240 (5)
Merger and acquisition related expenses 15,875 0 0 15,875 0
Loss on impairment of assets 0 0 0 0 0
Special charge 0 86,155 0 86,155 0
Interest expense 81,180 41,893 0 123,073 (6,726)
Interest income (3,761) (5,325) 0 (9,086) 743
-------------- ----------- ------------ ----------- --------------
1,736,372 1,383,899 16,590 3,136,861 (770,172)
Income before income taxes, minority
interests and extraordinary item 426,646 (32,774) (16,590) 377,282 (42,884)
Provision for income taxes 145,347 (8,766) 0 136,581 (16,724)
-------------- ----------- ------------ ----------- --------------
281,299 (24,008) (16,590) 240,701 (26,160)
Minority interests 49,481 4,669 0 54,150 (1,075)
-------------- ----------- ------------ ----------- --------------
Income from continuing operations $ 231,818 $ (28,677) $ (16,590) $ 186,551 $ (25,085)
============== =========== ============ =========== ==============
Weighted average common and common
equivalent shares outstanding 351,740 52,640 (8,244)(6) 396,136 N/A
============== =========== ============ =========== ==============
Income from continuing operations per
common and common equivalent share $ 0.66 $ (0.54) $ N/A $ 0.47 $ N/A
============== =========== ============ =========== ==============
Income from continuing operations per
common share - assuming full
dilution $ 0.65 $ (0.54) $ N/A $ 0.47 $ N/A
============== =========== ============ =========== ==============
(Table Continued)
Pro Forma Pro Forma
Adjustments Combined
----------- ---------
Revenues $ 0 $ 2,701,087
Operating unit expenses 0 1,772,047
Corporate general and administrative
expenses 0 98,100
Provision for doubtful accounts 0 60,012
Depreciation and amortization (1,994) (10) 224,503
Merger and acquisition related expenses 0 15,875
Loss on impairment of assets 0 0
Special charge 0 86,155
Interest expense (56,063) (9) 60,285
Interest income 0 (8,343)
----------- ------------
(58,056) 2,308,633
Income before income taxes, minority
interests and extraordinary item 58,056 392,454
Provision for income taxes 21,864 (11) 141,722
----------- ------------
36,192 250,732
Minority interests 0 53,075
----------- ------------
Income from continuing operations $ 36,192 $ 197,657
=========== ===========
Weighted average common and common
equivalent shares outstanding N/A 396,136
=========== ===========
Income from continuing operations per
common and common equivalent share $ N/A $ 0.50
=========== ===========
Income from continuing operations per
common share - assuming full
dilution $ N/A $ 0.49
=========== ===========
See accompanying notes.
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 29, 1997 HEALTHSOUTH consummated the acquisition of
Horizon/CMS by means of a stock-for-stock merger. The transaction will be
accounted for as a purchase. Under the terms of the Plan, HEALTHSOUTH issued
0.84338 of a share of its Common Stock in exchange for each outstanding share of
Horizon/CMS Common Stock. For purposes of the accompanying pro forma financial
statements, it is assumed that HEALTHSOUTH issued approximately 45,262,000
shares of its Common Stock valued at $975,849,000, or $21.56 per share, in the
Merger. The per share value is based on the closing price per share of
HEALTHSOUTH Common Stock on February 14, 1997, the last business day preceding
public announcement of the Merger. In addition, HEALTHSOUTH assumed all
outstanding Horizon/CMS stock options, which will, in the aggregate, be
exercisable for options to acquire approximately 4,200,000 shares of HEALTHSOUTH
Common Stock. For purposes of the accompanying pro forma financial statements,
these options have an estimated total value of $29,437,000, bringing the total
equity consideration to $1,005,286,000.
On December 31, 1997, HEALTHSOUTH completed the sale of the long-term
care assets acquired from Horizon/CMS to IHS. Under the terms of the Sale,
HEALTHSOUTH sold 139 long-term care facilities, 12 specialty hospitals, 35
institutional pharmacy locations and over 1,000 rehabilitation therapy contracts
with long-term care facilities. HEALTHSOUTH received approximately
$1,150,000,000 in cash and IHS assumed approximately $100,000,000 in debt.
Horizon/CMS has historically reported on a May 31 fiscal year-end.
Horizon's results of operations have been recast to a November 30 fiscal
year-end in the accompanying pro forma condensed combined income statement for
the year ended December 31, 1996. This was accomplished by excluding the results
of operations for the six months ended November 30, 1995 from Horizon/CMS's
historical May 31, 1996 income statement and then adding to it Horizon/CMS's
results of operations for the six months ended November 30, 1996. The
accompanying pro forma condensed combined income statement for the nine months
ended September 30, 1997 is based on a combination of HEALTHSOUTH's results of
operations for the nine months ended September 30, 1997 and Horizon/CMS's
results of operations for the nine months ended August 31, 1997.
