SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 1
TO
FORM 8-K/A
----------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 25, 1997
----------------------------
INTEGRATED HEALTH SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-12306 23-2428312
- ---------------------------- ------------ -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
10065 Red Run Boulevard, Owings Mills, Maryland 21117
- ----------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (410) 998-8400
----------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 25, 1997, Integrated Health Services, Inc. ("IHS") acquired,
through a cash tender offer and subsequent merger, Community Care of America,
Inc. ("CCA") for a purchase price of approximately $34.3 million in cash (the
"CCA Acquisition"). In addition, in connection with the CCA Acquisition IHS
repaid approximately $58.5 million of indebtedness assumed in the CCA
Acquisition (including restructuring fees of $4.9 million) with the proceeds
from the term loans under its new credit facility and assumed approximately
$27.0 million of indebtedness. IHS incurred direct costs in the transaction of
approximately $5.2 million. CCA develops and operates skilled nursing facilities
in medically underserved rural communities. CCA currently operates 54 licensed
long-term care facilities with 4,450 licensed beds (of which 19 facilities are
being held for sale), one rural healthcare clinic, two outpatient rehabilitation
centers (one of which is being held for sale), one child day care center and 124
assisted living units within seven of the facilities which CCA operates. CCA
currently operates in Alabama, Colorado, Florida, Georgia, Iowa, Kansas,
Louisiana, Maine, Missouri, Nebraska, Texas and Wyoming. Dr. Robert N. Elkins,
Chairman of the Board and Chief Executive Officer of IHS, beneficially owned
approximately 21.0% of CCA's outstanding common stock (excluding warrants owned
by IHS to purchase approximately 13.5% of CCA's common stock).
In connection with the CCA Acquisition, IHS, CCA and Health and Retirement
Properties Trust ("HRPT"), CCA's principal landlord and a significant lender to
CCA, restructured the lease and loan agreements between CCA and HRPT. Under the
agreement, (i) CCA purchased for $33.5 million 14 facilities, aggregating 1,238
beds, previously owned by HRPT and leased to CCA, (ii) approximately $12.2
million principal amount of loans from HRPT to CCA was prepaid and the
collateral security released, (iii) three facilities mortgage financed by HRPT
were sold to HRPT and leased to CCA, and (iv) the leases and mortgages were
modified to reduce future rent and mortgage interest rate increases and release
cash security deposits. IHS has guaranteed all lease and mortgage obligations to
HRPT, which received a $3.7 million modification fee.
ITEM 5. OTHER EVENTS.
On October 2, 1997, IHS acquired substantially all of the assets of the
Lithotripsy Division (the "Coram Lithotripsy Division") of Coram Healthcare
Corporation ("Coram"), which operates 20 mobile lithotripsy units and 13
fixed-site machines in 180 locations in 18 states. The Coram Lithotripsy
Division also provides maintenance services to its own and third-party
equipment. Lithotripsy is a non-invasive technique that utilizes shock waves to
disintegrate kidney stones.
2
IHS paid approximately $131.0 million in cash for the Coram Lithotripsy
Division, including the payment of $1.0 million of intercompany debt to Coram.
IHS has assumed Coram's agreements with its lithotripsy partners, which
contemplate that IHS will acquire the remaining interest in each partnership at
a defined price in the event that legislation is passed or regulations are
adopted or interpreted that would prevent the physician partners from owning an
interest in the partnership and using the partnership's lithotripsy equipment
for the treatment of his or her patients.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
1. The consolidated balance sheet of Community Care of
America, Inc. and subsidiaries as of December 31, 1995 and
1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in
the three year period ended December 31, 1996, and the notes
thereto, audited by KPMG Peat Marwick LLP, independent
certified public accountants, are included in IHS' Current
Report on Form 8-K dated September 25, 1997 and filed with the
Securities and Exchange Commission on October 10, 1997.
2. The unaudited consolidated balance sheet of Community Care
of America, Inc. and subsidiaries as of June 30, 1997 and the
related unaudited consolidated statements of operations,
shareholders' equity and cash flows for the six months ended
June 30, 1996 and 1997 are included in IHS' Current Report on
Form 8-K dated September 25, 1997 and filed with the
Securities and Exchange Commission on October 10, 1997.
(B) PRO FORMA FINANCIAL INFORMATION.
IHS' unaudited pro forma consolidated balance sheet at
September 30, 1997 and statements of operations for the year
ended December 31, 1996 and the nine months ended September
30, 1997, reflecting the acquisition of Community Care of
America, Inc. and certain other acquisitions and divestitures
consummated by IHS during the period commencing January 1,
1996 and ending September 30, 1997, are included herein.
(C) EXHIBITS.
2. Agreement and Plan of Merger, dated as of August 1, 1997,
among Integrated Health Services, Inc., IHS Acquisition XXVI,
Inc. and Community Care of America, Inc. (incorporated herein
by reference to Exhibit (c)(2) to Integrated Health Services,
Inc.'s Tender Offer Statement
3
on Schedule 14D-1 filed with the Securities and Exchange
Commission on August 7, 1997).
