SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A1
(Amending Item 7 to include additional financial information)
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 26, 1999
BERGEN BRUNSWIG CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 1-5110 22-1444512
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
4000 Metropolitan Drive, Orange, California 92868-3598
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 714-385-4000
<PAGE>
1
Item 2. Acquisition or Disposition of Assets
On April 26, 1999, Bergen Brunswig Corporation, a New Jersey
corporation (the "Registrant"), completed the merger (the "Merger") of its
wholly-owned Peacock Merger Corp. subsidiary ("Subcorp") with and into
PharMerica, Inc. ("PharMerica"). PharMerica was the surviving corporation of the
Merger and is now a wholly owned subsidiary of the Registrant. Pursuant to the
Agreement and Plan of Merger, dated as of January 11, 1999, by and among the
Registrant, Subcorp and PharMerica (the "Merger Agreement"), each outstanding
share of PharMerica's common stock, par value $.01 per share ("PharMerica Common
Stock"), was converted into 0.275 (the "Exchange Ratio") of a share of the
Company's Class A Common Stock, par value $1.50 per share (the "Bergen Common
Stock"). Furthermore, each outstanding option to purchase PharMerica Common
Stock (a "PharMerica Option") was converted into an option to purchase Bergen
Common Stock (a "Bergen Exchange Option") and each outstanding warrant to
purchase PharMerica Common Stock (a "PharMerica Warrant") was converted into a
warrant to purchase Bergen Common Stock (a "Bergen Exchange Warrant"). Each
Bergen Exchange Option and Bergen Exchange Warrant will entitle the holder to
purchase a number of shares of Bergen Common Stock equal to the number of shares
of PharMerica Common Stock subject to the related PharMerica Option or
PharMerica Warrant, as the case may be, multiplied by 0.275; the per share
exercise price of each Bergen Exchange Option and each Bergen Exchange Warrant
is the exercise price of the related PharMerica Option or PharMerica Warrant, as
the case may be, divided by 0.275.
Pursuant to the terms of the Merger Agreement, approximately 26.3
million shares of Bergen Common Stock are issuable upon conversion of PharMerica
Common Stock in the Merger and upon exercise of Bergen Exchange Options and
Bergen Exchange Warrants. The Exchange Ratio was determined by arms-length
negotiations between PharMerica and its advisors and the Registrant and its
advisors. Additional information concerning the Merger and the transactions
related thereto (including pro forma financial information and historical
PharMerica financial information) is contained in the Registrant's Registration
Statement on Form S-4 (Registration Number 333-74445) previously filed with the
Securities and Exchange Commission on March 16, 1999.
_____________
1
Item 2 has not been amended; the text as initially filed has been repeated for
purposes of clarity.
Item 7. Financial Statements and Exhibits
The following financial statements and pro forma information are being
filed in this Form 8-K/A1:
(a) Consolidated Financial Statements of PharMerica and Subsidiaries:
1. Condensed Consolidated Balance Sheets as of December 31, 1998
and March 31, 1999 (unaudited)
2. Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1999 (unaudited)
3. Condensed Consolidated Statement of Stockholders' Equity for
the Three Months Ended March 31, 1999 (unaudited)
4. Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1999 (unaudited)
5. Notes to Condensed Consolidated Financial Statements
(Unaudited)
(b) Unaudited Pro Forma Condensed Combined Financial Information:
1. Introduction
2. Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1999
3. Unaudited Pro Forma Condensed Combined Statement of Earnings
for the Six Months Ended March 31, 1999
4. Notes to Unaudited Pro Forma Condensed Combined Financial
Information
<PAGE>
The following financial statements and pro forma information were
previously filed with the initial Form 8-K filing.
(a) Consolidated Financial Statements of PharMerica Inc. and
Subsidiaries:
1. Consolidated Balance Sheets as of December 31, 1997 and 1998.
2. Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998
3. Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1997 and 1998
4. Consolidated Statements of Cash Flows for the for the years
ended December 31, 1996, 1997 and 1998
5. Notes to Consolidated Financial Statements
6. Report of Arthur Andersen LLP
7. Report of Ernst & Young LLP
(b) Unaudited Pro Forma Condensed Combined Financial Information:
1. Introduction
2. Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 31, 1998
3. Unaudited Pro Forma Condensed Combined Statement of Earnings
for the twelve months ended September 30, 1998
4. Unaudited Pro Forma Condensed Combined Statement of Earnings
for the three months ended December 31, 1998
5. Notes to Unaudited Pro Forma Condensed Combined Financial
Information
(c) Exhibits:
These exhibits were previously filed with the initial Form 8-K filing.
