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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C 20549
FORM 8-K
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
COMMISSION FILE NUMBER 333-43549
EXTENDICARE HEALTH SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 8051 98-0066268
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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105 WEST MICHIGAN STREET
MILWAUKEE, WI 53203
(Address of Principal Executive Offices and Zip Code)
(414) 271-9696
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On September 16, 1998, Extendicare Health Services, Inc. and certain
affiliates (together the "Company") sold the UPC institutional pharmacy business
to Omnicare, Inc. and its affiliates (together the "Buyer). The Buyer is
otherwise unaffiliated with the Company. The total sales price was $250,000,000
in cash (with $38,203,125 held in escrow) together with (i) 125,000 shares of
Omnicare, Inc. and (ii) Warrants to purchase 1,500,000 common shares of
Omnicare, Inc. Common Stock at an exercise price of $48.00 per share. The cash
amounts are subject to certain adjustments as set forth in the Asset Purchase
Agreement.
A copy of the Asset Purchase Agreement was filed as Exhibit 10 to the
Form 10-Q for the quarterly period ending June 30, 1998. The foregoing
description is qualified in its entirety by reference to the Asset Purchase
Agreement.
The Company's intention to sell the business was previously announced
by the Company. The terms of the transaction were determined by arms-length
negotiations between the Company and the Buyer.
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information.
The following pro forma (unaudited) financial statements of the Company
Reflecting the foregoing transaction are included in this report:
Pro Forma Consolidated Balance Sheet
At June 30, 1998 F-2
Pro Forma Consolidated Statements of Operations:
Year ended December 31, 1997 F-3
Six months ended June 30, 1998 F-4
Notes to Pro Forma Consolidated Financial Statements F-5
(c) Exhibits.
Incorporated by reference from the Exhibit Index which is included as
the last page of this report.
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The following unaudited pro forma financial statements give effect to
the sale of the Pharmacy operations and the application of the net proceeds as
described in footnote (a) as estimated and subject to further closing
adjustments. The unaudited condensed consolidated pro forma balance sheet as of
June 30, 1998, is based on the historical balance sheet of the Company and is
presented as if the sale had occurred on that date. The unaudited pro forma
condensed statements of consolidated operations for the year ended December 31,
1997 and for the six month period ending June 30, 1998 assume that the sale
occurred at the beginning of fiscal 1997.
The unaudited condensed pro forma statement of consolidated operations
is not necessarily indicative of the financial results that would have occurred
had the sale of the Pharmacy operations been consummated on the indicated date,
nor is it necessarily indicative of future financial results.
F-1
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EXTENDICARE HEALTH SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30,1998
(dollars in thousands)
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Historical Pharmacy
EHSI Operations
As Previously Balance Sheet Transaction Pro Forma
Reported at 6/30/98 Adjustments Statement
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS:
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Cash and cash equivalents $ 6,559 $ (2,698) $ 31 3,892
Accounts receivable, less allowances for
uncollectible receivables 228,535 (27,010) 201,525
Inventories, supplies and prepaid expenses 17,814 (7,946) 9,868
Income taxes receivable 8,012 - 8,012
Deferred state income taxes 3,138 - 3,138
Debt service trust funds 303 - 303
Due from shareholder
Deferred Federal income taxes 16,039 - 16,039
----------- ----------- ----------- -----------
Total current assets 280,400 (37,654) 31 242,777
PROPERTY AND EQUIPMENT, NET 698,900 (9,800) 689,100
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS 237,737 (89,934) 147,803
OTHER ASSETS 33,013 (3,656) 3,000 (1) 32,357
----------- ----------- ----------- -----------
$ 1,250,050 $ (141,044) $ 3,031 $ 1,112,037
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LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 32,441 $ (1,523) $ - $ 30,918
Accounts payable 27,537 (1,511) 26,026
Accrued liabilities 123,958 (2,319) 121,639
Due to shareholder
Federal income taxes receivable 3,716 - - 3,716
Due to affiliates 2,096 - 2,096
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Total current liabilities 189,748 (5,353) 184,395
LONG-TERM DEBT 684,513 (104,417) (60,583) (2) 519,513
OTHER LONG-TERM LIABILITIES 15,908 - 15,908
DUE TO SHAREHOLDER AND AFFILIATES
Deferred Federal income taxes and other 60,684 - 60,684
DEFERRED STATE INCOME TAXES 10,884 - 10,884
MINORITY INTERESTS 2,535 (1,543) 992
SHAREHOLDER'S EQUITY 285,778 (29,731) 63,614 (3) 319,661
----------- ----------- ----------- -----------
$ 1,250,050 $ (141,044) $ 3,031 $ 1,112,037
=========== =========== =========== ===========
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(1) Represents the estimated value of the warrants to purchase 1,500,000
shares of Omnicare, Inc. Common Stock at $48.00 per share.
(2) Represents debt to be paid off in addition to debt formerly recorded
on Pharmacy balance sheet. Total debt repayment is $165 million.