23. Consent of KPMG Peat Marwick LLP.
4
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statements of operations
give effect to (i) the sale by IHS of its pharmacy division in July 1996 (the
"Pharmacy Sale"), (ii) the sale by IHS of a majority interest in its assisted
living services subsidiary ("ILC") in October 1996 (the "ILC Offering"), (iii)
the acquisition of First American Health Care of Georgia, Inc. ("First
American") in October 1996 (the "First American Acquisition"), (iv) the
acquisition of Community Care of America, Inc. ("CCA") in September 1997 (the
"CCA Acquisition"), (v) the acquisition of the lithotripsy division (the "Coram
Lithotripsy Division") of Coram Healthcare Corporation (the "Coram Lithotripsy
Acquisition") in October 1997 and (vi) the acquisition of (a) Vintage Health
Care Center, a skilled nursing and assisted living facility, in January 1996
(the "Vintage Acquisition"), (b) Rehab Management Systems, Inc., an outpatient
rehabilitation company, in March 1996 (the "RMS Acquisition"), (c) Hospice of
the Great Lakes, Inc., a hospice company, in May 1996 (the "Hospice
Acquisition"), (d) J.R. Rehab Associates, Inc., an inpatient and outpatient
rehabilitation center, in August 1996 (the "J.R. Rehab Acquisition"), (e)
Extendicare of Tennessee, Inc., a home health company, in August 1996 (the
"Extendicare Acquisition"), (f) Edgewater Home Infusion Services, Inc., a home
infusion company, in August 1996 (the "Edgewater Acquisition"), (g) Century Home
Services, Inc., a home health services company, in September 1996 (the "Century
Acquisition"), (h) Signature Home Care, Inc., a home health company, in
September 1996 (the "Signature Acquisition"), (i) Mediq Mobile X-Ray Services,
Inc., a mobile diagnostics company, in November 1996 (the "Mediq Acquisition"),
(j) Total Rehab Services, LLC and Total Rehab Services 02, LLC, providers of
contract rehabilitation and respiratory services, in November 1996 (the "Total
Rehab Acquisition"), (k) Lifeway Inc., a physician management and disease
management company, in November 1996 (the "Lifeway Acquisition"), (l) In-Home
Health Care, Inc., a home health company, in January 1997 (the "In-Home
Acquisition"), (m) Portable X-Ray Labs, Inc., a mobile diagnostics company, in
February 1997 (the "Portable X-Ray Acquisition"), (n) Coastal Rehabilitation,
Inc., an inpatient rehabilitation company, in April 1997 (the "Coastal
Acquisition"), (o) Health Care Industries, Inc., a home health company, in June
1997 (the "Health Care Industries Acquisition"), (p) Rehab Dynamics, Inc. and
Restorative Therapy, Ltd., related contract rehabilitation companies, in June
1997 (the "Rehab Dynamics Acquisition"), (q) Ambulatory Pharmaceutical Services,
Inc. and APS American, Inc., related home health companies, in August 1997 (the
"APS Acquisition"), (r) Arcadia Services, Inc., a home health company, in August
1997 (the "Arcadia Acquisition") and (s) Barton Creek Healthcare, Inc., a home
health company, in September 1997 (the "Barton Creek Acquisition"). The pro
forma statements of operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 were prepared as if all of the foregoing
transactions were consummated on January 1, 1996. The pro forma statement of
operations information does not give effect to the acquisition of the assets of
three small ancillary service businesses and the acquisition of five mobile
diagnostic companies during the nine months ended September 30, 1997, the
acquisition of RoTech Medical Corporation in October 1997 or various financings
conducted by IHS in 1996 and 1997.
5
The pro forma balance sheet at September 30, 1997 was prepared as if the
Coram Lithotripsy Acquisition was consummated at September 30, 1997. The
Pharmacy Sale, the ILC Offering, the First American Acquisition, the CCA
Acquisition, the Vintage Acquisition, the RMS Acquisition, the Hospice
Acquisition, the J.R. Rehab Acquisition, the Extendicare Acquisition, the
Edgewater Acquisition, the Century Acquisition, the Signature Acquisition, the
Mediq Acquisition, the Total Rehab Acquisition, the Lifeway Acquisition, the
In-Home Acquisition, the Portable X-Ray Acquisition, the Coastal Acquisition,
the Health Care Industries Acquisition, the Rehab Dynamics Acquisition, the APS
Acquisition, the Arcadia Acquisition and the Barton Creek Acquisition were all
consummated prior to September 30, 1997 and are therefore reflected in the
actual September 30, 1997 balance sheet.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The unaudited pro forma
financial information set forth below is not necessarily indicative of IHS'
financial position or the results of operations that actually would have
occurred if the transactions had been consummated on the dates shown. In
addition, they are not intended to be a projection of results of operations that
may be obtained by IHS in the future. The unaudited pro forma financial
information should be read in conjunction with the consolidated financial
statements and related notes thereto of IHS and certain acquired companies
included in IHS' filings with the Securities and Exchange Commission.
6
INTEGRATED HEALTH SERVICES, INC.
PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
ASSETS
CORAM LITHOTRIPSY
DIVISION
---------------------------------
IHS PRO FORMA
ACTUAL ACTUAL(1) ADJUSTMENTS CONSOLIDATED
------------ ------------- ----------------- -------------
Current Assets:
Cash and cash equivalents .................. $ 58,915 $ -- $ 58,915
Temporary investments ..................... 821,965 -- $ (131,000) 690,965
Patient accounts and third-party payor
settlements receivable, net ............ 377,546 1,930 379,476
Inventories, prepaid expenses and other
current assets ........................... 36,457 4,356 40,813
Income tax receivable ..................... 25,630 -- 25,630
---------- -------- ------------ ----------
Total current assets ..................... 1,320,513 6,286 (131,000) 1,195,799
---------- -------- ------------ ----------
Property, plant and equipment, net ......... 948,120 5,776 953,896
Assets held for sale ........................ 12,109 -- 12,109
Intangible assets ........................... 836,804 77,745 62,378 (3) 976,927
Other assets .............................. 110,534 3,736 114,270
---------- -------- ------------ ----------
Total assets ........................... $3,228,080 $93,543 $ (68,622) $3,253,001
========== ======== ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ...... $ 6,782 $ -- $ 6,782
Accounts payable and accrued expenses ...... 332,813 19,921 $ 5,000 (3) 357,734
---------- -------- ------------ ----------
Total current liabilities ............... 339,595 19,921 5,000 364,516
---------- -------- ------------ ----------
Long-term debt:
Convertible subordinated debentures ...... 258,750 -- 258,750
Other long-term debt less current
maturities .............................. 1,933,233 -- 1,933,233
---------- -------- ----------
Total long-term debt ..................... 2,191,983 -- 2,191,983
---------- -------- ----------
Other long-term liabilities(2) ............ 36,114 -- 36,114
Deferred income taxes ..................... 27,501 -- 27,501
Deferred gain on sale-leaseback
transactions .............................. 5,463 -- 5,463
Stockholders' equity:
Common stock .............................. 27 -- 27
Additional paid-in capital ............... 531,500 -- 531,500
Retained earnings ......................... 108,221 73,622 $ (73,622)(4) 108,221
Treasury stock ........................... (12,324) -- (12,324)
---------- -------- ------------ ----------
Total stockholders'
equity ................................. 627,424 73,622 (73,622) 627,424
---------- -------- ------------ ----------
Total liabilities and stockholders'
equity .............................. $3,228,080 $93,543 $ (68,622) $3,253,001
========== ======== ============ ==========
- ----------
7
INTEGRATED HEALTH SERVICES, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
IHS PHARMACY ILC
ACTUAL(5) ADJUSTMENTS(6) ADJUSTMENTS(7)
------------- ------------------- -------------------
Net revenues:
Basic medical services ..................... $ 389,773 $ (16,101)(a)
Specialty medical services .................. 999,209 $ (52,331)(a)
Management services and other ............... 45,713 (1,020)(a)
----------- ------------ ------------
Total revenues .......................... 1,434,695 (52,331) (17,121)
Costs and expenses:
Operating, general and administrative
expenses .................................... 1,154,924 (43,279)(a) (12,453)(a)
Depreciation and amortization ............... 41,681 (1,785)(a) (833)(a)
Rent ....................................... 77,785 (838)(a) (1,885)(a)
Interest, net .............................. 64,110 (3,817)(b) (963)(b)
Non-recurring costs (income) ............... (14,457) 34,298 (c) (8,497)(d)
----------- ------------ ------------
Total costs and expenses ................. 1,324,043 (15,421) (24,631)
Earnings (loss) before equity in earnings
(loss) of affiliates,
income taxes and extraordinary items ....... 110,652 (36,910) 7,510
Equity in earnings (loss) of affiliates ...... 828 722
----------- ------------ ------------
Earnings (loss) before income taxes and
extraordinary items ...................... 111,480 $ (36,910) $ 8,232
============ ============
Federal and state income taxes ................ 63,715
-----------
Earnings before extraordinary items ......... $ 47,765
===========
Earnings per share before extraordinary
items:
Primary .................................... $ 2.03
Fully-diluted .............................. 1.82
===========
Weighted average shares:
Primary .................................... 23,574
Fully-diluted .............................. 31,653
===========
CORAM
LITHOTRIPSY
FIRST FIRST DIVISION
AMERICAN AMERICAN CCA CCA ------------
ACTUAL(8) ADJUSTMENTS ACTUAL(9) ADJUSTMENTS ACTUAL(10)
-------------- ----------------- ----------- ----------------- ------------
Net revenues:
Basic medical services ..................... $ -- $ 82,653 $ --
Specialty medical services .................. 387,547 11,367 $ (310)(f) 48,958
Management services and other ............... 3,115 2,974 (148)(g) --
---------- --------- ---------- -------
Total revenues .......................... 390,662 96,994 (458) 48,958
Costs and expenses:
Operating, general and administrative
expenses .................................... 406,800 85,201 (458)(f)(g) 20,634
Depreciation and amortization ............... 5,439 $ 4,501 (e) 2,056 1,854 (e) 6,773
Rent ....................................... -- 5,982 --
Interest, net .............................. 6,208 9,314 (b) 5,013 1,395 (b) 15
Non-recurring costs (income) ............... 3,468 22,062 --
---------- ---------- --------- ---------- -------
Total costs and expenses ................. 421,915 13,815 $120,314 2,791 27,422
Earnings (loss) before equity in earnings
(loss) of affiliates,
income taxes and extraordinary items ....... (31,253) (13,815) (23,320) (3,249) 21,536
Equity in earnings (loss) of affiliates ...... (671) -- 312
---------- ---------- --------- ---------- -------
Earnings (loss) before income taxes and
extraordinary items ...................... $ (31,924) $ (13,815) $(23,320) $ (3,249) $21,848
========== ========== ========= ========== =======
Federal and state income taxes ................
Earnings before extraordinary items ..........
Earnings per share before extraordinary
items:
Primary ....................................
Fully-diluted ..............................
Weighted average shares:
Primary ....................................
Fully-diluted ..............................
CORAM LITHOTRIPSY OTHER OTHER
DIVISION ACQUISITIONS ACQUISITIONS PRO FORMA
ADJUSTMENTS ACTUAL(11) ADJUSTMENTS CONSOLIDATED
----------------- -------------- ----------------- -------------
Net revenues:
Basic medical services ..................... $ 292 $ 456,617
Specialty medical services .................. 269,690 1,664,130
Management services and other ............... 3 50,637
--------- ----------
Total revenues .......................... 269,985 2,171,384
Costs and expenses:
Operating, general and administrative ex-
penses ..................................... 259,532 1,870,901
Depreciation and amortization ............... $ (533) (e) 2,359 $ 4,535 (e) 66,047
Rent ....................................... 3,474 84,518
Interest, net .............................. 9,746 (b) 5,039 4,683 (b) 100,743
Non-recurring costs (income) ............... -- 36,874
---------- --------- ---------- ----------
Total costs and expenses ................. 9,213 270,404 9,218 2,159,083
Earnings (loss) before equity in earnings
(loss) of affiliates,
income taxes and extraordinary items ....... (9,213) (419) (9,218) 12,301
Equity in earnings (loss) of affiliates ...... 1,032 2,223
---------- --------- ---------- ----------
Earnings (loss) before income taxes and
extraordinary items ...................... $ (9,213) $ 613 $ (9,218) 14,524
============ ========= ==========
Federal and state income taxes ............... 13,779
----------
Earnings before extraordinary items ......... $ 745
==========
Earnings per share before extraordinary
items:
Primary .................................... $ 0.03
Fully-diluted .............................. 0.03
==========
Weighted average shares:
Primary .................................... 1,985 25,559
Fully-diluted .............................. (6,094) 25,559
========== ==========
8
INTEGRATED HEALTH SERVICES, INC.
PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
IHS PHARMACY ILC CCA CCA
ACTUAL(12) ADJUSTMENTS(6) ADJUSTMENTS(7) ACTUAL(9) ADJUSTMENTS
------------- ---------------- ---------------- ----------- -----------------
Net revenues:
Basic medical services .................. $ 268,268 $ 66,287
Specialty medical services ............... 1,093,571 1,086 $ (3,321)(f)
Management services and other ............ 29,998 1,408 (2,232)(h)
----------- -------- -----------
Total revenues ....................... 1,391,837 68,781 (5,553)
Costs and expenses:
Operating, general and administrative
expenses ............................... 1,095,686 60,118 (5,553)(f)(h)
Depreciation and amortization ............ 47,818 1,931 1,167 (e)
Rent .................................... 75,322 5,702
Interest, net ........................... 71,991 3,918 1,046 (b)
Non-recurring charges, net ............... 20,047 $ 7,578 (c) $ 4,635 (d) --
----------- ----------- ----------- -------- ----------
Total costs and expenses .............. 1,310,864 7,578 4,635 71,669 (3,340)
Earnings (loss) before equity in earn-
ings of affiliates, income taxes and
extraordinary items ................... 80,973 (7,578) (4,635) (2,888) (2,213)
Equity in earnings (loss) of affiliates .... (713) --
----------- ----------- ----------- -------- ----------
Earnings (loss) before income taxes
and extraordinary items ................ 80,260 $ (7,578) $ (4,635) $ (2,888) $ (2,213)
=========== =========== ======== ==========
Federal and state income taxes ............. 31,301
-----------
Earnings before extraordinary items ...... $ 48,959
===========
Earnings per share before extraordinary items:
Primary ................................. $ 1.78
Fully-diluted ........................... 1.57
===========
Weighted average shares:
Primary ................................. 27,512
Fully-diluted ........................... 35,803
===========
CORAM LITHOTRIPSY
DIVISION OTHER OTHER
------------------------------- ACQUISITIONS ACQUISITIONS PRO FORMA
ACTUAL(10) ADJUSTMENTS ACTUAL(13) ADJUSTMENTS CONSOLIDATED
------------ ------------------ -------------- ----------------- -------------
Net revenues:
Basic medical services .................. $ -- $ -- $ 334,555
Specialty medical services ............... 35,873 95,031 1,222,240
Management services and other ............ -- 29,174
------- --------- ----------
Total revenues ....................... 35,873 95,031 1,585,969
Costs and expenses:
Operating, general and administrative
expenses ................................ 14,408 83,288 1,247,947
Depreciation and amortization ............ 4,184 $ 89 (e) 462 $ 1,749 (e) 57,400
Rent .................................... -- 547 81,571
Interest, net ........................... (119) 7,310 (b) 1,312 1,500 (b) 86,958
Non-recurring charges, net ............... -- -- 32,260
------- ----------- --------- ---------- ----------
Total costs and expenses .............. 18,473 7,399 85,609 3,249 1,506,136
Earnings (loss) before equity in earn-
ings of affiliates, income taxes and
extraordinary items ................... 17,400 (7,399) 9,422 (3,249) 79,833
Equity in earnings(loss) of affiliates ..... 465 -- (248)
------- ----------- --------- ---------- ----------
Earnings (loss) before income taxes
and extraordinary items ................ $17,865 $ (7,399) $ 9,422 $ (3,249) 79,585
Federal and state income taxes ............. 37,389
----------
Earnings before extraordinary items ...... $ 42,195
==========
Earnings per share before extraordinary items:
Primary ................................. $ 1.47
Fully-diluted ........................... 1.34
==========
Weighted average shares:
Primary ................................. 1,174 28,686
Fully-diluted ........................... 1,174 36,977
========== ==========
9
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) Certain amounts have been reclassified to conform the presentation of
the Coram Lithotripsy Division and IHS.
(2) Represents the present value of contingent payments aggregating
$50,000,000 due in 2000 and 2001 relating to the First American
Acquisition, which payments IHS deems probable.
(3) Represents the excess of the purchase price for the Coram Lithotripsy
Division over the estimated fair values of the net assets acquired, as
follows:
Purchase price ....................................... $131,000,000
Direct costs of acquisition ........................... 5,000,000
Stockholders' equity of Coram Lithotripsy Division ... 73,622,000
-------------
$ 62,378,000
=============
(4) Represents elimination of stockholders' equity of Coram Lithotripsy
Division.