The accompanying pro forma balance sheet assumes that the Merger and
the Sale were each consummated on September 30, 1997 and includes adjustments
which give effect to events that are directly attributable to the Merger and the
Sale. The accompanying pro forma income statements assume that the Merger and
the Sale were each consummated on January 1, 1996 and include adjustments which
give effect to events that are directly attributable to the Merger and the Sale
and are expected to have a continuing impact in future periods. The historical
statements used in the accompanying pro forma income statement for the year
ended December 31, 1996 do not reflect an extraordinary loss of $27,074,000, net
of tax, recorded by Horizon/CMS during the period. Likewise, the historical
statements used in the accompanying pro forma income statement for the nine
months ended September 30, 1997 do not reflect an extraordinary gain of
$3,963,000 recorded by Horizon/CMS during the period
The following pro forma adjustments are necessary to reflect the
Merger:
1. To net Horizon/CMS's noncurrent deferred income tax asset against
HEALTHSOUTH's noncurrent deferred income tax payable.
2. To allocate the purchase price as follows (in thousands):
Purchase price..................................... $ 1,005,286
==========
Historical net asset value of Horizon/CMS.......... $ 635,457
Capitalized favorable leasehold value.............. 154,543
Client and customer lists.......................... 34,091
Joint venture agreements........................... 12,136
Adjustments to net asset values:
Prepaid expenses and other current assets..... (17,256)
Other assets.................................. (29,062)
Property, plant and equipment................. (18,476)
Intangible assets............................. (3,035)
Cost in excess of net asset value.................. 236,888
---------
$ 1,005,286
==========
This adjustment also reflects the issuance of approximately 45,262,000
shares of HEALTHSOUTH Common Stock, valued at $975,849,000, in exchange for all
of the outstanding shares of Horizon/CMS Common Stock and the assumption of
Horizon/CMS stock options which will, in the aggregate, be exercisable for
approximately 4,200,000 shares of HEALTHSOUTH Common Stock, valued at
$29,437,000. The fair value of these options was estimated based upon
HEALTHSOUTH's historical option valuation criteria. Because HEALTHSOUTH and
Horizon/CMS have both elected to account for stock options under APB Opinion No.
25, the fair value of the nonvested options is included as additional
consideration. In addition, this adjustment reflects the retirement of all of
Horizon/CMS's treasury stock and the write-off of its retained earnings.
For purposes of allocating the purchase price in the accompanying pro
forma financial statements, the remaining Horizon/CMS net assets acquired have
been assigned values equal to their historical book values at August 31, 1997.
In connection with the consummation of the Merger, management of HEALTHSOUTH
will, as a matter of routine, perform a comprehensive analysis to determine the
fair value of the net assets acquired and allocate the purchase price based on
the determined fair values of the assets acquired and the liabilities assumed at
the date of acquisition. Based on all of the information it has obtained and
reviewed to date regarding the value of the remaining net assets of Horizon/CMS,
management of HEALTHSOUTH is not aware of any material differences between the
historical book value and the fair value of the remaining Horizon/CMS net
assets, except for the adjustments noted above. Furthermore, at this time,
management of HEALTHSOUTH is not aware of any material pre-acquisition
contingencies that would materially affect the purchase price allocation. For
these reasons the allocation of the purchase price described above is an
estimate based on tentative and preliminary data. The final amount of the excess
purchase price and the allocation among the net assets may differ from the
amounts estimated (see also Note 3).
3. HEALTHSOUTH and Horizon/CMS have incurred certain direct,
nonrecurring costs and charges resulting from the Merger. The following is a
detail of the estimated costs related to the Merger (in thousands):
Financial advisory fees........................ $25,900
Professional fees.............................. 1,900
Severance and related benefits................. 27,100
--------
$54,900
========
These costs, net of an estimated tax benefit of $12,322,000, have been
accrued and added to the purchase price in the accompanying pro forma balance
sheet. Most of these costs are only partially deductible for income tax
purposes. The income tax benefit of $12,322,000 is based on the deductible
portion of these costs, estimated at $31,595,000,000, multiplied by an effective
income tax rate of 39%.
The financial advisory fees are estimated based on the contractually
agreed upon fees with the two financial advisors, which, in the case of
HEALTHSOUTH, is determined as a percentage of the value of the securities issued
to consummate the Merger and, in the case of Horizon/CMS, is determined as a
percentage of the total transaction value, which includes the value of the
securities issued and the debt acquired as a result of the Merger.
The $27,100,000 in severance and related benefits described above
comprises $4,577,000 payable to the chief executive officer of Horizon/CMS
pursuant to an Employment and Change of Control Agreement, $14,306,000 payable
to other Horizon/CMS executive officers pursuant to other change in control
agreements and $8,217,000 in other severance and related benefits. IHS has
assumed the liability for up to $19,000,000 of such severance and related
benefits.
