-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fsf31m+zs/+myIUhrmcmy0t7JE5alM2nPSaUqYmcnpqb+RyjHstIvgRKkH8SOwI5 tShYeXuaqoNIWruX8aOYog== 0000950152-97-000954.txt : 19970222 0000950152-97-000954.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950152-97-000954 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961101 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970213 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCS HEALTHCARE INC CENTRAL INDEX KEY: 0001004990 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 341816187 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27602 FILM NUMBER: 97531623 BUSINESS ADDRESS: STREET 1: 3201 ENTERPRISE PARKWAY STREET 2: SUITE 2200 CITY: BEACHWOOD STATE: OH ZIP: 44122 MAIL ADDRESS: STREET 1: 1400 MCDONALD INVESTMENT CENTER STREET 2: 800 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114 8-K/A 1 NCS HEALTHCARE 8-K AMENDMENT NO. 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 8-K/A-1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: NOVEMBER 1, 1996 ----------------- (Date of earliest event reported) NCS HEALTHCARE, INC. -------------------- (Exact name of Registrant as specified in its charter) Delaware 0-027602 34-1816187 - ---------------------------- ----------- ------------------ (State or other jurisdiction (Commission (I.R.S. employer of incorporation) file number) identification no.) 3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (216) 514-3350 -------------- 2 The undersigned Registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K dated November 1, 1996 as set forth in the pages attached hereto: "Item 7. Financial Statements, Pro Forma Financial Information and Exhibits" is hereby amended and restated to include historical and pro forma financial information in connection with the acquisition of Clinical Health Systems by the Registrant. (c) Exhibits
Sequential Exhibit No. Description Page No. - ----------- ----------- -------- 23.1 Consent of Independent Public Accountants 99.1 Financial Statements of Clinical Health Systems. ----------------------------------------------- Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited) Statements of Income for the Year Ended December 31, 1995 and the Nine Months Ended September 30, 1996 (unaudited) Statement of Shareholders' Equity for the Year Ended December 31, 1995 Statements of Cash Flows for the Year Ended December 31, 1995 and the Nine Months Ended September 30, 1996 (unaudited) Notes to Financial Statements for the Year Ended December 31, 1995 and for the Nine Months Ended September 30, 1996 (unaudited) 99.2 Pro Forma Financial Information. ------------------------------- Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 Notes to Pro Forma Condensed Consolidated Balance Sheet Pro Forma Condensed Consolidated Statement of Income for the Three Months Ended September 30, 1996 Pro Forma Condensed Consolidated Statement of Income for the Year Ended June 30, 1996 Notes to Pro Forma Condensed Consolidated Statements of Income
3 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NCS HEALTHCARE, INC. By: /s/ Jeffrey R. Steinhilber ------------------------------ Jeffrey R. Steinhilber, Senior Vice President and Chief Financial Officer Date: February 13, 1997 EX-23.1 2 EXHIBIT 23.1 1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated July 24, 1996 (except with respect to the matter discussed in Note 11, as to which the date is November 1, 1996) on the combined financial statements of Clinical Health Systems-Washington, Inc., Clinical Health Systems - Northwest, Inc., and the Care for Life Division of Health Service Pharmacy, Inc. (the "Company") as of December 31, 1995 included in this form 8-K/A-1 dated November 1, 1996 of NCS Healthcare, Inc. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. /s/ Arthur Andersen LLP Washington, DC January 28, 1997 EX-99.1 3 EXHIBIT 99.1 1 Exhibit 99.1 CLINICAL HEALTH SYSTEMS - WASHINGTON, INC., CLINICAL HEALTH SYSTEMS - NORTHWEST, INC., AND THE CARE FOR LIFE DIVISION OF HEALTH SERVICE PHARMACY, INC. COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 (unaudited), TOGETHER WITH AUDITORS' REPORT 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Boards of Directors of Clinical Health Systems - Washington, Inc., Clinical Health Systems - Northwest, Inc., and Health Service Pharmacy, Inc.: We have audited the accompanying combined balance sheet of Clinical Health Systems - Washington, Inc., Clinical Health Systems - Northwest, Inc., and the Care for Life Division of Health Service Pharmacy, Inc. (together "the combined group") as of December 31, 1995, and the related combined statements of income, shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the combined group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Clinical Health Systems - Washington, Inc., Clinical Health Systems - Northwest, Inc., and the Care for Life Division of Health Service Pharmacy, Inc., as of December 31, 1995, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Washington, D.C., July 24, 1996 (except with respect to the matter discussed in Note 11, as to which the date is November 1, 1996) 3 CLINICAL HEALTH SYSTEMS - WASHINGTON, INC., CLINICAL HEALTH SYSTEMS - NORTHWEST, INC., AND THE CARE FOR LIFE DIVISION OF HEALTH SERVICE PHARMACY, INC. COMBINED BALANCE SHEETS