(5) Includes the results of operations of (i) its pharmacy division through
July 30, 1996, the date of the Pharmacy Sale, (ii) its assisted living
services subsidiary through October 9, 1996, the date of closing of the ILC
Offering, (iii) First American from October 17, 1996, the date of closing
of the First American Acquisition, (iv) Vintage Health Care Center from
January 29, 1996, the date of closing of the Vintage Acquisition, (v) Rehab
Management Systems, Inc. from March 19, 1996, the date of closing of the
RMS Acquisition, (vi) Hospice of the Great Lakes, Inc. from May 1, 1996,
the date of closing of the Hospice Acquisition, (vii) J.R. Rehab
Associates, Inc. from August 1, 1996, the date of closing of the J.R. Rehab
Acquisition, (viii) Extendicare of Tennessee, Inc. from August 12, 1996,
the date of closing of the Extendicare Acquisition, (ix) Edgewater Home
Infusion Services, Inc. from August 19, 1996, the date of closing of the
Edgewater Acquisition, (x) Century Home Services, Inc. from September 13,
1996, the date of closing of the Century Acquisition, (xi) Signature Home
Care, Inc. from September 25, 1996, the date of closing of the Signature
Acquisition, (xii) Mediq Mobile X-Ray Services, Inc. from November 7, 1996,
the date of closing of the Mediq Acquisition, (xiii) Total Rehab Services,
LLC and Total Rehab Services 02, LLC from November 8, 1996, the date of
closing of the Total Rehab Acquisition and (xiv) Lifeway Inc. from November
8, 1996, the date of closing of the Lifeway Acquisition. Also includes from
October 9, 1996 IHS' equity in ILC's earnings. See notes 6, 7, 8 and 11
below.
(6) In July 1996, IHS sold its pharmacy division to Capstone Pharmacy Services,
Inc. ("Capstone") for a purchase price of $150 million, consisting of cash
of $125 million and shares of Capstone common stock having a value of $25
million. IHS used the net proceeds of the sale to repay borrowings under
its revolving credit facility. IHS had a pre-tax gain of $34.3 million.
Because IHS' investment in the pharmacy division had a very small tax
basis, the taxable gain on the sale significantly exceeded the gain for
financial reporting purposes, thereby resulting in a disproportionately
higher income tax provision related to the sale. IHS' investment in
Capstone common stock of $14.7 million was recorded at carryover cost and
classified as securities available for sale. In 1997, IHS recognized the
remaining gain of $7.6 million when restrictions on transferability of such
shares were removed.
(7) On October 9, 1996, Integrated Living Communities, Inc. ("ILC"), at the
time a wholly-owned subsidiary of IHS which provides assisted living and
related services to the private pay elderly market, completed an initial
public offering of ILC common stock. IHS sold 1,400,000 shares of ILC
common stock in the offering, for which it received aggregate net proceeds
of approximately $10.4 million. In addition, ILC used approximately $7.4
million of the net proceeds received by it to repay outstanding
indebtedness to IHS. IHS used the net proceeds from the sale to repay
borrowings under its credit facility. IHS recorded a pre-tax loss of
approximately $8.5 million in the fourth quarter of 1996 as a result of
this transaction. On July 2, 1997, IHS sold the remaining 2,497,900 shares
of ILC common stock it owned, representing 37.3% of the outstanding ILC
common stock, for $11.50 per share in a cash tender offer (the "ILC Sale").
IHS recorded a gain of approximately $4.6 million from the ILC Sale in the
third quarter of 1997.
10
(8) In October 1996, IHS acquired through merger First American. The purchase
price was $154.1 million in cash, which IHS borrowed under its credit
facility, plus contingent payments of up to $155 million payable at various
times through 2004.
(9) In September 1997 IHS acquired through a tender offer and subsequent merger
all the outstanding stock of CCA. IHS paid $34.3 million in cash, repaid
approximately $58.5 million of indebtedness assumed in the merger
(including restructuring fees of $4.9 million) and assumed approximately
$27.0 million of indebtedness. IHS incurred direct costs of acquisition of
approximately $5.2 million. In connection with the CCA Acquisition, the
Company held for sale 19 long-term care facilities. Actual results for CCA
have been adjusted as follows:
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 25,
1996 1997
--------------------- --------------------
INCREASE/(DECREASE) INCREASE/(DECREASE)
(IN THOUSANDS)
Revenue ...................................................... $ (30,518) $ (24,999)
Operating expense ............................................. (31,196) (23,288)
Depreciation ................................................ (965) (594)
Rent ......................................................... (3,017) (3,125)
Interest ...................................................... (323) (900)
Non-recurring costs ........................................... (66) --
--------- ---------
Adjustment to earnings (loss) before extraordinary item ...... $ 5,049 $ 2,908
========= =========
(10) On October 2, 1997, IHS acquired substantially all the assets of the Coram
Lithotripsy Division for cash of approximately $131.0 million, including
the payment of $1.0 million of indebtedness.
(11) Consists of the following acquisitions:
Vintage Acquisition. In January 1996, IHS purchased Vintage Health Care
Center, a 220 bed skilled nursing and assisted living facility in Denton,
Texas, for $6.9 million. A condominium interest in the assisted living
portion of this facility (valued at $3.5 million) was contributed to ILC on
June 1, 1996.
RMS Acquisition. In March 1996, IHS acquired all of the outstanding
capital stock of Rehab Management Systems, Inc. ("RMS"), which operates
outpatient rehabilitation therapy clinics in central Florida. RMS also
managed one therapy and one physician clinic. Total purchase price was $10.0
million, including $8.0 million representing the issuance of 385,542 shares
of IHS Common Stock. In addition, IHS incurred direct costs of acquisition
of $2.9 million. Total goodwill at the date of acquisition was $12.8
million.
Hospice of the Great Lakes Acquisition. In May 1996, IHS acquired
substantially all the assets of Hospice of the Great Lakes, Inc., a hospice
company in Northbrook, Illinois. Total purchase price was $8.2 million
representing the issuance of 304,822 shares of IHS Common Stock. IHS
incurred direct costs of acquisition of $1.0 million. Total goodwill at the
date of acquisition aggregated $9.0 million.
J.R. Rehab Acquisition. In August 1996, IHS acquired all of the
outstanding capital stock of J.R. Rehab Associates, Inc., an inpatient and
outpatient rehabilitation clinic in Mooresville, North Carolina. Total
purchase price was approximately $2.1 million. IHS incurred direct costs of
acquisition of $200,000. Total goodwill at the date of acquisition
aggregated $3.2 million.