2.1 Agreement and Plan of Merger, dated as of January 11,
1999, among the Registrant, Peacock Merger Corp. and PharMerica, Inc. is
incorporated by reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form S-4 (No. 333-74445) as filed with the Securities and Exchange
Commission on March 16, 1999
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
<PAGE>
<TABLE>
<CAPTION>
(a) PharMerica Consolidated Financial Information
PharMerica, Inc and Subsidiaries
Condensed Consolidated Balance Sheets
As of December 31, 1998 and March 31, 1999
(unaudited, in thousands)
December 31, March 31,
1998 1999
--------------------- -------------------
Assets
------
<S> <C> <C>
Cash and cash equivalents $ 32,312 $ 65,479
Accounts receivable, net 250,711 257,362
Inventories 55,686 49,798
Other current assets 46,524 46,893
--------------------- ------------------
Current Assets 385,233 419,532
Equipment and leasehold improvements, net 64,187 66,005
Goodwill, net 699,313 708,998
Other assets, net 15,592 15,581
--------------------- -------------------
Total Assets $ 1,164,325 $ 1,210,116
===================== ===================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities $ 102,091 $ 94,663
Long term liabilites 591,552 609,616
Other liabilities 37,847 64,847
--------------------- -------------------
Total Liabilities 731,490 769,126
Stockholders' equity 432,835 440,990
--------------------- -------------------
Total Liabilities and Stockholders' Equity $ 1,164,325 $ 1,210,116
===================== ===================
The accompanying notes are an intergral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PharMerica, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended March 31
1998 1999
------------------------------------------------------------
<S> <C> <C>
NET SALES $ 274,677 $ 286,820
COST OF REVENUES 152,802 167,025
------------------------------------------------------------
GROSS PROFIT 121,875 119,795
OPERATING EXPENSES:
Selling, general and administrative expenses 85,528 87,963
Depreciation and amortization 8,524 9,451
Gain on sale of retail pharmacies - (1,307)
------------------------------------------------------------
OPERATING INCOME 27,823 23,688
Interest expense, net 7,795 12,051
-----------------------------------------------------
INCOME BEFORE TAX PROVISION 20,028 11,637
Income tax provision 8,698 4,850
-----------------------------------------------------
NET INCOME $ 11,330 $ 6,787
=====================================================
EARNINGS PER SHARE:
Basic $ 0.13 $ 0.08
=====================================================
Diluted $ 0.13 $ 0.08
=====================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 87,797 89,560
=====================================================
Diluted 90,275 89,795
=====================================================
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PharMerica, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 1999
(in thousands)
(unaudited)
Total
Common Stock Additional Retained Stockholders'
Shares Amount Paid in Earnings Equity
Capital
------------ --------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 89,387 $ 894 $ 417,114 $ 14,827 $ 432,835
Common stock issued in connection
with exercise of stock options and
warrants 280 2 1,366 - 1,368
Net income for the three months ended
March 31, 1999 - - - 6,787 6,787
============ =============== =============== ============ ===============
Balance March 31, 1999 89,667 $ 896 $ 418,480 $ 21,614 $ 440,990
============ =============== =============== ============ ===============
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
PharMerica, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1998 1999
---------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 11,330 $ 6,787
---------- -------
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 8,524 9,451
Gain on sale of retail pharmacies - (1,307)
Change in assets and liabilities, net of acquisitions
Accounts receivable (35,566) (6,651)
Inventories 1,388 5,069
Prepaid expenses and other current assets 2,150 (369)
Accounts payable and accrued expenses (8,263) (807)
Deferred revenue - 27,000
Deferred income taxes 8,137 -
Accrued restructuring charges (2,560) (2,318)
Other 1,280 11
---------------- ---------------
Total adjustments (24,910) 30,079
---------------- ---------------
Net cash flows from operating activities (13,580) 36,866
---------------- ---------------
Cash flows from investing activities:
Payments for acquisition related contingent earnouts - (14,941)
Payments for acquistions, net of cash acquired (57,334) -
Purchase of equipment and leasehold improvements (7,522) (6,356)
Proceeds from disposal of retail pharmacies - 2,469
---------------- ---------------
Net cash flows from investing activities (64,856) (18,828)
---------------- ---------------
Cash flows from financing activities:
Net proceeds from commercial bank borrowings
and other notes payable 82,900 13,761