ASSETS December 31, 1995 September 30, 1996 ----------------- ------------------ (Unaudited) CURRENT ASSETS: Cash $ 1,600 $ 0 Accounts receivable, net of allowance for doubtful accounts of $353,000 and $123,000 as of December 31, 1995 and September 30, 1996 (unaudited), respectively 3,342,193 4,260,806 Inventories 866,779 936,810 Note receivable from CHS, Inc. (Note 6) 317,636 351,069 Prepaid expenses 29,131 143,800 ---------- ---------- Total current assets 4,557,339 5,692,485 FIXED ASSETS: Leasehold improvements 183,260 243,586 Furniture and equipment 661,693 1,865,572 Vehicles 50,164 181,194 ---------- ---------- 895,117 2,290,352 Less- Accumulated depreciation (443,364) (1,414,612) ---------- ---------- Fixed assets, net 451,753 875,740 OTHER ASSETS 194,302 254,379 DUE FROM AFFILIATES 1,382,082 363,526 ---------- ---------- Total assets $6,585,476 $7,186,130 ========== ==========
The accompanying notes are an integral part of this combined balance sheet. 4 CLINICAL HEALTH SYSTEMS - WASHINGTON, INC., CLINICAL HEALTH SYSTEMS - NORTHWEST, INC., AND THE CARE FOR LIFE DIVISION OF HEALTH SERVICE PHARMACY, INC. COMBINED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 1995 September 30, 1996 ----------------- ------------------ (Unaudited) CURRENT LIABILITIES: Accounts payable $2,540,607 $1,828,387 Accrued expenses (Note 2) 499,430 649,789 Current portion of obligations under capital leases 41,442 69,227 Current portion of note payable to bank 67,748 66,734 Line of credit (Note 3) 400,000 100,000 Notes payable to shareholders (Note 6) 229,794 292,624 Notes payable -- 789,333 ---------- ---------- Total current liabilities 3,779,021 3,796,094 LONG-TERM PORTION OF OBLIGATIONS UNDER CAPITAL LEASES 31,462 96,252 LONG-TERM PORTION OF NOTE PAYABLE TO BANK 53,202 171,040 ---------- ---------- Total liabilities 3,863,685 4,063,386 COMMITMENTS AND CONTINGENCIES (Note 5) SHAREHOLDERS' EQUITY: Common stock (Note 4) 15,000 15,000 Additional paid-in capital 140,654 140,654 Retained earnings 2,566,137 1,967,090 ---------- ---------- Total shareholders' equity 2,721,791 3,122,744 ---------- ---------- Total liabilities and shareholders' equity $6,585,476 $7,186,130 ========== ==========
The accompanying notes are an integral part of this combined balance sheet. 5 CLINICAL HEALTH SYSTEMS - WASHINGTON, INC., CLINICAL HEALTH SYSTEMS - NORTHWEST, INC., AND THE CARE FOR LIFE DIVISION OF HEALTH SERVICE PHARMACY, INC. COMBINED STATEMENTS OF INCOME
Nine Months Year Ended Ended December September 31, 1995 30, 1996 --------------- ----------- (Unaudited) NET REVENUES $20,968,114 $18,616,626 COST OF GOODS SOLD 12,770,552 11,019,218 ----------- ----------- Gross profit 8,197,562 7,597,408 OPERATING EXPENSES: Payroll and related expenses 4,628,937 4,377,682 Selling, general, and administrative expenses 1,555,349 1,797,271 Provision for doubtful accounts 280,789 60,513 Depreciation and amortization 90,936 102,061 ----------- ----------- Total operating expenses 6,556,011 6,337,527 ----------- ----------- Operating income 1,641,551 1,259,881 OTHER EXPENSES: Interest expense (86,611) (265,038) Interest and other income 54,501 201,110 ----------- ----------- Total other expense (32,110) (63,928) ----------- ----------- NET INCOME $ 1,609,441 $ 1,195,953 =========== ===========
The accompanying notes are an integral part of this combined statement. 6 CLINICAL HEALTH SYSTEMS - WASHINGTON, INC., CLINICAL HEALTH SYSTEMS - NORTHWEST, INC., AND THE CARE FOR LIFE DIVISION OF HEALTH SERVICE PHARMACY, INC. COMBINED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1995
COMMON STOCK ADDITIONAL TOTAL --------------- PAID-IN RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ------ ------ ------- -------- ------ BALANCE, December 31, 1994 $15,000 $140,654 $ 956,696 $1,112,350 Net income - - - 1,609,441 1,609,441 ------ ------- -------- ---------- ---------- BALANCE, December 31, 1995 $15,000 $140,654 $2,566,137 $2,721,791 ====== ======= ======== ========== ==========
The accompanying notes are an integral part of this combined statement. 7 CLINICAL HEALTH SYSTEMS - WASHINGTON, INC., CLINICAL HEALTH SYSTEMS - NORTHWEST, INC., AND THE CARE FOR LIFE DIVISION OF HEALTH SERVICE PHARMACY, INC. COMBINED STATEMENTS OF CASH FLOWS
