-----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, IHxsvJDoz4x/RTE75+CkpklFAmFtl/DqvLgdMzxZn5uT3qZ7rFR1nYGJgx4pWVoC R2VF4KdnmUEFirpiGbyuYg== 0000950152-98-009326.txt : 19981201 0000950152-98-009326.hdr.sgml : 19981201 ACCESSION NUMBER: 0000950152-98-009326 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980916 ITEM INFORMATION: FILED AS OF DATE: 19981130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNICARE INC CENTRAL INDEX KEY: 0000353230 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 311001351 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-08269 FILM NUMBER: 98761316 BUSINESS ADDRESS: STREET 1: 100 E RIVERCENTER BLVD STREET 2: STE 1530 CITY: COVINGTON STATE: KY ZIP: 41011 BUSINESS PHONE: 5137626666 MAIL ADDRESS: STREET 1: 100 E RIVERCENTER BLVD STREET 2: STE 1530 CITY: COVINGTON STATE: KY ZIP: 41011 8-K/A 1 OMNICARE, INC. FORM 8-K/AMENDMENT #1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 16, 1998 OMNICARE, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware ---------------------------------------------- (State or other jurisdiction of incorporation) 1-8269 31-1001351 ------------------------ --------------------------------- (Commission File Number) (IRS Employer Identification No.) 100 East RiverCenter Boulevard, Covington, Kentucky 41011 --------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (606) 392-3300 2 Omnicare, Inc. hereby files its amended Form 8-K/A, reflecting changes to the Financial Statements and Exhibits section (Item 7) of the Form 8-K originally filed with the Securities and Exchange Commission on September 28, 1998. OMNICARE INC. AND SUBSIDIARY COMPANIES Index -----
Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired As of and for the year ended December 31, 1997 Report of Independent Certified Public Accountants Balance Sheet Statement of Net Earnings and Changes in Equity Statement of Cash Flows Notes to Financial Statements As of June 30, 1998 and for the six months ended June 30, 1998 and 1997 (unaudited) Balance Sheet Statement of Net Earnings Statement of Cash Flows Notes to Financial Statements
2 3 OMNICARE INC. AND SUBSIDIARY COMPANIES Index -----
Item 7. Financial Statements and Exhibits (cont.) (b) Pro Forma Financial Information (unaudited) Introduction Consolidated Statement of Income for the year ended December 31, 1997 Consolidated Statement of Income for the nine months ended September 30, 1998 Notes to Unaudited Pro Forma Financial Information (c) Exhibits 23.1 Consent of KPMG Peat Marwick LLP
3 4 INDEPENDENT AUDITORS' REPORT The Board of Directors of Extendicare Health Services, Inc.: We have audited the accompanying balance sheet of the Extendicare Health Services, Inc. Pharmacy Operations as of December 31, 1997, and the related statements of net earnings and changes in equity and cash flows for the year ended December 31, 1997. These financial statements are the responsibility of the Extendicare Health Services, Inc.'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 the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 financial position of the Extendicare Health Services, Inc. Pharmacy Operations as of December 31, 1997, and the results of its operations and cash flows for the year ended December 31, 1997, in conformity with generally accepted accounting principles. October 24, 1998 /s/ KPMG Peat Marwick LLP - ------------------------- KPMG Peat Marwick LLP Milwaukee, Wisconsin 4 5 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Balance Sheet December 31, 1997 - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Current assets: Cash $ 1,485,979 Trade accounts receivable, less allowance for doubtful accounts of $2,396,000 19,142,306 Trade accounts receivable from parent 5,704,881 Inventories 7,689,032 Prepaids 1,899,601 Other current assets 157,814 - -------------------------------------------------------------------------------- Total current assets 36,079,613 - -------------------------------------------------------------------------------- Notes receivable 75,436 Property and equipment, net 9,891,775 Other assets: Goodwill, less accumulated amortization of $317,513 37,471,338 Identifiable intangible asset, less accumulated amortization of $235,000 56,078,000 Other 866,223 - -------------------------------------------------------------------------------- Total assets $140,462,385 - -------------------------------------------------------------------------------- LIABILITIES AND EQUITY - -------------------------------------------------------------------------------- Current liabilities: Current portion of long-term debt $ 961,945 Accounts payable 1,382,980 Wages and benefits payable 1,426,353 Other accrued liabilities 602,665 - -------------------------------------------------------------------------------- Total current liabilities 4,373,943 Long-term debt, less current portion 5,223,273 - -------------------------------------------------------------------------------- Total liabilities 9,597,216 - -------------------------------------------------------------------------------- Minority interest 1,300,429 Equity 129,564,740 Commitments - -------------------------------------------------------------------------------- Total liabilities and equity $140,462,385 - --------------------------------------------------------------------------------