Net proceeds from issuance of subordinated debt 316,875 -
Proceeds from exercise of stock options and warrants 3,215 1,368
Repayment of long-term debt (318,266) -
---------------- ---------------
Net cash flows from financing activities 84,724 15,129
---------------- ---------------
Net increase in cash and cash equivalents 6,288 33,167
Cash and cash equivalents, beginning of period 34,215 32,312
================ ===============
Cash and cash equivalents, end of period $ 40,503 $ 65,479
================ ===============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 3,778 $ 4,839
================ ===============
Taxes $ 2,451 $ -
================ ===============
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business- PharMerica, Inc. ("PharMerica" or the
"Company"), a Delaware corporation, was formed as a result of the merger
involving Capstone Pharmacy Services, Inc. ("Capstone") and Pharmacy
Corporation of America ("PCA"), a wholly-owned subsidiary of Beverly
Enterprises, Inc. ("Beverly"), on December 3, 1997 (the "PCA/Capstone
Merger").
PharMerica is a leading provider of pharmacy products and services serving
approximately 500,000 patients in long-term care and alternate site
settings. The Company provides services to patients in skilled nursing
facilities, assisted living facilities, residential and independent living
communities, specialty hospitals and the home setting. The Company
currently operates 151 pharmacies in 40 states serving approximately
380,000 long-term care residents and more than 106,000 workers'
compensation patients via mail service and its on-line pharmacy.
Basis of Presentation - The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission and,
therefore, omit or condense footnote disclosures and certain other
information normally included in financial statements prepared in
accordance with generally accepted accounting principles. The accounting
policies followed for quarterly financial reporting conform with the
accounting policies disclosed in Note 1 of the Notes to Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. In the opinion of management, all
adjustments that are necessary for a fair presentation of the financial
information for the interim periods reported have been made.
The results of operations for the three-month period ended March 31, 1999
are not necessarily indicative of results to be expected for the entire
year ending December 31, 1999. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K, as filed with the Securities and
Exchange Commission, for the year ended December 31, 1998. The consolidated
balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
Principles of Consolidation - The unaudited condensed consolidated
financial statements include the accounts of PharMerica, Inc. and its
wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the
financial statements. Also affected are the reported amounts of revenues,
expenses, gains and losses during the reporting periods. Actual results
could differ from these estimates.
Reclassifications - Certain prior period amounts have been reclassified to
conform to the current period presentation.
<PAGE>
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market. Inventories consist principally of purchased
pharmaceuticals.
Equipment and Leasehold Improvements - Equipment and leasehold improvements
are recorded at cost. Depreciation and amortization are computed using the
straight-line method over the following estimated useful lives or, with
respect to leasehold improvements, over the term of the lease if shorter,
as follows:
Furniture, fixtures and equipment............................3-15 years
Software and computer equipment.............. ................3-5 years
Leasehold improvements.......................................5-10 years
Equipment and leasehold improvements obtained in acquisitions of
subsidiaries are depreciated or amortized based on their remaining useful
lives at the acquisition date.
Goodwill and Impairment of Long-Lived Assets - Costs in excess of fair
values of businesses acquired are recorded as goodwill and amortized using
the straight-line method over 40 years. On an ongoing basis, the Company
reviews the carrying value of its intangible assets in light of any events
or circumstances that indicate they may be impaired or that the
amortization period may need to be adjusted. If such circumstances suggest
the intangible value cannot be recovered, calculated based on undiscounted
cash flows over the remaining amortization period, the carrying value of
the intangible will be reduced to its fair value based on discounted
projected cash flows.
Revenue Recognition - Revenues are recorded as products are shipped and
services rendered. A portion of the Company's sales is covered by various
state and federal reimbursement programs which are subject to review and
audit. Reimbursement programs are also subject to change from time to time.