Nine Months Year Ended Ended December 31, September 30, 1995 1996 ----------- ------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,609,441 $1,195,953 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 90,936 102,061 Provision for doubtful accounts 280,789 60,513 Increase in accounts receivable (709,540) (308,613) Increase in inventory (232,190) (10,031) Increase in prepaid expenses (5,542) (114,669) Increase in other assets (68,123) (72,651) Increase (decrease) in accounts payable 428,792 (712,220) (Decrease) increase in accrued expenses (485,968) 139,692 ---------- ---------- Net cash provided by operating activities 908,595 80,035 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (68,140) (243,987) ---------- ---------- Net cash used in investing activities (68,140) (243,987) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in obligation under capital leases 6,662 92,575 (Increase) decrease in due from affiliates (819,578) 1,018,556 (Decrease) increase in notes payable to shareholders (42,044) 62,830 Borrowings (repayments) under line-of-credit 400,000 (300,000) Repayments of note receivable from CHS, Inc. (506,545) (33,433) Borrowings under notes payable to bank 120,950 116,824 Dividends paid -- (795,000) ---------- ---------- Net cash (used in) provided by financing activities (840,555) (162,344) ---------- ---------- NET DECREASE IN CASH (100) (1,600) Cash, beginning of period 1,700 1,600 ---------- ---------- Cash, end of period $ 1,600 $ -0- ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for- Interest $ 15,726 $ 256,699 =========== ===========
The accompanying notes are an integral part of this combined statement. 8 CLINICAL HEALTH SYSTEMS - WASHINGTON, INC., CLINICAL HEALTH SYSTEMS - NORTHWEST, INC., AND THE CARE FOR LIFE DIVISION OF HEALTH SERVICE PHARMACY, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) 1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION Clinical Health Systems - Washington, Inc. ("CHSW") sells pharmaceutical products and medical supplies to healthcare facilities and clinics through four divisions. The Company is located in Vancouver, Washington with its customer base covering Northwest Oregon and Southwest Washington, including the Portland-Vancouver metropolitan area. CHSW began operations in July 1992. Clinical Health Systems - Northwest, Inc. ("CHSNW") sells pharmaceutical products to healthcare facilities and clinics. CHSNW is located in Seattle, Washington, with its customer base covering the Puget Sound area. CHSNW began operations in August 1993. Health Service Pharmacy, Inc. ("HSP") provides home intravenous (IV) services. HSP is located in Vancouver, Washington with its customer base covering Northwest Oregon and Southwest Washington including the Portland-Vancouver metropolitan area. HSP operates through three divisions: Care For Life ("CFL") division, Vancouver Option Care division, and Portland Medical Corporation ("PMC"). The Care for Life division provides pharmaceuticals for patients with hemophilia. HSP's retail pharmacy, PMC, is located in Portland, Oregon. HSP began operations in October 1978. PRINCIPLES OF COMBINATION These combined financial statements include the accounts of the Care for Life division of HSP, CHSW, and CHSNW (the "Combined Group"). All significant intercompany balances and transactions have been eliminated in the combination. Management believes that all intercompany allocations of incurred costs are reasonable and are based on justifiable methods. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 9 -2- NEW ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Combined Group expects that adoption of this statement will not have a material effect on the Combined Group's financial statements. REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK The Combined Group records revenues at the time services or supplies are provided. Revenue is reported at the estimated net realizable amounts from patients, third-party payers, and others for services rendered. Net revenues from Medicaid and Medicare programs were approximately $7,039,000 and $2,413,000, respectively, for the year ended December 31, 1995 and $6,268,000 and $2,092,000, respectively, for the nine months ended September 30, 1996 (unaudited). Accounts receivable outstanding on the combined balance sheet from Medicaid and Medicare programs was 46.7 percent and 7.7 percent, respectively, of total accounts receivable at December 31, 1995. National and state health care-related legislation has and is expected to continue to be introduced in the U.S. Congress and the regions that the combined group operates. Such legislation may address, among other things, benefits provided, insurance coverage