See accompanying notes to financial statements. 5 6 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Statement of Net Earnings and Changes in Equity Year ended December 31, 1997 - ------------------------------------------------------------------------------------- Revenues $ 99,058,111 Cost of goods sold 52,443,939 - ------------------------------------------------------------------------------------- Gross profit 46,614,172 Costs and expenses: Operating expenses 32,757,167 Lease costs 451,589 Depreciation and amortization 2,385,942 - ------------------------------------------------------------------------------------- Earnings from operations 11,019,474 Interest expense 86,404 - ------------------------------------------------------------------------------------- Earnings before provision for income taxes and minority interest 10,933,070 Provision for income taxes 3,824,994 - ------------------------------------------------------------------------------------- Earnings before minority interest 7,108,076 Minority interest 799,258 - ------------------------------------------------------------------------------------- Net earnings 6,308,818 Equity transfers from parent 102,117,719 - ------------------------------------------------------------------------------------- Change in equity 108,426,537 Equity, beginning of year 21,138,203 - ------------------------------------------------------------------------------------- Equity, end of year $129,564,740 - -------------------------------------------------------------------------------------
See accompanying notes to financial statements. 6 7 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Statement of Cash Flows Year ended December 31, 1997 - ------------------------------------------------------------------------------------------------- Net earnings $ 6,308,818 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,385,942 Bad debt expense 1,111,778 Change in deferred taxes (117,059) Minority interest, net of distributions 599,258 Change in: Accounts receivable (2,850,104) Inventories (1,026,419) Deposits 49,721 Accounts payable and accrued liabilities 151,034 Payables and receivables to/from Parent (2,745,854) - ------------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,867,115 - ------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of equipment (3,534,237) Business acquisitions (330,771) - ------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,865,008) - ------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from long-term debt 209,535 Payments on long-term debt and capital leases (267,490) Proceeds from capital leases incurred 812,694 - ------------------------------------------------------------------------------------------------- Net cash provided by financing activities 754,739 - ------------------------------------------------------------------------------------------------- Net increase in cash 756,846 Cash, beginning of year 729,133 - ------------------------------------------------------------------------------------------------- Cash, end of year $ 1,485,979 - ------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information and noncash transactions: Cash paid during the year for interest $ 124,860 Notes payable issued for noncompete agreements 20,000 - -------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 7 8 ' EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements December 31, 1997 - -------------------------------------------------------------------------------- (1) ORGANIZATION The Extendicare Health Services, Inc. Pharmacy Operations (the Pharmacy Operations) includes the pharmacy operations owned and operated by United Professional Companies, Inc. (UPC), a wholly owned subsidiary of Extendicare Health Services, Inc. (EHSI) and the pharmacy operations acquired through the purchase of Arbor Health Care Company (Arbor) by EHSI in November, 1997. The Pharmacy Operations provide to nursing homes, assisted living facilities, and other long-term care facilities and residents of such facilities (collectively LTC Customers) the following items: pharmaceutical products, pharmacy-related services, infusion therapy products and services, respiratory equipment and supplies, parenteral and enteral nutritional products, wound care products, ostomy and urological supplies, together with all home care services provided by UPC at its Springfield, Ohio location. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The more significant accounting policies of the Pharmacy Operations are as follows: (a) CASH EQUIVALENTS The Pharmacy Operations consider all highly liquid investments with original maturities of three months or less to be cash equivalents for purpose of the financial statements. (b) ACCOUNTS RECEIVABLE Accounts receivable are recorded at the net realizable value expected to be received from federal and state assistance programs, other third-party payors, or from individual patients. Management does not believe that there are any credit risks associated with these government agencies other than possible funding delays. Accounts receivable other than from government agencies consist of receivables from various payors that are subject to differing economic conditions and do not represent any concentrated credit risk to the Pharmacy Operations. (c) INVENTORIES Inventories consisting of drugs and pharmaceuticals are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. 8 9 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements - -------------------------------------------------------------------------------- (d) PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is provided using the straight-line method at rates based upon the following estimated useful lives: - -------------------------------------------------------------------------------- Buildings 25 years Building improvements 5-20 years Furniture and equipment Varying periods not exceeding 10 years Leasehold improvements The shorter of the term of the applicable leases or the useful life of the improvement not exceeding 10 years Rental equipment 3-5 years Automobiles and trucks 3 years