Revenues are reported at the estimated net amounts to be received from
individuals, third party payors, nursing facilities and others.
Approximately 35% and 40% of the Company's revenues for the three-month
period ended March 31, 1998 and 1999, respectively, were derived from funds
under federal and state medical assistance programs.
The Company also recognizes revenue under certain capitated arrangements.
However, these revenues are insignificant and any losses related to these
contracts are accrued as they are incurred.
Concentration of Credit Risk - A significant portion of the Company's
revenue and related receivables are reimbursed from two primary payors,
Medicaid and Medicare. Collectively, Medicaid and Medicare accounted for
approximately 29% and 27% of accounts receivable reported on the condensed
consolidated balance sheets at December 31, 1998 and March 31, 1999,
respectively.
<PAGE>
Income Taxes - The Company files a consolidated federal income tax return.
Income tax expense is based on reported earnings before income taxes.
Deferred taxes on income are provided for items in which the reporting
period and methods used for income tax purposes differ from those used for
financial statement purposes, using the asset and liability method.
Deferred income taxes are recognized for the tax consequence of "temporary
differences" by applying enacted statutory rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
Earnings per Share - Basic earnings per share ("Basic") is computed by
dividing net income (the numerator) by the weighted average number of
shares of common stock outstanding each period (the denominator). Diluted
earnings per share is similar to the computation for Basic, except that the
denominator is increased by the dilutive effect of employees' stock options
and warrants outstanding, computed using the treasury stock method.
NOTE 2 - ACQUISITIONS AND DIVESTITURES
1999 Acquisitions and Divestitures - During February 1999, the Company sold
the assets of eight retail pharmacies in Pennsylvania for approximately
$2.5 million. A gain of approximately $1.3 million was recognized on the
sale.
1998 Acquisitions and Divestitures - During January 1998, the Company
acquired the stock of Express Pharmacy Services, Inc., and Tmesys, Inc.,
which are based in Tampa, Florida and provide workers' compensation related
mail order and on-line pharmacy services. The purchase price was
approximately $19.7 million, and goodwill at the date of acquisition was
$18.6 million.
During February 1998, the Company acquired the assets of Kentucky Health
Services, Inc. d/b/a Med Source, a Kentucky based provider of institutional
pharmacy services. The purchase price was approximately $25.0 million, and
goodwill at the date of acquisition was approximately $23.3 million. The
agreement also provides for an earnout based on the future adjusted
earnings of the business. An earnout payment of approximately $14.5 million
was paid in March 1999.
There were no acquisitions during the three months ended March 31, 1999.
Certain acquisitions include provisions for earnouts based on adjusted
future earnings for the respective business.
NOTE 3 - LONG-TERM DEBT
The Company maintains a $325 million Bank Credit Facility with several
commercial banks (the "Credit Facility"). The Credit Facility stipulates
certain covenants relating to various financial ratios, including a
leverage ratio and a minimum net worth requirement, among other restrictive
covenants. The Company was in compliance with all such covenants as of
March 31, 1999. The Credit Facility allows PharMerica to obtain loans at
any time, subject to compliance with certain convenants, and matures on
December 3, 2002. The advances under the Bank Credit Facility were paid in
full on April 26, 1999.
<PAGE>
Under the Credit Facility, the Company has the option to borrow under an
alternate base rate or a Eurodollar loan rate. Interest rates on the
alternate base rate loans are at the greatest of (a) the prime rate, (b)
the base certificate of deposit rate plus 1% or (c) the federal funds
effective rate on the date of the loan, plus 1/2 of 1%. Interest on the
alternate base rate loans is due quarterly in arrears. Interest rates on
the Eurodollar loans are calculated using the adjusted LIBOR rate for the
interest period in effect, plus the applicable rate. The adjusted LIBOR
rate is the LIBOR rate for such interest period multiplied by the statutory
reserve rate. The applicable rate and the statutory reserve rate are
defined in the Credit Facility. Interest on the Eurodollar loans is due on
the last day of the interest period applicable to the borrowing. As of
March 31, 1999, the Company had $277,650,221 outstanding under a Eurodollar
loan at an effective interest rate, including the amortization of deferred
financing costs, of approximately 6.5%.