and provider reimbursement. It is possible that such legislation could result in the largest reductions in Medicare and Medicaid spending over the next several years that have ever been experienced. INVENTORIES Inventories are valued at cost, using the last-in, first-out ("LIFO") method. Inventory consists primarily of products held for resale. PROPERTY AND EQUIPMENT Property and equipment are valued at cost. Vehicles are depreciated using the straight-line method over a five-year period. Furniture and equipment and leasehold improvements are depreciated using the straight-line method over a seven-year period. AMORTIZATION OF OTHER ASSETS Organization expenses and covenant-not-to-compete agreements are being amortized on a straight-line basis over their estimated useful lives of three to fifteen years and are included in other assets on the combined balance sheet. 10 -3- FAIR VALUE OF FINANCIAL INSTRUMENTS The Combined Group's financial instruments include cash, accounts receivable, a note receivable, accounts payable, accrued expenses, and notes payable. The carrying amounts of these instruments approximate their fair value because of the short maturity or frequent repricing of these instruments. INCOME TAXES The Combined Group, with the consent of their shareholders, has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Combined Group does not pay corporate income taxes on their taxable income. Instead, the shareholders are liable for individual income taxes on their respective shares of the Combined Group's taxable income. 2. ACCRUED EXPENSES: Accrued expenses consist of the following:
December 31, September 30, 1995 1996 ------------ ------------- (Unaudited) Accrued salaries and related costs $222,941 $376,915 Accrued vacation 219,184 209,650 Accrued interest payable to shareholder 26,012 34,351 Accrued professional fees 24,262 24,784 Other 7,031 4,089 -------- -------- $499,430 $649,789 ======== ========
3. LINE OF CREDIT: Health Service Pharmacy, Inc. has a $400,000 line of credit with Northwest National Bank. As of December 31, 1995 and September 30, 1996 (unaudited), there was an outstanding balance of $400,000 and $100,000, respectively. Interest is at the Bank's prime rate (8.5 percent at December 31, 1995) plus 1.0 percent. The line was revised after year end to extend the due date to June 15, 1997. The line is callable upon the Lender's demand. The line is secured by all assets of HSP and Clinical Health Systems, Inc. ("CHSI"), and is personally guaranteed by each of the shareholders of the combined group. 11 -4- 4. COMMON STOCK: Common stock par value, and number of shares authorized, issued and outstanding are as follows:
NUMBER OF SHARES -------------------------- PAR VALUE ISSUED AND PER SHARE AUTHORIZED OUTSTANDING --------- ---------- ----------- Health Service Pharmacy, Inc. $ 100 500 150 Clinical Health Systems - Washington, Inc. No Par 50,000 300 Clinical Health Systems - Northwest, Inc. No Par 200,000 20,000
5. COMMITMENTS AND CONTINGENCIES: The Combined Group leases administrative, warehouse, and pharmacy facilities under various noncancelable operating leases expiring between June 1995 and December 1999. The Combined Group also leases pharmaceutical and office equipment under various operating and capital leases. The building lease between HSP and one of the shareholders originally expired May 2002. During 1994, Health Service Pharmacy relocated its operations to facilities owned by a third party, accordingly, the lease agreement with the shareholder was canceled as of June 30, 1995. Included in notes payable to shareholders is a $96,000 payable in settlement of the obligation under this lease. Building rent and equipment lease expense under all operating leases was $173,359 for the year ended December 31, 1995 and $130,019 for the nine months ended September 30, 1996 (unaudited). Future minimum rental payments required under both capital and operating lease agreements as of December 31, 1995 are as follows:
YEAR ENDING OPERATING CAPITAL DECEMBER 31 LEASES LEASES ----------- ------ ------ 1996 $194,760 $48,344 1997 128,038 32,225 1998 74,485 19,688 1999 78,209 - -------- ------- $475,492 100,257 ======== Less- Amount representing interest expense (27,353) ------- Net capital lease obligations $72,904 =======