- -------------------------------------------------------------------------------- Maintenance and repairs are charged to expense as incurred. When property or equipment is retired or disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss is included in earnings. (e) GOODWILL AND OTHER INTANGIBLES Goodwill represents the cost of acquired net assets in excess of their fair market values. Amortization of goodwill is computed using the straight-line method over a period of forty years related to the Arbor acquisition and five to fifteen years for other acquisitions. The other identifiable intangible asset consists of pharmacy contract rights that were obtained in the Arbor acquisition and represents the value to provide pharmacy services. Pharmacy contract rights are amortized using the straight-line method over a period of twenty years. Covenants not to compete are amortized over the effective period of the covenant, which is estimated to be three years. (f) LONG-LIVED ASSETS The Pharmacy Operations periodically assess the recoverability of long-lived assets, including property and equipment, goodwill, and other intangibles, when there are indications of potential impairment based on estimates of undiscounted future cash flows. The amount of any impairment is calculated by comparing the estimated fair market value with the carrying value of the related asset. Management considers such factors as current results, trends, and future prospects, in addition to other economic factors, in performing this analysis. In management's opinion, no such impairment exists as of December 31, 1997. (g) LEASES Leases that substantially transfer all of the benefits and risks of ownership of property to the Pharmacy Operations or otherwise meet the criteria for capitalizing a lease under generally accepted accounting principles are accounted for as capital leases. An asset is recorded at the time a capital lease is entered into together with its related long-term obligation to reflect its purchase and financing. Property and equipment recorded under capital leases are depreciated on the same basis as previously described. Rental payments under operating leases are expensed as incurred. (h) REVENUES Revenues are recorded in the period in which services and products are provided at established rates less contractual adjustments. Contractual adjustments include differences between the Pharmacy Operations' establishing billing rates and allowable Medicaid or other third-party reimbursement. 9 10 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements - -------------------------------------------------------------------------------- (i) INCOME TAXES The Pharmacy Operations' results of operations are included in the consolidated Federal tax return of its U.S. parent company, EHSI. Accordingly, Federal current and deferred income taxes payable are transferred to EHSI. The provision for income taxes has been calculated as if the Pharmacy Operations were a separately taxed entity in the accompanying financial statements. (j) ORGANIZATION COSTS Organization costs are amortized on a straight-line basis over five years. (k) USE OF ESTIMATES Management of the Pharmacy Operations has made a number of estimates relating to the reporting of assets, liabilities, revenues, costs, and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. (3) ACQUISITIONS On November 26, 1997, EHSI acquired for cash all of the outstanding stock of Arbor, a company engaged in operating 31 nursing facilities. The acquisition of Arbor also included Arbor's four institutional pharmacies and outpatient rehabilitation businesses. The acquisition was accounted for using the purchase method and, accordingly, the results of the acquired institutional pharmacy operations are included in the accompanying financial statements since the date of acquisition. The cost of the businesses and assets acquired in 1997 (primarily comprised of the Arbor acquisition along with other minor acquisitions) was $101,043,431 which consisted of: Net current assets $ 709,320 Accounts receivable 6,306,690 Inventory 2,529,790 Property and equipment 2,859,312 Goodwill 37,097,000 Identifiable intangible assets 56,313,000 Long-term debt assumed (4,771,681) ------------ $101,043,431 ============
The following unaudited pro forma financial information presents the combined results of operations of the Pharmacy Operations as if the acquisition had occurred as of January 1, 1997. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the UPC and Arbor pharmacy operations constituted a single entity during that period. Certain of the other acquisitions of UPC were deemed immaterial to the results of the Pharmacy Operations and therefore pro forma information is not provided.
---------------------------------------------------------- (unaudited) Revenues $145,461,000 ---------------------------------------------------------- Net earnings before extraordinary item $ 11,997,000 ---------------------------------------------------------- Net earnings $ 11,997,000 ==========================================================
10 11 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements - -------------------------------------------------------------------------------- (4) PROPERTY AND EQUIPMENT Property and equipment and related accumulated depreciation and amortization at December 31, 1997 are as follows: - -------------------------------------------------------------------------------- Buildings $ 937,991 Furniture and equipment 9,951,383 Leasehold improvements 1,356,169 Rental equipment 3,093,713 Automobiles and trucks 2,274,182 Computer software 1,966,302 Construction in progress 439,255 - -------------------------------------------------------------------------------- Total property and equipment 20,018,995 Less accumulated depreciation and amortization 10,127,220 - -------------------------------------------------------------------------------- Net property and equipment $ 9,891,775 - -------------------------------------------------------------------------------- Leases that meet the criteria of capital leases have been capitalized and the amounts are included in the above net property and equipment as follows at December 31, 