In March 1998, the Company sold $325 million of Senior Subordinated Notes
(the "Notes") in a private placement offering. The Notes bear interest at 8
3/8% and mature in 2008. Net proceeds of the Notes were used to repay a
portion of the outstanding borrowings under the Credit Facility. In
accordance with the terms of the Notes, in July 1998 the Company exchanged
the private placement notes for publicly registered notes with
substantially the same terms. The Notes contain certain limitations and
prohibitions on the Company, including the incurrence of certain
indebtedness, the creation of security interests, certain acquisitions and
dispositions and certain investments and a restriction on payment of
dividends. At March 31, 1999, the Company was in compliance with such
convenants. Upon the incurrence of a change in control, the Company is
required to offer to purchase the notes at a cash price of 101% of the
outstanding principal, plus accrued interest.
NOTE 4 - RESTRUCTURING CHARGES
In September 1998, the Company recorded approximately $13.0 million in
restructuring charges, consisting of approximately $2.1 million of
severance covering approximately 46 corporate positions and approximately
$10.9 million relating to future rents to be paid through 2003 and related
exit costs in connection with the relocation of the Company's corporate
office and its mail service pharmacy facility in Tampa. The Company
consolidated and relocated its corporate office and the mail service
pharmacy operating unit to a new location in Tampa.
During the three months ended March 31, 1999, approximately $1.7 million
was charged against these restructuring accruals consisting of $1.1 million
paid as severance and $0.6 million paid for terminated leases and related
exit costs.
NOTE 5 - MAJOR CUSTOMER AND VENDOR RELATIONSHIPS
The Company provides its pharmaceutical dispensing, infusion therapy
products and services and its pharmacy and nursing consulting services to
nursing facilities operated by Beverly, and to the residents of Beverly
facilities. Revenues attributable to Beverly nursing facilities, inclusive
of revenues from federal and state medical assistance programs and other
third party payors, were approximately 19% and 18% of net sales for the
three months ended March 31, 1998 and 1999, respectively.
The Company utilizes a primary supplier arrangement for its pharmaceutical
purchases. Purchases of inventory under primary supplier relationships
during the three months ended March 31, 1998 and 1999, were approximately
76% and 86%, respectively, of total inventory purchases.
<PAGE>
NOTE 6 - OPERATING SEGMENTS
In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. The Company's five business units have
separate management teams and infrastructures that offer different products
and services. The business units have been aggregated into two reportable
segments, long-term care and mail pharmacy services. These segments are
managed separately because each of these business units requires different
marketing strategies and delivery systems.
The long-term care segment consists of two business units serving the
eastern and western United States. This segment provides institutional
pharmacy products and services to patients in the long-term care and
alternate site settings, including skilled nursing facilities, assisted
living facilities, and residential and independent living communities.
The mail pharmacy services segment provides mail order and on-line pharmacy
services, including prescription and non-prescription pharmaceuticals,
medical supplies, and medical equipment. The primary customer base for this
segment includes injured workers who are receiving workers' compensation
benefits, and homebound catastrophically injured patients.
The accounting policies of the reportable segments are the same as those
described in Note 1. Income taxes, restructuring expenses, and certain bad
debt and goodwill amortization expense charges have not been allocated to
the operating segments. The Company evaluates the performance of its
segments based on operating earnings of the respective business units.
Intersegment sales and transfers are not significant.
Summarized financial information for the three months ended March 31, 1998
and 1999 concerning the Company's reportable operating segments is outlined
below (in thousands):
<TABLE>
<CAPTION>
Mail
Long-Term Pharmacy All Special
March 31, 1998 Care Services Other Credit Total
- -------------- ------------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 227,948 $ 33,026 $ 13,703 $ 274,677
EBITDA 27,203 5,184 3,960 36,347
Total assets 490,742 52,010 679,190 1,221,942
Mail
Long-Term Pharmacy All Special
March 31, 1999 Care Services Other Credit Total
- -------------- ------------- ------------- ------------- --------------- ----------------
Revenues $ 241,515 $ 37,255 $ 8,050 $ 286,820
EDBITDA 31,521 8,185 (7,874) $ 1,307 33,139
Total assets 927,168 134,952 147,996 1,210,116
</TABLE>
The "All Other" column includes corporate related items, results of
immaterial operations and, as it relates to EBITDA, income and expense not
allocated to reportable segments. The "Special Credit" column includes a
$1.3 million gain on the sale of certain retail pharmacies.