(3) Represents the net of the following:
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- Cash proceeds received 250,000
- 125,000 shares of Omnicare, Inc. sold at date
of transaction at $32.25 4,031
- Warrant to purchase 1,500,000 shares of
Omnicare, Inc. common stock at $48.00 per share 3,000
- Allocation of purchase price to EHSI parent
for the right given to buyer to service the
Canadian and U.K. homes owned by EHSI's parent (10,000)
- Transaction costs associated with sale (5,000)
- Net assets sold to Omnicare, Inc. (134,148)
- Tax expense associated with transaction (assumed
to be paid at date of transaction) (76,000)
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GAIN ON SALE OF PHARMACY OPERATIONS 31,883
- Portion of net assets shown as shareholder's
equity on 6/30/98 Pharmacy balance sheet 29,731
- Equity contribution made by EHSI parent to facilitate
$165 million paydown of long-term debt 2,000
----------
63,614
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands unless otherwise noted)
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For the year ended December 31, 1997
----------------------------------------------------
Historical
Adjusted Jan. 1/97 to
Historical Dec. 31/97 Transaction Pro forma
EHSI Pharmacy Adjustments Statement
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REVENUES 1,144,417 (111,715) 1,032,702
COSTS AND EXPENSES
Operating 927,960 (85,404) 842,556
General and administrative 50,993 (2,700) 48,293
Lease costs 14,325 (1,450) 12,875
Depreciation and amortization 51,374 (3,301) (2,839) 45,234
Interest expense 59,018 (5,219) (7,883) 45,916
Interest income (1,517) 46 (1,471)
Other, net 72 - 72
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1,102,225 (98,028) (10,722) 993,475
--------- --------- --------- ---------
GAIN ON SALE OF PHARMACY OPERATIONS - - 107,883 107,883
--------- --------- --------- ---------
Earnings before income taxes,
minority interests, and
extraordinary items 42,192 (13,687) 118,605 147,110
PROVISION FOR INCOME TAXES 17,857 (5,744) 79,114 91,227
--------- --------- --------- ---------
Earnings before minority
interests and extraordinary items 24,335 (7,943) 39,491 55,883
========= ========= ========= =========
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F-3
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands unless otherwise noted)
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For the six months ended June 30, 1998
------------------------------------------------------
Historical
Jan. 1/98 to
Historical Jun. 30/98 Transaction Pro forma
EHSI Pharmacy Adjustments Statement
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<S> <C> <C> <C> <C>
REVENUES $ 583,506 $ (61,818) $ 521,688
COSTS AND EXPENSES
Operating 485,008 (48,452) 436,556
General and administrative 23,498 (1,350) 22,148
Lease costs 7,432 (696) 6,736
Depreciation and amortization 27,458 (2,860) (233) 24,365
Interest expense 31,054 (2,603) (3,969) 24,482
Interest income (951) 65 (886)
Other, net - - -
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573,499 (55,896) (4,202) 513,401
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GAIN ON SALE OF PHARMACY OPERATIONS - - 107,883 107,883
--------- --------- ----------- ----------
Earnings before income taxes,
minority interests and
extraordinary items 10,007 (5,922) 112,085 116,170
PROVISION FOR INCOME TAXES 5,255 (2,977) 77,568 79,846
--------- --------- ----------- ----------
Earnings before minority
interests and extraordinary items $ 4,752 $ (2,945) $ 34,517 $ 36,324
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F-4
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EXTENDICARE HEALTH SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Pro forma adjustments to the unaudited condensed consolidated balance
sheet as of June 30, 1998 reflect use of proceeds to repay certain
outstanding debt. Also reflected are the sale of substantially all of
the assets, assumption of certain liabilities, and the recognition of
the gain on the sale of the Pharmacy operations as estimated subject
to further closing adjustments.
(b) Pro forma adjustments to the unaudited condensed statements of
consolidated operations for the year ended December 31, 1997 and for
the six month period ended June 30, 1998 reflect adjustments to
interest resulting from the assumed use of proceeds to reduce
outstanding debt, net of income tax effect.
F-5
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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.
EXTENDICARE HEALTH SERVICES, INC.
Date: September 30, 1998 By: /s/ Wesley Carter
J. Wesley Carter
President, Chief Executive Officer
and Director (principal executive officer)
Date: September 30, 1998 By: /s/ Stephen F. Dineley
Stephen F. Dineley
Vice President, Chief Financial Officer,
Treasurer and Director (principal
financial officer and principal
accounting officer)
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EXTENDICARE HEALTH SERVICES, INC.
EXHIBIT INDEX
To
FORM 8-K CURRENT REPORT
Dated as of September 30, 1998
Exhibit Filed
Number Description Herewith
- ------- ----------- --------
10 Asset Purchase Agreement dated as of
July 29, 1998 (but executed on September 16, No (1)
1998)
(1) Asset purchase Agreement was filed as exhibit 10 to the Form 10-Q for
the quarterly period ending June 30, 1998. It is incorporated herein by
reference.