1997: - -------------------------------------------------------------------------------- Capital lease equipment $ 975,676 Less accumulated amortization 167,978 - -------------------------------------------------------------------------------- Net capital lease equipment $ 807,698 - -------------------------------------------------------------------------------- (5) INCOME TAXES The Pharmacy Operations accounts for income taxes using an asset and liability approach which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 11 12 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements - -------------------------------------------------------------------------------- The provision for income taxes for 1997 consists of the following: - -------------------------------------------------------------------------------- Federal: Current $ 3,334,024 Deferred (117,059) - -------------------------------------------------------------------------------- Total Federal 3,216,965 - -------------------------------------------------------------------------------- State: Current 608,029 - -------------------------------------------------------------------------------- Total $ 3,824,994 - -------------------------------------------------------------------------------- The effective tax rate on earnings before provision for income taxes and minority interest does not materially differ from the statutory Federal income tax rate of 35%. The components of the net deferred tax assets and liabilities as of December 31, 1997 are as follows: - -------------------------------------------------------------------------------- Deferred tax assets: Depreciation and amortization $ 39,616 Employee benefit accruals 58,064 Accounts receivable allowances 106,639 - -------------------------------------------------------------------------------- Net deferred tax asset $ 204,319 - -------------------------------------------------------------------------------- In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible. Management has considered the scheduled reversal of deferred tax liabilities in making this assessment and believes it is more likely than not the Company will realize the benefits of these deductible differences. 12 13 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements - -------------------------------------------------------------------------------- (6) LONG-TERM DEBT Long-term debt consists of the following at December 31, 1997: - ----------------------------------------------------------------------------------------------------- Promissory note payable, 8%, maturing in 2000 $ 4,072,632 Promissory notes payable, 8% to 12.5%, maturing through August, 2005 808,583 Note payable intercompany 368,484 Capital lease obligation 935,519 - ------------------------------------------------------------------------------------------------------ Total long-term debt 6,185,218 - ------------------------------------------------------------------------------------------------------ Less current portion 961,945 - ------------------------------------------------------------------------------------------------------ Total long-term debt, less current portion $ 5,223,273 - ------------------------------------------------------------------------------------------------------ Principal payments on long-term debt due within the next five years and thereafter are as follows as of December 31, 1997: - ------------------------------------------------------------------------------------------------------ 1998 $ 961,945 1999 656,556 2000 4,109,311 2001 197,178 2002 197,178 After 2002 63,050 - ------------------------------------------------------------------------------------------------------ Total $ 6,185,218 - ------------------------------------------------------------------------------------------------------
(7) EMPLOYEE BENEFIT PLANS The Pharmacy Operations participate in a defined contribution retirement 401(k) savings plan, the Extendicare Health Services, Inc. 401(k) Savings Plan, which is made available to substantially all of EHSI's employees. EHSI pays a matching contribution of 25% of every qualifying dollar contributed by plan participants, net of any forfeitures. Expenses incurred by the Pharmacy Operations related to the 401(k) Savings Plan amounted to $148,010 in 1997. The Pharmacy Operations also participate in defined contribution 401(k) plans which were sponsored by Arbor prior to its acquisition by EHSI. Eligible employees under these plans may elect to defer up to 17% of their gross pay and EHSI pays a matching contribution subject to certain limitations. The Pharmacy Operations participate in a nonfunded deferred compensation plan offered to all corporate employees defined as highly compensated by the Internal Revenue Service Code in which participants may defer up to 10% of their base salary. EHSI will match up to 50% of the amount deferred. EHSI also maintains nonqualified deferred compensation plans covering certain executive employees. Expenses incurred for the Pharmacy Operations under the deferred compensation plans amounted to approximately $25,000 in 1997. 13 14 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements - -------------------------------------------------------------------------------- (8) LEASE COMMITMENTS The Pharmacy Operations at December 31, 1997 were committed under noncancelable leases requiring future minimum rental payments as follows: - --------------------------------------------------------------------------------
Operating leases - -------------------------------------------------------------------------------- 1998 $ 747,261 1999 583,128 2000 304,884 2001 130,268 2002 47,804 After 2002 73,728 - -------------------------------------------------------------------------------- Total $1,887,073 - --------------------------------------------------------------------------------