Extendicare Acquisition. In August 1996, IHS acquired substantially all of
the assets of Extendicare of Tennessee, Inc., a home healthcare company in
Memphis, Tennessee. Total purchase price was approximately $3.4 million. IHS
incurred direct costs of acquisition of $200,000. Total goodwill at the date
of acquisition aggregated $1.9 million.
Edgewater Acquisition. In August 1996, IHS acquired substantially all the
assets of Edgewater Home Infusion Services, Inc., a home infusion company in
Miami, Florida. Total purchase price was approximately $8.0 million. IHS
incurred direct costs of acquisition of $300,000. Total goodwill at the date
of acquisition aggregated $7.7 million.
11
Century Acquisition. In August 1996, IHS acquired substantially all the
assets of Century Health Services, Inc., a home healthcare company in
Murfreesboro, Tennessee. Total purchase price was approximately $2.4
million. In addition, IHS used borrowings under its revolving credit
facility to repay approximately $1.6 million of debt of Century assumed in
the acquisition. IHS incurred direct costs of acquisition of $200,000. Total
goodwill at the date of acquisition aggregated $12.1 million.
Signature Acquisition. In September 1996, IHS acquired all of the
outstanding capital stock of Signature Home Care, Inc., a home care company
in Dallas, Texas. Total purchase price was approximately $9.2 million,
including $4.7 million representing the issuance of 196,374 shares of IHS
Common Stock. In addition, IHS used borrowings under its revolving credit
facility to repay approximately $1.9 million of Signature's debt. IHS
incurred direct costs of acquisition of $2.5 million. Total goodwill at the
date of acquisition aggregated $21.1 million.
Mediq Acquisition. In November 1996, the Company acquired the assets of
Mediq Mobile X-Ray Services, Inc., which provides mobile diagnostic
services. The total purchase price was $10.1 million, including $5.2 million
representing the issuance of 143,893 shares of the Company's Common Stock
(after giving effect to the return of 59,828 shares of IHS Common Stock
because of an increase in the share price of the Company's Common Stock
between the date of issuance and the date such shares were registered for
resale). In addition, the Company incurred direct costs of acquisition of
$5.5 million. Total goodwill at the date of acquisition was $15.6 million.
Total Rehab Acquisition. In November 1996, the Company acquired the assets
of Total Rehab Services, LLC and Total Rehab Services 02, LLC, which provide
contract rehabilitative and respiratory services. The total purchase price
was $8.0 million, including $2.7 million representing the issuance of
106,559 shares of the Company's Common Stock. In addition, the Company
repaid approximately $3.9 million of Total Rehab's debt. In addition, the
Company incurred direct costs of acquisition of $1.3 million. Total goodwill
at the date of acquisition was $12.0 million.
Lifeway Acquisition. In November 1996, the Company acquired all of the
outstanding stock of Lifeway, Inc., which provides physician and disease
management services. The total purchase price was $900,000 representing the
issuance of 38,502 shares of the Company's Common Stock. IHS also issued
48,129 shares of Common Stock to Robert Elkins, Chairman and Chief Executive
Officer of the Company, in payment of outstanding loans of $1.1 million from
Mr. Elkins to Lifeway. In addition, the Company incurred direct costs of
acquisition of $275,000.
In-Home Acquisition. In January 1997, IHS acquired all the outstanding
capital stock of In-Home Health Care, Inc. ("In-Home"), a home health
company in Salt Lake City, Utah. Total purchase price was $3.2 million. IHS
incurred direct costs of acquisition of $250,000. Total goodwill at the date
of acquisition aggregated $3.9 million.
Portable X-Ray Acquisition. In February 1997, IHS acquired substantially
all the assets of Portable X-Ray Labs, Inc. ("Portable X-Ray"), a mobile
diagnostics company in Anaheim, California. Total purchase price was $4.9
million. IHS incurred direct costs of acquisition of $1.3 million. Total
goodwill at the date of acquisition aggregated $5.7 million.
Coastal Acquisition. In April 1997, IHS acquired substantially all the
assets of Coastal Rehabilitation, Inc. ("Coastal"), an inpatient
rehabilitation company in Indian Harbour, Florida. Total purchase price was
$1.3 million. IHS incurred direct costs of acquisition of $200,000. Total
goodwill at the date of acquisition aggregated $1.8 million.
Health Care Industries Acquisition. In June 1997, IHS acquired all the
outstanding capital stock of Health Care Industries, Inc. ("Health Care
Industries"), a home health company in Florida. Total purchase price was
$1.8 million. IHS incurred direct costs of acquisition of $500,000. Total
goodwill at the date of acquisition aggregated $2.5 million.
Rehab Dynamics Acquisition. In June 1997, IHS acquired substantially all
the assets of Rehab Dynamics, Inc. and Restorative Therapy, Ltd.
(collectively "Rehab Dynamics"), related contract rehab companies. Total
purchase price was $19.7 million, including $11.5 million representing the
issuance of 322,472 shares of the Company's Common Stock. IHS incurred
direct costs of acquisition of $2.5 million. Total goodwill at the date of
acquisition aggregated $21.5 million.
12
Arcadia Acquisition. In August 1997, IHS acquired all the outstanding
capital stock of Arcadia Services, Inc. ("Arcadia"), a home health company.
Total purchase price was $27.0 million, including $17.2 million representing
the issuance of 531,198 shares of IHS Common Stock. IHS incurred direct
costs of acquisition of $3.0 million. Total goodwill at the date of
acquisition aggregated $39.2 million.
APS Acquisition. In August 1997, IHS acquired all the outstanding capital
stock of Ambulatory Pharmaceutical Services, Inc. and APS American, Inc.
(collectively, "APS"), related home health companies. Total purchase price
was $34.3 million, including $16.1 million representing the issuance of
532,240 shares of IHS Common Stock. IHS incurred direct costs of acquisition
of $2.0 million. Total goodwill at the date of acquisition aggregated $39.6
million.