<PAGE>
A reconciliation of EBITDA to net income for the three months ended
March 31, 1998 and 1999 is as follows:
1998 1999
---- ----
(in thousands)
EBITDA $ 36,347 $ 33,139
Interest expense, net (7,795) (12,051)
Depreciation and amortization (8,524) (9,451)
Provision for income taxes (8,698) (4,850)
------- ------
Net income $ 11,330 $ 6,787
====== =====
NOTE 7 - CONTINGENCIES
In November 1998, a putative securities class action was filed against
PharMerica, C. Arnold Renschler, M.D. (the Company's Chief Executive
Officer), Robert Della Valle (the Company's former Chief Operating Officer)
and James D. Shelton (the Company's former Chief Financial Officer) in the
United States District Court for the Middle District of Florida. The
proposed class consists of all persons who purchased or acquired stock of
PharMerica between January 7, 1998 and July 24, 1998. The complaint seeks
monetary damages but does not specify an amount. In general, the complaint
alleges that the defendants made material omissions by withholding from the
market information related to the costs associated with certain
acquisitions. The complaint alleges claims under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. PharMerica believes the complaint
is without merit and intends to defend the case vigorously. The potential
outcome of the litigation cannot be predicted with certainty, however,
management believes the litigation will not have a material impact on the
financial position or results of operations of the Company given a
preliminary investigation and its existing insurance coverages.
The Company is subject to various other claims and litigation in the
ordinary course of its business. In the opinion of management and outside
counsel, the ultimate settlement of these claims and litigation will not
have a material adverse effect on the consolidated financial position or
future operating results of the Company.
NOTE 8 - SUBSEQUENT EVENTS
On April 26, 1999, PharMerica was acquired by Bergen Brunswig Corporation
("Bergen"). Pursuant to the merger agreement, which was approved by the
stockholders of both Bergen and PharMerica on April 22, 199, PharMerica
became a wholly-owned subsidiary of Bergen. Under the terms of the merger,
stockholders of PharMerica received 0.275 per share of Bergen's Class A
common stock in exchange for each outstanding share of PharMerica common
stock. The merger is structured as a tax-free transaction and will be
accounted for as a purchase for financial reporting purposes.
<PAGE>
(b) Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial
information should be read in conjunction with the historical consolidated
financial statements, including the notes thereto, of PharMerica included
elsewhere herein and the historical consolidated financial statements, including
the notes thereto, of Bergen which have previously been filed by Bergen with the
Securities and Exchange Commission. The unaudited pro forma information is
presented for illustration purposes only in accordance with the assumptions set
forth below, and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
nor is it necessarily indicative of future operating results or financial
position of the combined enterprise. The unaudited pro forma condensed combined
financial information does not reflect any adjustments to conform accounting
practices or to reflect any cost savings or other synergies anticipated as a
result of the Merger or any merger-related expenses.
Unaudited Pro Forma Condensed Combined Balance Sheet
The following unaudited pro forma condensed combined balance sheet
presents, under the purchase method of accounting, the consolidated balance
sheets of Bergen and PharMerica combined as of March 31, 1999, as if the Merger
had occurred on that date.