Operating lease costs were approximately $1,065,000 in 1997. These leases expire on various dates extending through the year 2014. (9) COMMITMENTS AND CONTINGENCIES LITIGATION The Pharmacy Operations periodically are a defendant in actions brought against them in connection with their operations. Management believes, on the basis of information furnished by legal counsel, that none of these actions will have a material adverse effect on the financial position or earnings of the Pharmacy Operations. YEAR 2000 EHSI, including the Pharmacy Operations (collectively the Company), has conducted a review of its computer systems and its third-party systems to identify those systems that could be affected by the "Year 2000" issue. The Year 2000 issue is the result of computer systems being written using two digits rather than four to define the applicable year. Any of the Company's programs or programs of third-party providers that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If not corrected, Year 2000 issues could result in a major system failure or modifications and material costs to the Company. As a result of the sale of the Pharmacy Operations, no further analysis of the systems have occurred. (10) TRANSACTIONS WITH PARENT The Pharmacy Operations' parent, EHSI, is an indirect wholly owned subsidiary of Extendicare Inc. (Extendicare), a Canadian publicly-held company. The following is a summary of the transactions between the Pharmacy Operations and other UPC entities, EHSI, Extendicare, and other affiliates in 1997: 14 15 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements - -------------------------------------------------------------------------------- INSURANCE The Pharmacy Operations insure certain risks with an affiliated insurance subsidiary of Extendicare. The statement of net earnings for 1997 includes expenses of $666,667 related to the costs of these coverages. REVENUES Revenues of approximately $23,274,000 were recorded in 1997 by the Pharmacy Operations that were earned from related EHSI and Arbor facilities. (11) SUBSEQUENT EVENT Under an Asset Purchase Agreement, dated as of July 29, 1998 among Omnicare, Inc. (Omnicare); Badger Acquisition Corp., a wholly owned subsidiary of Omnicare; EHSI; and the subsidiaries of EHSI, EHSI sold to Omnicare, effective September 16, 1998, certain assets and Omnicare assumed certain liabilities relating to the Pharmacy Operations. In September, 1998 the minority shareholder interest was purchased by EHSI for $2,300,000 in cash. This purchase was consummated prior to the completion of the transaction with Omnicare. 15 16 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Unaudited Balance Sheet June 30, 1998 Assets - ---------------------------------------------------------------------- (In Thousands) Current assets: Cash $ 1,723 Accounts receivable, less allowance for doubtful accounts of $2,605 22,685 Trade accounts receivable from parent 7,439 Inventories 7,885 Prepaids 532 Other current assets 131 -------- Total current assets 40,395 -------- Notes receivable 33 Property and equipment, net 9,823 Other assets: Goodwill, less accumulated amortization of $913 39,169 Identifiable intangible asset, less accumulated amortization of $1,643 54,670 Other 2,674 -------- Total Assets $146,764 ======== Liabilities and Equity - ---------------------------------------------------------------------- Current liabilities: Current portion of long-term debt $ 1,775 Accounts payable 2,521 Wages and benefits payable 1,740 Other current liabilities 598 -------- Total current liabilities 6,634 Long-term debt, less current portion 6,993 -------- Total liabilities 13,627 Minority interest 1,443 Equity 131,694 -------- Total liabilities and equity $146,764 ========
See accompanying notes to financial statements. 16 17 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Unaudited Statement of Net Earnings Six Months ended June 30, 1998 and 1997
- ------------------------------------------------------------------------------------------------ (In Thousands) - ------------------------------------------------------------------------------------------------ 1998 1997 ---- ---- Revenues $ 82,506 $46,157 Cost of goods sold 44,777 23,926 - ------------------------------------------------------------------------------------------------ Gross profit 37,729 22,231 Costs and expenses: Operating expenses 26,029 14,305 Lease costs 457 212 Depreciation and amortization 3,252 1,105 - ------------------------------------------------------------------------------------------------ 29,738 15,622 Interest expense 360 31 - ------------------------------------------------------------------------------------------------ Income before provision for income taxes 7,631 6,578 Provision for income taxes 2,671 2,302 - ------------------------------------------------------------------------------------------------ Income before minority interest 4,960 4,276 Minority interest 468 401 - ------------------------------------------------------------------------------------------------ Net Income $ 4,492 $3,875 - ------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 17 18 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Unaudited Statement of Cash Flows Six Months ended June 30, 1998 and 1997
(In Thousands) - ---------------------------------------------------------------------------------------- 1998 1997 ---- ---- Net earnings $ 4,492 $ 3,875 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 3,252 1,105 Bad debt expense 570 442 Minority interest, net of distributions 143 401 Change in: Accounts and notes receivable (2,004) (1,043) Inventories (196) 66 Prepaids and other assets 1,510 5 Accounts payable and accrued liabilities 1,447 (355) Payables and receivables to/from Parent (6,011) (2,849) ------- ------- Net cash provided by operating activities 3,203 1,647 ------- ------- Cash flows from investing activities: Purchase of equipment (1,188) (1,173) Contingent purchase payments and non-compete agreement (4,361) 0 ------- ------- Net cash used in investing activities (5,549) (1,173) ------- ------- Cash flows from financing activities: Long-term debt issued 3,131 0 Payments on long-term debt and capital leases (548) (142) ------- ------- Net cash provided by financing activities 2,583 (142) ------- ------- Net increase in cash 237 332 Cash, beginning of period 1,486 729 ------- ------- Cash, end of period $ 1,723 $ 1,061 ======= =======
