<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A-2
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
--------------
<PAGE> 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
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
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 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
</TABLE>
<PAGE> 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 14, 1997
<PAGE> 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
<PAGE> 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
<PAGE> 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)
<PAGE> 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
<TABLE>
<CAPTION>
ASSETS
December 31, 1995 September 30, 1996
----------------- ------------------
(Unaudited)
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
<PAGE> 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
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
(Unaudited)
<S> <C> <C>
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 2,967,090
---------- ----------
Total shareholders' equity 2,721,791 3,122,744
---------- ----------
Total liabilities and shareholders' equity $6,585,476 $7,186,130
========== ==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
<PAGE> 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
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December September
31, 1995 30, 1996
--------------- -----------
(Unaudited)
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of this combined statement.
<PAGE> 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
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
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
====== ======= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this combined statement.
<PAGE> 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
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
----------- -------------
(Unaudited)
<S> <C> <C>
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) (508,613)
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of this combined statement.
<PAGE> 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
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.
<PAGE> 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.
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
(Unaudited)
<S> <C> <C>
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
======== ========
</TABLE>
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.
<PAGE> 11
-4-
4. COMMON STOCK:
Common stock par value, and number of shares authorized, issued and outstanding
are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------
PAR VALUE ISSUED AND
PER SHARE AUTHORIZED OUTSTANDING
--------- ---------- -----------
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
DECEMBER 31 LEASES LEASES
----------- ------ ------
<S> <C> <C>
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
=======
</TABLE>
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<TABLE>
<CAPTION>
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
---------------- ------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE> 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.
<PAGE> 3
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (1)
THREE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<CAPTION>
Historical
----------------------------------
NCS HealthCare Acquired Pro Forma
and Subsidiaries Companies (A) Adjustments Pro Forma
---------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
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.
</TABLE>
<PAGE> 4
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (1)
YEAR ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Historical
---------------------------------
NCS HealthCare Acquired Pro Forma
and Subsidiaries Companies (A) Adjustments Pro Forma
---------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
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
======== ========
</TABLE>
(1) See accompanying Notes to Pro Forma Condensed Consolidated Statements of
Income.
<PAGE> 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:
<TABLE>
<CAPTION>
ACQUIRED COMPANY
(DATE OF ACQUISITION)
IPAC Thrifty Clinical Others
(August 1, (August 13, (November 1, (Fiscal
1996) 1996) 1996) 1997) Total
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
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
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= ======= ======= ========
</TABLE>
<PAGE> 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.