<TABLE>
<CAPTION>
BERGEN BRUNSWIG/PHARMERICA
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1999
Bergen
Brunswig PharMerica Pro Forma
March 31, March 31, Pro Forma Combined
1999 1999 Adjustments (1) Balances (2)(3)
(In thousands)
Assets
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 57,212 $ 65,479 $ - $ 122,691
Receivables, net 1,188,821 257,362 (14,415) (d) 1,431,768
Inventories 2,112,710 49,798 2,162,508
Income taxes receivable 5,969 2,408 8,377
Deferred income taxes - 37,186 37,186
Other current assets 18,918 9,707 28,625
--------- ------- -------- ---------
Total current assets 3,383,630 421,940 (14,415) 3,791,155
--------- ------- -------- ---------
Property - at cost: 311,848 119,164 431,012
Accumulated depreciation and amortization (148,026) (53,159) (201,185)
--------- -------- -------- ---------
Property- net 163,822 66,005 229,827
Goodwill 632,850 708,998 739,221 (a) 1,372,071
(708,998)(a)
Deferred income taxes 8,158 - 8,158
Deferred charges and other assets 113,339 15,581 128,920
--------- --------- ------ ---------
Total assets $4,301,799 $1,212,524 $15,808 $5,530,131
========= ========= ====== =========
Liabilities and Shareowners' Equity
Current liabilities:
Accounts payable and accrued liabilities $2,171,675 $95,223 $ (14,415) (d) $2,252,483
Customer credit balances 155,196 - 155,196
Deferred income taxes 82,111 - 82,111
Current portion of long-term obligations 1,507 1,848 3,355
--------- ------- -------- ---------
Total current liabilities 2,410,489 97,071 (14,415) 2,493,145
--------- ------- -------- ---------
Long-term debt 1,035,895 609,616 1,645,511
Deferred income taxes - 26,567 (19,002) (e) 7,565
Other long-term liabilities 15,395 38,280 53,675
--------- ------- ------- ---------
Total long-term obligations 1,051,290 674,463 (19,002) 1,706,751
--------- ------- -------- ---------
Shareowners' equity:
Common stock 168,637 896 (896) (c) 205,508
36,871 (b)
Paid-in capital 184,082 418,480 453,344 (b) 637,426
(418,480) (c)
Retained earnings 511,780 21,614 (21,614) (c) 511,780
Other 346 - 346
--------- --------- ------ ----------
Total 864,845 440,990 49,225 1,355,060
Treasury shares (24,825) - (24,825)
--------- --------- ------ ----------
Total shareowners' equity 840,020 440,990 49,225 1,330,235
--------- --------- ------ ---------
Total liabilities and shareowners' equity $4,301,799 $1,212,524 $ 15,808 $5,530,131
========= ========== ====== =========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Earnings
The following unaudited pro forma condensed combined statement of
earnings for the six months ended March 31, 1999 presents, under the purchase
method of accounting, the operating results of PharMerica and Bergen as if the
two companies had combined on October 1, 1998. For purposes of combining
PharMerica's historical financial information with Bergen's historical financial
information in the following pro forma condensed combined statement of earnings,
the financial information of Bergen for the first six months of its current
fiscal year has been combined with PharMerica's financial information for the
last three months of PharMerica's fiscal year ended December 31, 1998 and the
first three months of its current fiscal year.
<TABLE>
<CAPTION>
BERGEN BRUNSWIG/PHARMERICA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
Six Months Ended March 31, 1999
Pro Forma
Bergen Pro Forma Combined
Brunswig PharMerica Adjustments (1) Results(2)(3)
(In thousands, except per share amounts)
Net sales and other revenues:
<S> <C> <C> <C> <C>
Excluding bulk shipments to customers' warehouses $8,262,051 $580,632 $(285,489) (f) $ 8,557,194
Bulk shipments to customers' warehouses 1,766,728 - 1,766,728
---------- ------- -------- ----------
Total net sales and other revenues 10,028,779 580,632 (285,489) 10,323,922
---------- ------- -------- -----------
Costs and other expenses:
Cost of sales 9,576,514 337,731 (285,489) (f) 9,628,756
Distribution,selling, general and administrative expenses 314,933 199,467 1,386 (g) 515,786
Special credit(4) - (1,307) (1,307)
--------- -------- -------- -----------
Total costs and expenses 9,891,447 535,891 (284,103) 10,143,235
--------- -------- -------- -----------
Operating earnings 137,332 44,741 (1,386) 180,687
Net interest expense 25,862 23,145 (1,881) (h) 47,126
--------- -------- -------- -----------
Earnings before provision for taxes on income 111,470 21,596 495 133,561
Provision for taxes on income 45,145 8,986 2,243 (i) 56,374
--------- -------- -------- -----------
Net earnings $ 66,325 $ 12,610 $ (1,748) $ 77,187
========= ======= ======== ===========
Earnings per share (5):
Basic $0.63 $0.59
========= ===========
Diluted $0.62 $0.58
========= ===========
Weighted average number of common shares outstanding (5):
Basic 105,598 130,227
========= ===========
Diluted 107,296 131,990
========= ===========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
<PAGE>
BERGEN BRUNSWIG/PHARMERICA JOINT PROXY STATEMENT
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Note 1. Pro Forma Adjustments
(a) Represents the preliminary computation of the excess of the purchase price
over the estimated fair value of the tangible net assets acquired
("goodwill") associated with the acquisition of PharMerica by Bergen. Under
the Merger Agreement, Bergen acquired all of the capital stock of
PharMerica at the exchange ratio described in Note 3 below. Assuming that
the acquisition was consummated on March 31, 1999, Bergen would have
recorded goodwill of $739.2 million, would have issued approximately 24.5
million shares of Bergen Common Stock based on approximately 89.7 million
shares of PharMerica Common Stock outstanding on that date, and would have
completed the transaction at a cost of approximately $490.2 million, based
on Bergen's closing stock price of $20.00 on March 31, 1999. In addition,
goodwill was decreased by PharMerica's goodwill of $709.0 million at March
31, 1999, as required under the purchase accounting method.