See accompanying notes to financial statements. 18 19 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements Six Months Ended June 30, 1998 and 1997 ================================================================================ (1) ORGANIZATION The Extendicare Health Services, Inc. Pharmacy Operations (the Pharmacy Operations) represents the pharmacy operations owned and operated by United Professional Companies, Inc. (UPC), a wholly owned subsidiary of Extendicare Health Services, Inc. (EHSI) and the pharmacy operations acquired through the purchase of Arbor Health Care Company by EHSI in November, 1997. The Pharmacy Operations provide to nursing homes, assisted living facilities and other long-term care facilities and residents of such facilities (collectively LTC Customers) the following items: pharmaceutical products, pharmacy-related services, infusion therapy products and services, respiratory equipment and supplies, parenteral and enteral nutritional products, wound care products, ostomy and urological supplies, together with all home care services provided by UPC at its Springfield, Ohio location. The Pharmacy Operations excludes the following: (a) respiratory therapist services, not including the provision of such services to LTC Customers, (b) the provision of respiratory equipment and supplies other than to LTC Customers, (c) home health services (including those provided by Stein Medical), except for those services provided by UPC at its Springfield, Ohio location and the provision of such services to LTC Customers, (d) group purchasing services, (e) clinical psychology and other behavior health services, not including the provision of such services to LTC Customers, (f) the business of contracting with managed care organizations, insurers, and other payors of health care services for the provision of care to individuals in nursing homes, assisted living facilities and other long-term care facilities, (g) respiratory equipment and supplies provided by UPC/Chippewa Valley Home Care, LLC in the Eau Claire, Wisconsin area and (h) the provision by UPC Home Health Services of respiratory equipment and supplies to residents in assisted living facilities in Wisconsin which are not affiliated with EHSI. Under an Asset Purchase Agreement, dated as of July 29, 1998 among Omnicare, Inc. (Omnicare), Badger Acquisition Corp., a wholly owned subsidiary of Omnicare, EHSI and the subsidiaries of EHSI, EHSI agreed to sell and Omnicare agreed to purchase, certain assets and assume certain liabilities relating to the Pharmacy Operations. (2) BASIS OF PRESENTATION The financial information presented as of any date other than December 31 has been prepared from the books and record without audit. The accompanying financial statements do not include all of the information and the footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included. 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. 19 20 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements Six Months Ended June 30, 1998 and 1997 - ------------------------------------------------------------------------------- (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The more significant accounting policies of the Pharmacy Operations are as follows: INVENTORIES Inventories consisting of drugs and pharmaceuticals are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is provided using the straight-line method at rates based upon the following estimated useful lives: - ------------------------------------------------------------------------------- Buildings 25 years Building improvements 5-20 years Furniture and equipment Varying periods not exceeding 10 years Leasehold improvements The shorter of the term of the applicable leases or the useful life of the improvement not exceeding 10 years Rental equipment 3-5 years Automobiles and trucks 3 years - ------------------------------------------------------------------------------- Maintenance and repairs are charged to expense as incurred. When property or equipment is retired or disposed of, the cost and related accumulated depreciation and amortization is removed from the accounts and the resulting gain or loss is included in earnings. GOODWILL AND OTHER INTANGIBLES Amortization of goodwill and other intangibles is computed using the straight-line method over a period of five to forty years. Covenants not to compete are amortized over the effective period of the covenant. LEASES Leases that substantially transfer all of the benefits and risks of ownership of property to the Pharmacy Operations or otherwise meet the criteria for capitalizing a lease under generally accepted accounting principles are accounted for as capital leases. An asset is recorded at the time a capital lease is entered into together with its related long-term obligation to reflect its purchase and financing. Property and equipment recorded under capital leases are depreciated on the same basis as previously described. Rental payments under operating leases are expensed as incurred. REVENUES Revenues are recorded in the period in which services and products are provided at established rates less contractual adjustments. Contractual adjustments include differences between established billing rates and allowable Medicaid or other third-party reimbursement. 