Barton Creek Acquisition. In September 1997, IHS acquired all the
outstanding capital stock of Barton Creek Health Care, Inc. ("Barton
Creek"), a home health company. Total purchase price was $4.9 million. IHS
incurred direct costs of acquisition of $300,000. Total goodwill at the date
of acquisition aggregated $7.3 million.
(12) Includes the results of operations from the respective dates of acquisition
as follows: (i) In-Home from January 10, 1997, (ii) Portable X-Ray from
February 5, 1997, (iii) Coastal from April 7, 1997, (iv) Health Care
Industries from June 10, 1997, (iv) Rehab Dynamics from June 20, 1997, (v)
Arcadia from August 29, 1997, (vi) APS from August 30, 1997, (vii) Barton
Creek from September 23, 1997 and (viii) CCA from September 25, 1997.
(13) Consists of the In-Home Acquisition, the Portable X-Ray Acquisition, the
Coastal Acquisition, the Health Care Industries Acquisition, the Rehab
Dynamics Acquisition, the Arcadia Acquisition, the APS Acquisition and the
Barton Creek Acquisition.
----------------
For purposes of determining the effects of the acquisitions and divestitures
financings described in Notes 5 through 13 above, including those events which
are (i) directly attributable to the transaction, (ii) expected to have a
continuing impact on IHS, and (iii) factually supportable, the following
estimates and adjustments have been made:
(a) Represents actual revenues and expenses of divisions sold.
13
(b) Represents (reduction in) additional interest expense resulting from
(repayment) borrowings under IHS' credit facility to finance
acquisitions based on the interest rate under the credit facility on
the date of (repayment) borrowings, as follows:
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
DEBT MONTHS INTEREST INTEREST
(PROCEEDS) IN 1996 RATE ADJUSTMENT
------------ --------- ---------- -----------
Pharmacy ............................................. $ (91,000) 7.0 7.19% $ (3,817)
ILC Offering ....................................... (17,851) 9.0 7.19% (963)
First American ....................................... 165,000 9.5 7.13% 9,314
CCA borrowings(1) .................................... 98,000 12.0 7.44% 7,291
CCA borrowings repaid(1) ............................. (53,600) 12.0 11.00% (5,896)
Coram Lithotripsy Division ........................... 131,000 12.0 7.44% 9,746
--------- ----- ------ --------
Other Acquisitions
In-Home Health .................................... 3,200 12.0 7.38% 236
Portable X-Ray .................................... 4,900 12.0 7.25% 355
Coastal .......................................... 1,250 12.0 7.19% 90
Health Care Industries ........................... 1,825 12.0 7.19% 131
Rehab Dynamics .................................... 8,203 12.0 7.19% 590
APS ............................................. 18,125 12.0 7.19% 1,303
Barton Creek .................................... 4,400 12.0 7.44% 327
Total Rehab ....................................... 5,300 10.0 7.13% 315
Mediq ............................................. 4,942 10.0 7.13% 294
Century .......................................... 2,390 8.5 7.25% 123
Signature ....................................... 4,519 9.0 7.19% 244
Edgewater ....................................... 7,974 7.5 7.25% 361
Extendicare ....................................... 3,410 7.5 7.25% 155
J.R. Rehab ....................................... 2,100 7.0 7.25% 89
RMS ............................................. 2,000 2.5 6.88% 29
Vintage .......................................... 6,932 1.0 7.06% 41
--------- --------
Total Other ....................................... 81,470 4,683
Total ............................................. $ 313,019 $ 20,358
========= ========
Effect of 1/8% reduction in interest expense ... $ 313,019 $ 19,978
Effect of 1/8% increase in interest expense ...... $ 313,019 $ 20,739
- ----------
(1) In connection with the CCA Acquisition, IHS borrowed an aggregate of
$98,000,000, of which $53,600,000 was used to repay outstanding
indebtedness of CCA bearing interest at 11% per annum.
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
MONTHS INTEREST INTEREST
DEBT IN 1997 RATE ADJUSTMENT
---------- --------- ---------- -----------
CCA borrowings(1).................................... $ 98,000 9.0 7.44% $ 5,468
CCA borrowings repaid(1)............................. (53,600) 9.0 11.00% (4,422)
Coram Lithotripsy Division ........................ 131,000 9.0 7.44% 7,310
--------- ---- ------ --------
Other Acquisitions
In-Home Health ................................. $ 3,200 .5 7.38% 10
Portable X-Ray ................................. 4,900 1.3 7.25% 37
Coastal .......................................... 1,250 3.3 7.19% 24
Health Care Industries ........................... 1,825 5.3 7.19% 57
Rehab Dynamics ................................. 8,203 5.5 7.19% 271
APS ............................................. 18,125 8.0 7.19% 869
Barton Creek .................................... 4,400 8.5 7.44% 232
--------- --------
Total Other .................................... 41,903 1,500
Total ............................................. $217,303 $ 9,856
========= ========
Effect of 1/8% reduction in interest expense ...... $217,303 $ 9,668
Effect of 1/8% increase in interest expense ...... $217,303 $10,049
- ----------
(1) In connection with the CCA Acquisition, IHS borrowed an aggregate of
$98,000,000, of which $53,600,000 was used to repay outstanding
indebtedness of CCA bearing interest at 11% per annum.
14
(c) Represents gain on the sale of the pharmacy division of $34,298,000 and
$7,578,000 recorded in 1996 and 1997, respectively.
(d) Represents loss on sale of shares in the ILC Offering in 1996 and gain
on sale of shares in the ILC Sale in 1997.