12 -5- On January 31, 1995, CHS reached an agreement with the United States Department of Health and Human Services ("DHHS") to settle a dispute relating to alleged overcharges to the Medicaid program by CHSW. Under this agreement, CHSW paid $686,738 in consideration during 1995 for the DHHS to release its claims against CHSW. 6. RELATED-PARTY TRANSACTIONS: As of December 31,1995, two shareholders of the Combined Group loaned funds to the Care for Life division of HSP totaling $133,794. Amounts outstanding accrue interest at 8 percent annually. The notes are due December 31, 1996. Interest expense on the notes amounted to $13,369 in 1995 and $15,670 for the nine months ended September 30, 1996 (unaudited). As of December 31, 1995 and September 30, 1996 (unaudited), the Combined Group had a receivable of $317,636 and $351,069, respectively, from Clinical Health Systems, Inc. ("CHS"), which is owned collectively, by the shareholders of the Combined Group. As of December 31, 1995 and September 30, 1996 (unaudited), the Care for Life division of HSP owed $26,012 and $34,351, respectively, in accrued interest on a note payable to a shareholder of the Combined Group. The note earned interest at 10.75 percent and was outstanding for the periods from September 1995 to December 1995 and January 1996 to September 1996, respectively. 7. STOCK PURCHASE AGREEMENT: Clinical Health Systems, Northwest, Inc. has an agreement to repurchase the outstanding stock of any shareholder in the event of death. The purchase price will be the book value as of the end of the calendar quarter following notice to the Company of the shareholder's death. 8. 401(k) SAVINGS AND RETIREMENT PLAN: The Combined Group adopted a 401(k) savings and retirement plan effective January 1, 1989. The Combined Group may contribute an amount as the Boards of Directors deem appropriate. At the discretion of the Boards of Directors, the employer may also match employees' elective contributions. An employee may become a plan participant after completing one year of employment with any of the businesses included in the Combined Group and completing 1,000 hours of service. For the year ended December 31, 1995 and the nine months ended September 30, 1996 (unaudited), contributions to the plan totaled $65,782 and $47,652, respectively. 9. SUBSEQUENT EVENTS: On June 26, 1996, HSP entered into a $150,000 revolving line-of-credit agreement with the Bank. Interest is at the Bank's prime rate plus 1.0 percent. Principal plus accrued interest is due on September 15, 1996, if not called earlier by the Bank. The line is secured by all inventory, chattel paper, accounts receivable, equipment and intangibles of HSP and CHSI. Subsequent to year-end, $795,000 was distributed equally to the shareholders of the Combined Group. A shareholder of the Combined Group is a director of the Bank through which the Combined Group holds its cash accounts, its line of credit and its notes payable to bank. 13 -6- On February 9, 1996, CHS - Washington purchased certain assets and assumed certain liabilities of Integrated Health Systems, Inc. and Pharmaceutical Services of Idaho, collectively referred to as "CHS - Boise." The purchase was made for $200 in cash and included the assumption of $800,000 of liabilities. As part of the purchase transaction, the seller signed a four-year noncompetition agreement with CHS - Washington for $60,000. In anticipation of the purchase, the Combined Entity incurred expenses of approximately $146,000 for the year ended December 31, 1995, in order to maintain the vitality of the business. The amount has been capitalized as other assets in these financial statements. CHS-Boise's unaudited financial statements reported revenues of $3,529,000 and net loss of $178,000 in the year ended December 31, 1995, respectively. The CHS-Boise statements reflected total assets of $1,255,356 as of December 31, 1995. 10. POTENTIAL LITIGATION: On March 6, 1996, CHSW was served by a subpoena issued by the Federal Trade Commission in connection with an investigation it was conducting to determine whether persons engaged in the provision of institutional pharmacy services in Oregon, or associations or networks of such persons, including the Pharmacists Service Group, the Institutional Pharmacy Network ("IPN"), and the Oregon Pharmacy Association, or others, have engaged in, or are engaging in, unfair methods of competition or unfair deceptive acts or practices by agreeing upon reimbursement rates or otherwise restricting competition in the provision of institutional pharmacy services. CHSW was served as a member of IPN. Management does not believe that the resolution of this matter will have a material adverse effect on the financial position or results of operation of the Combined Group. 