20 21 EXTENDICARE HEALTH SERVICES, INC. PHARMACY OPERATIONS Notes to Financial Statements Six Months Ended June 30, 1998 and 1997 - ------------------------------------------------------------------------------- INCOME TAXES The Pharmacy Operations' results of operations are included in the consolidated Federal tax return of its U.S. parent company, EHSI. Accordingly, Federal current and deferred income taxes are transferred to EHSI. The provision for income taxes has been calculated as if the Pharmacy Operations were a separately taxed entity in the accompanying financial statements. The Pharmacy Operations has provided for income tax expense by applying the approximately combined federal and state tax of 35% to revenue before income taxes and minority interest. ORGANIZATION COSTS Organization costs are amortized on a straight-line basis for over 5 years. (4) COMMITMENTS AND CONTINGENCIES LITIGATION The Pharmacy Operations periodically are a defendant in actions brought against them in connection with their operations. Management believes, on the basis of information furnished by legal counsel, that none of these actions will have a material adverse effect on the financial position or earnings of the Pharmacy Operations. YEAR 2000 EHSI, including the Pharmacy Operations (collectively the Company), has conducted a review of its computer systems and its third-party systems to identify those systems that could be affected by the "Year 2000" issue. The Year 2000 issue is the result of computer systems being written using two digits rather than four to define the applicable year. Any of the Company's programs or programs of third-party providers that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If not corrected, Year 2000 issues could result in a major system failure or modifications and material costs to the Company. As a result of the sale of the Pharmacy Operations, no further analysis of the systems have occurred. (5) PURCHASE OF MINORITY INTEREST In September, 1998, the minority shareholder interest was purchased by EHSI for $2.3 million in cash. This purchase was consummated prior to the completion of the transaction with Omnicare as described in Note (1). 21 22 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Omnicare, Inc. (the "Company") completed, effective September 16, 1998, the acquisition of substantially all of the institutional pharmacy operations (the "Pharmacy Operations") of Extendicare Health Services, Inc. ("EHSI"), a wholly-owned subsidiary of Extendicare, Inc. Additional information relating to this acquisition is included in the Form 8-Ks dated August 7, 1998 and September 28, 1998, and the Form 10-Q dated November 16, 1998. The unaudited Consolidated Balance Sheet of Omnicare as of September 30, 1998 (included in the Company's Form 10-Q for the quarter ended September 30, 1998) gives effect to the acquisition of the pharmacy business of EHSI. The following unaudited Pro Forma Consolidated Statements of Income of the Company for the year ended December 31, 1997 and for the nine months ended September 30, 1998 give effect to the acquisition of the Pharmacy Operations as if it had occurred on January 1, 1997. The acquisition of the Pharmacy Operations was accounted for under the purchase method of accounting. The total purchase price was allocated to the tangible and identifiable intangible assets, and liabilities based on the Company's management's estimate of their fair values. The excess of cost over the fair value of the net assets acquired was recorded as goodwill. The allocation of the purchase price may be adjusted in accordance with Statement of Financial Accounting Standards No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises," to the extent that actual amounts differ from management's current estimates. Management does not expect that any such adjustment would have a material impact on the financial statements. The pro forma information has been prepared by the Company based on the consolidated financial statements of the Company and the Pharmacy Operations. The pro forma information is presented for illustration purposes only and does not purport to be indicative of the combined results of operations that actually would have occurred if the acquisition of the Pharmacy Operations had been effected at the dates indicated or to project results of operations for any future period. The pro forma information gives effect only to the adjustments set forth in the accompanying notes and does not reflect any synergies anticipated by the Company's management as a result of the acquisition, in particular, improvements in gross margin attributable to the Company's purchasing leverage associated with purchases of pharmaceuticals and the elimination of duplicate payroll and other operating expenses. Therefore, management believes that the pro forma financial information is not necessarily indicative of future performance. The pro forma information should be read in conjunction with the Company's consolidated financial statements and related notes thereto included in its Form 8-K dated September 28, 1998 and its Form 10-Q for the quarter ended September 30, 1998, and the financial statements of the Pharmacy Operations and related notes thereto included in this filing. 22 23 Omnicare, Inc. and Subsidiary Companies Pro Forma Consolidated Statement of Income Unaudited For The Year Ended December 31, 1997 (In thousands, except per share data)