(e) Represents additional amortization relating to goodwill recorded as a
result of the acquisition, amortized using the straight line method
over 40 years, as follows:
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
LESS: PREVIOUSLY ADJUSTED MONTHS
ANNUAL RECORDED ANNUAL IN
COMPANY GOODWILL LIFE AMORTIZATION AMORTIZATION AMORTIZATION 1996 ADJUSTMENT
- --------------------------------- ----------- ------ -------------- ------------------ -------------- ------- -----------
First American ............ $ 227,406 40 $ 5,685 $ 0 $ 5,685 9.5 $ 4,501
CCA ........................ 97,009 40 2,425 (571) 1,854 12.0 1,854
Coram Lithotripsy Division ... 140,123 40 3,503 (4,036) (533) 12.0 (533)
---------- -- -------- --------- ------- ----- -------
Other Acquisitions
Lifeway .................. 0 40 0 0 0 10.0 0
Total Rehab ............... 11,982 40 300 0 300 10.0 250
Mediq ..................... 15,600 40 390 0 390 10.0 325
Century .................. 12,140 40 304 (5) 299 8.5 211
Signature ............... 21,122 40 528 (24) 504 9.0 378
Edgewater ............... 7,685 40 192 (1) 191 7.5 119
Extendicare ............... 1,945 40 49 0 49 7.5 30
J.R. Rehab ............... 3,159 40 79 (2) 77 7.0 45
Hospice of Great Lakes . 9,031 40 226 (2) 224 4.0 75
RMS ..................... 12,832 40 321 0 321 2.5 67
Vintage .................. 0 40 0 0 0 1.0 0
In-Home Health ............ 3,856 40 96 0 96 12.0 96
Portable X-Ray ............ 5,653 40 141 0 141 12.0 141
Coastal .................. 1,764 40 44 0 44 12.0 44
Health Care Industries ... 2,505 40 63 0 63 12.0 63
Rehab Dynamics ............ 21,478 40 537 0 537 12.0 537
Arcadia .................. 39,233 40 981 0 981 12.0 981
APS ........................ 39,624 40 991 0 991 12.0 991
Barton Creek ............... 7,292 40 182 0 182 12.0 182
---------- -- -------- --------- ------- ----- -------
216,901 5,423 (34) 5,389 4,535
---------- -------- --------- ------- -------
Total ..................... $ 681,439 $17,037 $ (4,641) $12,396 $10,357
========== ======== ========= ======= =======
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
NINE LESS: PREVIOUSLY NINE MONTHS MONTHS
MONTHS RECORDED ADJUSTED IN
COMPANY GOODWILL LIFE AMORTIZATION AMORTIZATION AMORTIZATION 1997 ADJUSTMENT
- ----------------------------------- ---------- ------ -------------- ------------------ -------------- ------- -----------
CCA ........................... $ 97,009 40 $1,819 $ (652) $1,167 9.0 $1,167
Coram Lithotripsy Division .... 140,123 40 2,627 (2,538) 89 9.0 89
--------- -- ------- -------- ------- ---- ------
Other Acquisitions ............
In-Home Health ............... 3,856 40 72 0 72 .5 4
Portable X-Ray ............... 5,653 40 106 0 106 1.3 15
Coastal ..................... 1,764 40 33 0 33 3.3 12
Health Care Industries ...... 2,505 40 47 0 47 5.3 29
Rehab Dynamics ............... 21,478 40 404 0 404 5.5 247
Arcadia ..................... 39,233 40 736 0 736 8.0 654
APS ........................ 39,624 40 743 0 743 8.0 660
Barton Creek ............... 7,292 40 137 0 137 8.5 129
--------- -- ------- -------- ------- ---- ------
121,405 2,278 0 2,278 1,749
-------- ------ -------- ------ ------
Total ........................ $358,537 $6,724 $ (3,190) $3,534 $3,005
========= ======= ======== ======= ======
(f) Represents elimination of intercompany revenues and expenses.
(g) Represents elimination of revenue and expense in connection with
Medicare consulting agreement between IHS and CCA in 1996. There was no
consulting revenue or expense recorded in 1997.
(h) Represents elimination of IHS management fee from CCA and CCA's
management fee expense to IHS.
15
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.
INTEGRATED HEALTH SERVICES, INC.
Date: May 29, 1998 By: /s/ C. TAYLOR PICKETT
----------------------
Name: C. Taylor Pickett
Title: Executive Vice President--Chief
Financial Officer
16
EXHIBIT INDEX
2. Agreement and Plan of Merger, dated as of August 1, 1997,
among Integrated Health Services, Inc., IHS Acquisition XXVI,
Inc. and Community Care of America, Inc. (incorporated herein
by reference to Exhibit (c)(2) to Integrated Health Services,
Inc.'s Tender Offer Statement of Schedule 14D-1 filed with the
Securities and Exchange Commission on August 7, 1997).
23. Consent of KPMG Peat Marwick LLP.
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Integrated Health Services, Inc.:
We consent to the incorporation by reference in the registration statements on
Forms S-3 or S-4 (Nos. 33-87890, 33-66126, 33-68302, 33-77380, 33-81378,
33-98764, 333-4053, 333-12685, 333-31121, 333-35577, 333-35851, 333-41973,
333-42169 and 333-48947) and on Forms S-8 (Nos. 33-44648, 33-44649, 33-44650,
33-44651; 33-44653, 33-53912, 33-53914, 33-53916, 33-86684, 33-97190, 333-01432,
333-28289, 333-28293, 333-28317, 333-28321 and 333-47853) of Integrated Health
Services, Inc. of our report dated April 14, 1997, relating to the consolidated
balance sheets of Community Care of America, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three year period ended December 31, 1996, which report appears in the Amendment
No. 1 to Form 8-K/A dated September 25, 1997 and filed May 29, 1998, of
Integrated Health Services, Inc.
Our report dated April 14, 1997 refers to the change in accounting method, in
1996, to adopt Statement of Financial Accounting Standards No. 121 relating to
impairment of long-lived assets.
Baltimore, Maryland
May 29, 1998