(b) Represents the issuance of shares of Bergen Common Stock as described in
adjustment (a) above.
(c) Represents the elimination of PharMerica's stockholders' equity balances.
(d) Represents the elimination of Bergen's accounts receivable and PharMerica's
related accounts payable at March 31, 1999.
(e) Represents the elimination of PharMerica's long-term deferred income tax
liability related to that portion of PharMerica's goodwill which is
deductible for federal income tax purposes.
(f) Represents the elimination of Bergen's sales to PharMerica and elimination
of PharMerica's related cost of sales for the six-month period ended March
31, 1999. The unrealized gross profit on Bergen's products remaining in
PharMerica's beginning and ending inventory was not material in that
period.
(g) Represents the estimated effect of increased goodwill amortization expense
of $1.4 million for the six-month period ended March 31, 1999 attributable
to additional goodwill recorded in the combination of Bergen and PharMerica
as described in adjustment (a) above over a 40-year amortization period.
(h) Represents the estimated effect of decreased interest expense attributable
to Bergen's assumption of PharMerica's borrowings under its credit facility
at an effective annual cost of 5.37% for the six months ended March 31,
1999. The effect of decreased interest expense on the remainder of
PharMerica's indebtedness assumed by Bergen in the Merger has not been
estimated because it is possible that Bergen may not refinance such
indebtedness.
(i) Represents an increase of $2.2 million related to the establishment of the
pro forma consolidated income tax provision for the six months ended March
31, 1999.
<PAGE>
Note 2. Reclassifications
Certain reclassifications have been made to the unaudited financial
statements of PharMerica to conform to the presentation expected to be used by
the combined companies.
Note 3. Exchange Ratio
Under the Merger Agreement, each outstanding share of PharMerica
Common Stock was converted into 0.275 of a share of Bergen Common Stock. This
exchange ratio was used in computing share and per share amounts in the
accompanying unaudited pro forma combined condensed financial statements.
Note 4. Effect of Special Credit
PharMerica's amounts for the six months ended March 31, 1999 include a
special credit for a gain on disposition of a business of $1.3 million.The
effect of this special credit on the unaudited pro forma condensed combined
results for the six months ended March 31, 1999 was to increase pro forma net
earnings by $0.8 million and increase pro forma diluted earnings per share by
$0.01 per share.
Note 5. Earnings per Share
The pro forma earnings per share reflects the weighted average number
of shares of Bergen Common Stock that would have been outstanding if the Merger
occurred at the beginning of the six-month period presented, based upon an
exchange ratio of 0.275 shares of Bergen Common Stock to be issued for each
share of PharMerica Common Stock outstanding, and the dilutive impact of stock
options and warrants using the treasury stock method. All PharMerica options and
warrants are assumed to be converted into options and warrants for shares of
Bergen Common Stock at the exchange ratio before application of the treasury
stock method.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BERGEN BRUNSWIG CORPORATION
(Registrant)
DATE: May 21, 1999
By: _____________________
Name: Neil F. Dimick
Title: Executive Vice President
and Chief Financial Officer