HISTORICAL ------------------------ Pharmacy Pro Forma Omnicare Operations Adjustments Pro Forma -------- ---------- ----------- --------- Sales $ 1,034,384 $ 99,058 $ -- $ 1,133,442 Cost of sales 725,923 52,444 22,375 (a) 800,641 (101)(b) ----------- -------- -------- ----------- Gross profit 308,461 46,614 (22,274) 332,801 Selling, general and administrative expenses 199,050 35,595 6,000 (c) 217,752 (518)(d) (22,375)(a) Acquisition expenses, pooling-of-interests 4,321 -- -- 4,321 Nonrecurring expenses 7,521 -- -- 7,521 ----------- -------- -------- ----------- Operating income 97,569 11,019 (5,381) 103,207 Investment income 5,720 -- -- 5,720 Interest expense (6,556) (86) (14,500)(e) (21,142) Other expense (800) -- -- (800) ----------- -------- -------- ----------- Income before income taxes 95,933 10,933 (19,881) 86,985 Income taxes 41,828 3,825 (7,475)(f) 38,464 286 (g) ----------- -------- -------- ----------- Income from continuing operations before minority interest 54,105 7,108 (12,692) 48,521 Minority interest -- (799) 799 (h) -- ----------- -------- -------- ----------- Income from continuing operations $ 54,105 $ 6,309 $(11,893) $ 48,521 ----------- -------- -------- ----------- Earnings per share from continuing operations: Basic $ 0.63 $ 0.57 ----------- ----------- Diluted $ 0.62 $ 0.56 ----------- ----------- Weighted average number of common shares outstanding: Basic 85,692 125 (i) 85,817 ----------- -------- ----------- Diluted 86,710 125 (i) 86,835 ----------- -------- -----------
See notes to unaudited pro forma financial information. 23 24 Omnicare, Inc. and Subsidiary Companies Pro Forma Consolidated Statement of Income Unaudited For The Nine Months Ended September 30, 1998 (In thousands, except per share data)
HISTORICAL --------------------------- Pharmacy Pro Forma Omnicare Operations Adjustments Pro Forma -------- ---------- ----------- --------- Sales $ 1,082,099 $ 118,071 $ -- $ 1,200,170 Cost of sales 755,719 64,199 24,401 (a) 844,319 ----------- --------- -------- ----------- Gross profit 326,380 53,872 (24,401) 355,851 Selling, general and administrative expenses 202,652 43,140 4,500 (c) 220,891 (5,000)(d) (24,401)(a) Acquisition expenses, pooling-of-interests 14,587 -- -- 14,587 Restructuring costs 3,627 -- -- 3,627 ----------- --------- -------- ----------- Operating income 105,514 10,732 500 116,746 Investment income 3,046 -- -- 3,046 Interest expense (14,507) (179) (10,875)(e) (25,561) ----------- --------- -------- ----------- Income before income taxes 94,053 10,553 (10,375) 94,231 Income taxes 39,801 3,694 (3,901)(f) 39,868 274 (g) ----------- --------- -------- ----------- Income from continuing operations before minority interest 54,252 6,859 (6,748) 54,363 Minority interest -- (457) 457 (h) -- ----------- --------- -------- ----------- Income from continuing operations $ 54,252 $ 6,402 $ (6,291) $ 54,363 ----------- --------- -------- ----------- Earnings per share from continuing operations: Basic $ 0.61 $ 0.61 ----------- ----------- Diluted $ 0.61 $ 0.61 ----------- ----------- Weighted average number of common shares outstanding: Basic 88,815 125 (i) 88,940 ----------- -------- ----------- Diluted 89,647 125 (i) 89,772 ----------- -------- -----------
See notes to unaudited pro forma financial information. 24 25 Notes to Unaudited Pro Forma Financial Information (dollars in thousands) (a) To reclassify certain general and administrative expenses of the Pharmacy Operations to cost of sales in order to reflect cost of sales consistently with the Company's treatment of these expenses. (b) To eliminate the historical LIFO expense of the Pharmacy Operations. (c) To reflect amortization of the goodwill of approximately $240 million recorded in connection with the purchase of the Pharmacy Operations on a straight-line basis over 40 years. (d) To eliminate the historical goodwill amortization of the Pharmacy Operations. (e) To adjust interest expense to record interest expense at approximately 5.8% (the average actual rate on the borrowing) on the $250 million of debt drawn down by the Company at closing (annual interest expense would change by approximately $313 for each 1/8% change in the interest rate). (f) To record tax effect of pro forma adjustments at the Company's effective tax rate of approximately 37.6% (excluding the impact of various nondeductible expenses such as certain acquisition costs and nonrecurring charges) which is not materially different than the combined federal and state statutory rates. (g) To adjust the income tax provision on the Pharmacy Operation's pretax income at the Company's effective tax rate of 37.6% (excluding the impact of various nondeductible expenses such as certain acquisition costs and nonrecurring charges). (h) To eliminate the minority interest in a joint venture of the Pharmacy Operations, which was purchased by the Pharmacy Operations immediately preceding the Company's acquisition of the Pharmacy Operations. (i) To reflect the Company's issuance of 125,000 shares of OCR common stock in connection with the acquisition of the Pharmacy Operations. 25 26 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Omnicare, Inc. (Registrant) Date: November 30, 1998 By: /s/ David W. Froesel, Jr. ----------------- ------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 26 EX-23.1 2 EXHIBIT 23.1 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Omnicare, Inc. Suite 1500 100 East RiverCenter Blvd. Covington, KY 41011 We consent to the incorporation by reference in the Registration Statements (Nos. 2-78161, 33-34635, 33-48209, 33-88856, 333-02667, 333-45801, 333-48067, and 333-53637) on Form S-8 of Omnicare, Inc.; (No. 333-53749) on Form S-4 of Omnicare, Inc.; and (Nos. 33-81644, 33-83752, 33-59689, 33-62965, 333-07695, 333-00635, 333-33279, 333-36665, 333-45825, 333-48059, 333-57731, and 333-64441) on Form S-3 of Omnicare, Inc., of our report dated October 24, 1998, with respect to the balance sheet of Extendicare Health Services, Inc. Pharmacy Operations as of December 31, 1997 and the related statements of net earnings, changes in equity and cash flows for the year ended December 31, 1997, which report appears in the Form 8-K/A of Omnicare, Inc., dated November 30, 1998. /s/ KPMG Peat Marwick LLP ------------------------- KPMG Peat Marwick LLP Milwaukee, Wisconsin November 30, 1998 -----END PRIVACY-ENHANCED MESSAGE-----