11. ACQUISITION OF THE COMBINED GROUP: On November 1, 1996, the assets of Clinical Health Systems - Washington, Inc., Clinical Health Systems - Northwest, Inc. and the Care for Life Division of Health Services Pharmacy, Inc. were acquired by NCS HealthCare, Inc. for $15 million in cash and stock. EX-99.2 4 EXHIBIT 99.2 1 Exhibit 99.2 PRO FORMA CONSOLIDATED FINANCIAL DATA The following unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 and Condensed Consolidated Statements of Income for the three months ended September 30, 1996 and the year ended June 30, 1996 are based on the historical consolidated financial statements of the Company. The Condensed Consolidated Balance Sheet is adjusted to give effect to acquisitions completed subsequent to September 30, 1996 and prior to November 15, 1996, and to the sale of 4,235,000 shares of Class A Common Stock by the Company pursuant to a registered public offering in October 1996 and the application of the estimated net proceeds therefrom as if these events had occurred on September 30, 1996. The Pro Forma Condensed Consolidated Statement of Income for the three months ended September 30, 1996 is adjusted to give effect to the completion of acquisitions completed subsequent to June 30, 1996 and prior to November 15, 1996, and the sale by the Company in October 1996 of 4,235,000 shares of Class A Common Stock and the application of net proceeds therefrom as if these events had occurred as of July 1, 1996. The Pro Forma Condensed Consolidated Statement of Income for the year ended June 30, 1996 is adjusted to give effect to the completion of acquisitions completed subsequent to June 30, 1995 and prior to November 15, 1996, and to the sales by the Company in February 1996 and October 1996 of 4,476,000 and 4,235,000 shares of Class A Common Stock, respectively, and the application of net proceeds therefrom as if these events had occurred as of July 1, 1995. The Pro Forma Condensed Consolidated Statements of Income combine the historical operations of the Company with the historical operations of the acquired businesses prior to the dates the Company made such acquisitions, using the purchase method of accounting. The pro forma operating results are not necessarily indicative of the operating results that would have been achieved had the acquisitions actually occurred at July 1, 1995 and July 1, 1996, respectively. These Pro Forma Consolidated Financial Statements are based on the assumptions set forth in the notes to such statements.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (1) SEPTEMBER 30, 1996 (IN THOUSANDS) ASSETS Historical NCS Offering Pro Forma HealthCare and Acquired Pro Forma as Subsidiaries Companies (A) Pro Forma Adjustments (B) Adjusted ---------------- ------------- --------- --------------- --------- Current Assets: Cash and cash equivalents ............................... $ 5,416 $ (23,547) $ (18,131) $ 117,533 $ 99,402 Accounts receivable, less allowances .................... 34,321 5,354 39,675 -- 39,675 Inventories ............................................. 11,202 2,407 13,609 -- 13,609 Other ................................................... 3,482 514 3,996 (398) 3,598 --------- --------- --------- --------- --------- Total current assets ................................... 54,421 (15,272) 39,149 117,135 156,284 Property, plant and equipment, net ....................... 12,851 1,451 14,302 -- 14,302 Goodwill, net ............................................ 70,248 23,404 93,652 -- 93,652 Other assets, net......................................... 2,398 144 2,542 -- 2,542 --------- --------- --------- --------- --------- Total assets........................................... $ 139,918 $ 9,727 $ 149,645 $ 117,135 $ 266,780 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ....................................... $ 8,054 $ 3,870 $ 11,924 $ -- $ 11,924 Accrued expenses and notes payable ...................... 14,782 1,260 16,042 (6,491) 9,551 --------- --------- --------- --------- --------- Total current liabilities ............................. 22,836 5,130 27,966 (6,491) 21,475 Long-term debt ........................................... 6,581 2,213 8,794 -- 8,794 Convertible subordinated debentures ...................... 6,549 -- 6,549 -- 6,549 Other .................................................... 493 214 707 -- 707 Stockholders' equity: Preferred stock, par value $.01 per share .............. -- -- -- -- -- Common stock, par value $.01 per share Class A .............................................. 60 1 61 45 103 Class B .............................................. 66 -- 66 (3) 63 Paid-in capital ........................................ 95,352 2,169 97,521 123,584 221,108 Retained earnings ...................................... 7,981 -- 7,981 -- 7,981 --------- --------- --------- --------- --------- Total stockholders' equity ........................... 103,459 2,170 105,629 123,626 229,255 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity ........... $ 139,918 $ 9,727 $ 149,645 $ 117,135 $ 266,780 ========= ========= ========= ========= ========= (1) See accompanying Notes to Pro Forma Condensed Consolidated Balance Sheet.