It is possible that, subsequent to the consummation of the Merger,
HEALTHSOUTH will incur costs to discontinue or dispose of certain activities
previously performed at HEALTHSOUTH and Horizon/CMS. Furthermore, in order to
combine the operations of the Companies, it is possible that HEALTHSOUTH will
incur integration costs, such as training Horizon/CMS personnel, relocating
certain HEALTHSOUTH and Horizon/CMS personnel, integrating and upgrading certain
Horizon/ CMS computer systems, consolidating and restructuring certain
functions, severance and other expenses relating to personnel performing
duplicative functions, and other related costs. These activities are
collectively referred to as "restructuring measures". At this time, a formal
plan of restructuring measures has not been formulated or approved by
HEALTHSOUTH management. Furthermore, other than the estimated costs noted in the
table above, it is not practicable at this time to estimate the individual
nature, timing or total cost of the various potential restructuring measures or
to assess the likelihood that particular restructuring measures will be
implemented. Therefore, no provision for the cost of restructuring measures has
been included in the accompanying pro forma condensed combined financial
information. However, if restructuring measures are approved and implemented by
HEALTHSOUTH management and, depending upon the nature of the measures to be
undertaken and the timing of management's commitment with respect to such
measures, costs resulting from such measures may be accrued as liabilities and
added to the total consideration in this purchase business combination in
accordance with generally accepted accounting principles. Alternatively,
management's decisions with respect to the nature and timing of any potential
restructuring measures may require that nonrecurring charges, potentially
significant, be recorded in HEALTHSOUTH's income statements in periods
subsequent to the Merger. These types of charges would include all costs related
to activities or employees of HEALTHSOUTH.
4. To adjust depreciation and amortization expense to reflect the
purchase price allocation of capitalized favorable leasehold value totaling
$154,543,000, client and customer lists totaling $34,091,000 and joint venture
agreements totaling $12,136,000 described in Note 2 above. These intangible
assets are being amortized over their estimated useful lives as follows:
Favorable leasehold value...................... 16 years
Client and customer lists...................... 8 years
Joint venture agreements....................... 10 years
5. To adjust depreciation and amortization expense to reflect the
allocation of the excess purchase price over the net asset value acquired
totaling $236,888,000 and $42,578,000 ($54,900,000 in costs less the estimated
$12,322,000 tax benefit) described in Notes 2 and 3 above. In accordance with
its stated policy, management of HEALTHSOUTH evaluates each acquisition
independently to determine the appropriate amortization period for the cost in
excess of net asset value of purchased facilities. Each evaluation includes an
analysis of historic and projected financial performance, evaluation of the
estimated useful lives of buildings and fixed assets acquired, the indefinite
lives of certificates of need and licenses acquired, the competition within
local markets, lease terms where
applicable, and the legal terms of partnership agreements where applicable.
Based on its preliminary evaluations, management of HEALTHSOUTH has determined
that the cost in excess of net asset value related to the proposed Merger should
be amortized over a 40-year period on a straight-line basis.
Because the Merger was structured as a stock-for-stock merger, the
amortization of capitalized leasehold value, goodwill and other intangible
assets described in Notes 4 and 5 above will not be deductible for income tax
purposes. Therefore, no adjustment to the provision for income taxes is made in
the accompanying pro forma income statement.
6. To adjust pro forma share amounts based on historical share amounts,
converting each outstanding share of Horizon/CMS Common Stock into 0.84338 of a
share of HEALTHSOUTH Common Stock.
The following pro forma adjustments are necessary to reflect the Sale:
7. To reflect the net cash received against the net assets sold to IHS.
HEALTHSOUTH expects to recognize a tax liability of approximately $350,000,000
on the taxable gain resulting from the Sale. The resulting difference between
the net cash received and the net assets disposed of, net of tax, is
approximately $106,325,000. This difference is offset against goodwill (cost in
excess of net asset value) calculated in the original Horizon/CMS purchase price
allocation described in Note 2 above.
8. To reflect the retirement of approximately $1,150,000,000 in
long-term debt from the cash proceeds of the Sale.
9. To adjust interest expense to reflect the retirement of long-term
debt described in Note 8. Interest is computed based on an assumed blended rate
of 6.5%.
10. To adjust amortization expense to reflect the purchase price
reallocation described in Note 7. The amortization period is 40 years (see Note
5).
11. To adjust income taxes at an assumed rate of 39% to reflect the
reduction in interest expense described in Note 9. There is not a tax effect for
the reduction in amortization expense described in Note 10 (see Note 5).
(c) Exhibits
2(a) Purchase and Sale Agreement, dated November 1, 1997, among
HEALTHSOUTH Corporation, Horizon/CMS Healthcare Corporation and
Integrated Health Services, Inc.
2(b) Amendment to Purchase and Sale Agreement among HEALTHSOUTH
Corporation, Horizon/CMS Healthcare Corporation and Integrated
Health Services, Inc. dated December 31, 1997.
2
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 15, 1998
HEALTHSOUTH CORPORATION
By /s/WILLIAM W. HORTON
-------------------------
William W. Horton
Senior Vice President
and Corporate Counsel