2 NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT SHARE INFORMATION) (A) Reflects acquisitions completed subsequent to September 30, 1996 and prior to November 15, 1996 by the Company, all of which were accounted for under the purchase method, at an aggregate purchase price of $28,783. (B) Reflects the sale of the 4,235,000 shares of Class A Common Stock by the Company pursuant to a registered public offering in October 1996 and the receipt and application of the proceeds therefrom as follows: Gross proceeds from the offering ........... $ 131,285 Underwriting discounts and commissions ..... (6,564) Expenses of the offering ................... (1,095) --------- Net proceeds ............................... 123,626 Repayment of notes payable ................. (7,144) Prepaid offering costs ..................... 398 Accrued offering costs ..................... 653 --------- Net increase in cash and cash equivalents .. $ 117,533 ========= Also reflects the conversion, by certain Selling Stockholders, of 250,000 shares of Class B Common Stock into an equal number of shares of Class A Common Stock in connection with the registered public offering. 3 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (1) THREE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
Historical ---------------------------------- NCS HealthCare Acquired Pro Forma and Subsidiaries Companies (A) Adjustments Pro Forma ---------------- ------------- ----------- ---------- Revenues $ 43,042 $ 16,006 $ -- $ 59,048 Cost of revenues 31,854 12,137 -- 43,991 -------- -------- -------- -------- Gross profit 11,188 3,869 -- 15,057 Selling, general and administrative expenses 7,654 3,085 163(B) 10,902 -------- -------- -------- -------- Operating income 3,534 784 (163) 4,155 Interest expense (income), net 123 77 82(C) 282 -------- -------- -------- -------- Income before income taxes 3,411 707 (245) 3,873 Income tax expense 1,501 312 (109) 1,704 -------- -------- -------- -------- Net income $ 1,910 $ 395 $ (136) $ 2,169 ======== ======== ======== ======== Net income per share $ 0.15 $ 0.13 ======== ======== Shares used in the computation 12,594 17,281 ======== ======== (1) See accompanying Notes to Pro Forma Condensed Consolidated Statements of Income.
4 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (1) YEAR ENDED JUNE 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Historical --------------------------------- NCS HealthCare Acquired Pro Forma and Subsidiaries Companies (A) Adjustments Pro Forma ---------------- -------------- ----------- --------- Revenues $113,281 $111,359 $ -- $224,640 Cost of revenues 82,415 85,118 -- 167,533 -------- -------- -------- -------- Gross profit 30,866 26,241 -- 57,107 Selling, general and administrative expenses 22,236 19,360 946(B) 42,542 Special compensation 2,811(D) -- -- 2,811 -------- -------- -------- -------- Operating income 5,819 6,881 (946) 11,754 Interest expense (income), net 1,611 616 (1,151)(E) 1,076 -------- -------- -------- -------- Income before income taxes 4,208 6,265 205 10,678 Income tax expense 1,852 2,755 91 4,698 -------- -------- -------- -------- Net income $ 2,356 $ 3,510 $ 114 $ 5,980 ======== ======== ======== ======== Net income per share $ 0.26 $ 0.47 ======== ======== Shares used in the computation 8,971 12,766 ======== ========
(1) See accompanying Notes to Pro Forma Condensed Consolidated Statements of Income. 5 NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 1996 AND YEAR ENDED JUNE 30, 1996 (IN THOUSANDS) (A) The historical statement of income data for the acquired companies for the three months ended September 30, 1996 represents the results of operations of such companies from July 1, 1996 to the earlier of their respective dates of acquisition or September 30, 1996. The historical statement of income data for the acquired companies for the year ended June 30, 1996 represent the results of operations for such companies from July 1, 1995 to the earlier of their respective dates of acquisition or June 30, 1996. Each of the acquisitions has been accounted for as a purchase. Accordingly, the results of the operations of each acquired company are included in the Company's results of operations from the date of acquisition. The tables below present the details of the historical operations of the acquired companies. The detail of the historical operations of the acquired companies for the periods from July 1, 1996 to the earlier of their respective dates of acquisition or September 30, 1996 are as follows:
ACQUIRED COMPANY (DATE OF ACQUISITION) IPAC Thrifty Clinical Others (August 1, (August 13, (November 1, (Fiscal 1996) 1996) 1996) 1997) Total ----- ----- ----- ----- ----- STATEMENT OF INCOME DATA: Revenues $1,152 $1,453 $6,206 $7,195 $16,006 Cost of revenues 847 1,075 4,825 5,390 12,137 ------- ------- ------- ------- ------- Gross profit 305 378 1,381 1,805 3,869 Selling, general and administrative expenses 256 224 961 1,644 3,085 ------- ------- ------- ------- ------- Operating income 49 154 420 161 784 Interest expense 27 20 21 9 77 ------- ------- ------- ------- ------- Income before income taxes 22 134 399 152 707 Income tax expense 10 59 176 67 312 ------- ------- ------- ------- ------- Net income $ 12 $ 75 $ 223 $ 85 $ 395 ======= ======= ======= ======= =======
The detail of the historical operations of the acquired companies for the periods from July 1, 1995 to the earlier of their respective dates of acquisition or June 30, 1996 are as follows:
ACQUIRED COMPANY (DATE OF ACQUISITION) Uni-Care IPAC Thrifty Clinical Others Others (May 15, (August 1, (August 13, (November 1, (Fiscal (Fiscal 1996) 1996) 1996) 1996) 1996) 1997) Total ----- ----- ----- ----- ----- ----- ----- STATEMENT OF INCOME DATA: Revenues $14,500 $13,829 $11,627 $20,968 $12,821 $37,614 $111,359 Cost of revenues 11,165 10,164 8,604 16,303 9,919 28,963 85,118 ------- ------- ------- ------- ------- ------- -------- Gross profit 3,335 3,665 3,023 4,665 2,902 8,651 26,241 Selling, general and administrative expenses 2,300 3,079 1,789 3,023 1,618 7,551 19,360 ------- ------- ------- ------- ------- ------- -------- Operating income 1,035 586 1,234 1,642 1,284 1,100 6,881 Interest expense -- 324 159 33 80 20 616 ------- ------- ------- ------- ------ ------- -------- Income before income taxes 1,035 262 1,075 1,609 1,204 1,080 6,265 Income tax expense 455 115 473 708 529 475 2,755 ------- ------- ------- -------- ------ ------ -------- Net income $ 580 $ 147 $ 602 $ 901 $ 675 $ 605 $ 3,510 ======= ======= ======= ======= ======= ======= ========
6 (B) The adjustment to selling, general and administrative expenses consists of (i) a reduction of $121 and $1,366 for the three and twelve month periods ended September 30, 1996 and June 30, 1996, respectively, to acquired companies' historical amounts of compensation for owners and certain employee benefits reflecting the difference between such historical amounts and amounts specified in the post-acquisition employment contracts for such individuals and continuing benefit programs and (ii) a $284 and $2,312 adjustment for the three and twelve months periods ended September 30, 1996 and June 30, 1996, respectively, to increase amortization of the excess of cost over the fair value of net assets of the acquired companies, using a 30-year amortization schedule. (C) The adjustment reflects the reduction in interest expense had the entire net proceeds of approximately $123.6 million from the Company's registered public offering in October 1996 been used to reduce certain outstanding indebtedness and to fund the acquisitions, as if such offering had occurred on July 1, 1996. (D) Represents a one-time, non-recurring charge in connection with the termination of performance incentive agreements with prior owners of certain acquired companies. (E) The adjustment reflects the reduction in interest expense and the elimination of interest income, had the entire net proceeds of approximately $67.0 million and $123.6 million from the Company's initial public offering in February 1996 and subsequent public offering in October 1996, respectively, been used to reduce certain outstanding indebtedness and to fund the acquisitions, as if such offerings had occurred on July 1, 1995. -----END PRIVACY-ENHANCED MESSAGE-----